TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 2511 20-0640002
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: The exchange will occur as soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: [ ]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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11% Senior Discount Notes due 2014.............. $124,807,000 $15,821.02
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(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THE PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 5, 2004
PROSPECTUS ,
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
$213,000,000
EXCHANGE OFFER FOR
11% SENIOR DISCOUNT NOTES DUE 2014
Offer for all outstanding 11% Senior Discount Notes due 2014 (which we refer to as the "Old Notes") in aggregate principal amount at maturity of $213,000,000 in exchange for up to $213,000,000 aggregate principal amount at maturity of 11% Senior Discount Notes due 2014 (which we refer to as the "New Notes") have been registered under the Securities Act of 1933, as amended.
MATERIAL TERMS OF EXCHANGE OFFER:
- This exchange offers expires at 5:00 p.m., New York City time on , 2004, unless we extend this date.
- We will not receive any proceeds from the exchange offer.
- We can amend or terminate the exchange offer.
MATERIAL TERMS OF NEW NOTES:
- The terms of the New Notes to be issued in the exchange offer are substantially identical to the currently outstanding notes, or Old Notes, except that the transfer restrictions and registration rights relating to the Old Notes will not apply to the New Notes.
- There is no existing public market for the Old Notes or the New Notes. However, you may trade the Old Notes and the New Notes in the PORTAL market.
FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE PARTICIPATING IN THIS EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE NEW NOTES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
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Forward-Looking Statements............ ii
Industry and Market Data.............. ii
Prospectus Summary.................... 1
Risk Factors.......................... 11
The Exchange Offer.................... 20
Transactions.......................... 29
Use of Proceeds....................... 30
Capitalization........................ 31
Selected Consolidated Financial and
Other Data.......................... 32
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 35
Business.............................. 46
Management............................ 60
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PAGE
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Security Ownership and Certain
Beneficial Owners................... 65
Certain Relationships and Related
Transactions........................ 67
Description of Other Indebtedness..... 68
Description of Exchange Notes......... 70
Certain United States Federal Income
Tax Considerations.................. 105
Legal Matters......................... 105
Experts............................... 105
Available Information................. 105
Index to Financial Statements......... F-1
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR 11% SENIOR DISCOUNT NOTES DUE 2014.
EACH BROKER-DEALER THAT RECEIVES NEW SECURITIES FOR ITS OWN ACCOUNT
PURSUANT TO THE EXCHANGE OFFER MUST ACKNOWLEDGE THAT IT WILL DELIVER A PROSPECTUS IN CONNECTION WITH ANY RESALE OF THESE NEW SECURITIES. BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, A BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT. THIS PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A BROKER-DEALER IN CONNECTION WITH RESALES OF NEW SECURITIES RECEIVED IN EXCHANGE FOR SECURITIES WHERE THOSE SECURITIES WERE ACQUIRED BY THIS BROKER-DEALER AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES. WE HAVE AGREED THAT, STARTING ON THE EXPIRATION DATE AND ENDING ON THE CLOSE OF BUSINESS 180 DAYS AFTER THE EXPIRATION DATE, WE WILL MAKE THIS PROSPECTUS AVAILABLE TO ANY BROKER-DEALER FOR USE IN CONNECTION WITH ANY SUCH RESALE.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included in this prospectus, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "should", "could", "expect", "intend", "estimate", "anticipate", "believe" or "continue", "plan", "potential", "predicts" or the negative thereof or variations thereon or similar terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by any forward-looking statements. These risks and uncertainties include, but are not limited to, the following:
- general economic and business conditions, both nationally and in those areas in which we operate;
- competition;
- changes in our business strategy or plans;
- changes in exchange rates;
- the loss of any of our management or key personnel;
- changes in our policy regarding interest rate and currency movements;
- the availability and cost of raw materials; and
- the availability of capital and trade credit to fund our business.
Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
Important factors that could cause actual results to differ materially from our expectations, or "cautionary statements," are disclosed under "Risk Factors" and elsewhere in this prospectus, including, without limitation, in conjunction with the forward-looking statements included in this prospectus. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. We are under no duty to update any of the forward-looking statements after the date of this prospectus to conform these statements to actual results.
INDUSTRY AND MARKET DATA
Industry and market data used throughout this prospectus were obtained through surveys and studies conducted by third parties, industry and general publications and internal company research. We have not independently verified market and industry data from third-party sources. We believe internal company estimates are reasonable and market definitions are appropriate. Neither such estimates nor these definitions have been verified by any independent sources.
PROSPECTUS SUMMARY
The following summary contains basic information about us and the prospectus. It likely does not contain all the information that is important to you. Because it is a summary, it does not contain all the information that you should consider before tendering your Old Notes. We encourage you to read this entire document and the documents we have referred you to. As used herein, "Town Sports," the "Company," "we," "us," and "our" refer to Town Sports International Holdings, Inc. ("TSI Holdings") and its subsidiaries and "TSI, Inc." refers to Town Sports International, Inc. TSI Holdings is a holding company with no material assets or operations other than its ownership of the common stock of TSI, Inc., and was formed to serve as the issuer of the Old Notes.
OUR COMPANY
We are one of the two leading owners and operators of fitness clubs in the Northeast and Mid-Atlantic regions of the United States and the third largest fitness club operator in the United States, as measured by number of clubs. As of December 31, 2003, we operated 129 clubs that collectively served approximately 342,000 members. Our goal is to provide the premier health club network in each of the major metropolitan regions we serve. To optimize convenience to our members, we cluster clubs near the highest concentrations of our target members' areas of both employment and residence. Our clusters of clubs serve densely populated major metropolitan regions in which a high percentage of the population commutes to work. Our target member is college-educated, typically between the ages of 21 and 50 and earns an annual income of between $50,000 and $150,000. Our revenues, operating income and cash flows from operations for the year ended December 31, 2003 were $342.5 million, $44.0 million and $58.3 million, respectively.
We are the largest fitness club operator in Manhattan with 36 locations (more than twice as large as our nearest competitor) and have a total of 86 clubs under the New York Sports Clubs ("NYSC") brand name within the New York metropolitan region. We operate 19 clubs in the Boston region and 15 clubs in the Washington, D.C. region under our Boston Sports Club ("BSC") and Washington Sports Club ("WSC") brand names, respectively, and have begun establishing a similar cluster in the Philadelphia region with six clubs under our Philadelphia Sports Club ("PSC") brand name. In addition, we operate three clubs in Switzerland. We employ localized brand names for our clubs to create an image and atmosphere consistent with the local community and to foster recognition as a local network of quality fitness clubs rather than a national chain.
Over our 30-year operating history, we have developed and refined a model club format that allows us to cost effectively construct and efficiently operate our fitness clubs. Our model club ranges in size from approximately 15,000 to 25,000 square feet and features a wide variety of state-of-the-art cardiovascular and strength-training equipment, as well as exercise studios offering extensive group fitness programs. Some clubs also feature additional amenities, including swimming pools, squash or tennis courts and physical therapy centers. Our locker rooms generally include a sauna and steam room. We offer members a variety of other value-added services for which we receive additional fees, including personal training, Group Exclusives, massage and Sports Club for Kids.
THE TRANSACTIONS
TSI Holdings was formed to serve as issuer of the Old Notes.
In connection with the issuance of the Old Notes we redeemed our preferred stock and paid a shareholder dividend to holders of our common stock.
We refer to these transactions, collectively, as the "transactions."
Our corporate structure immediately following the transactions is as follows:
[FLOW CHART]
Our company is incorporated under the laws of the State of Delaware. Our principal executive offices are located at 888 Seventh Avenue, New York, New York 10106. Our telephone number is (212) 246-6700. We maintain the following web site: www.mysportsclubs.com that provides information about club locations, program offerings and on-line promotions. Information contained on this web site, however, is not incorporated into or otherwise a part of this prospectus.
TSI, Inc. currently files periodic and other reports with the SEC. Information filed with the SEC is available on the SEC website at http://www.sec.gov. Such information, however, is not incorporated into or otherwise a part of this prospectus.
PURPOSE OF THE EXCHANGE OFFER
On February 4, 2004, we sold, through a private placement exempt from the registration requirements of the Securities Act, $213,000,000 of aggregate principal amount at maturity of our 11% Senior Discount Notes due 2014. We refer to these notes as "Old Notes" in this prospectus.
Simultaneously with the private placement, we entered into a registration rights agreement with the initial purchaser of the Old Notes. Under the registration rights agreement, we are required to use our best efforts to cause a registration statement for substantially identical Notes, which will be issued in exchange for the Old Notes, to become effective on or within 210 days of issuance of the Old Notes. We refer to the notes to be registered under this exchange offer registration statement as "New Notes" and collectively with the Old Notes, we refer to them as the "Notes" in this prospectus. You may exchange your Old Notes for New Notes in this exchange offer. You should read the discussion under the headings "-- Summary of the Exchange Offer," "The Exchange Offer" and "Description of the New Notes" for further information regarding the New Notes.
We did not register the Old Notes under the Securities Act or any state securities law, nor do we intend to after the exchange offer. As a result, the Old Notes may only be transferred in limited circumstances under the securities laws. If the holders of the Old Notes do not exchange their Old Notes in the exchange offer, they lose their right to have the Old Notes registered under the Securities Act, subject to certain limitations. Anyone who still holds Old Notes after the exchange offer may be unable to resell their Old Notes.
However, we believe that holders of the New Notes may resell the New Notes without complying with the registration and prospectus delivery provisions of the Securities Act, if they meet certain conditions. You should read the discussion under the headings "-- Summary of the Exchange Offer" and "The Exchange Offer" for further information regarding the exchange offer and resales of the New Notes.
SUMMARY OF THE EXCHANGE OFFER
THE INITIAL OFFERING OF OLD NOTES... We sold the Old Notes on January 28, 2004 to Deutsche Bank Securities. We refer to Deutsche Bank Securities in
this prospectus as the "initial
purchaser." The initial purchaser
subsequently resold the Old Notes to
(1) qualified institutional buyers
pursuant to Rule 144A under the
Securities Act and (2) outside the
United States in accordance with
Regulation S under the Securities Act.
REGISTRATION RIGHTS AGREEMENT....... Simultaneously with the initial sale
of the outstanding securities, we
entered into a registration rights
agreement for the exchange offer. In
the registration rights agreement, we
agreed, among other things, (i) to
file a registration statement with the
SEC as soon as practicable after the
issuance of the Old Notes, but in no
event later than 120 days after the
issuance of the Old Notes and (ii) to
use our reasonable best efforts to
cause such registration statement to
be declared effective by the SEC at
the earliest possible time, but in no
event later than 210 days after the
issuance of the Old Notes. We also
agreed to use our reasonable best
efforts to cause the exchange offer to
be consummated on the earliest
practicable day after the registration
statement is declared effective, but
in no event later than 30 days after
the exchange registration statement is
declared effective, unless required by
the Securities Act or the Exchange
Act. The exchange offer is intended to
satisfy our obligations under the
registration rights agreement. After
the exchange offer is complete, you
will no longer be entitled to any
exchange or registration rights with
respect to your Old Notes.
THE EXCHANGE OFFER.................. We are offering the exchange Notes,
which are being registered under the
Securities Act, in exchange for your
Old Notes. To be exchanged, an Old
Note must be properly tendered and
accepted. All Old Notes that are
validly tendered and not validly
withdrawn will be exchanged. We will
issue New Notes promptly after the
expiration of the exchange offer.
RESALES............................. We believe that the New Notes issued
in the exchange offer may be offered
for resale, resold and otherwise
transferred by you without compliance
with the registration and prospectus
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delivery provisions of the Securities
Act provided that:
- the New Notes are being
acquired in the ordinary course
of your business;
- you are not participating, do
not intend to participate, and
have no arrangement or
understanding with any person
to participate, in the
distribution of the New Notes
issued to you in the exchange
offer; and
- you are not an affiliate of
ours.
If any of these conditions are not
satisfied and you transfer any New
Notes issued to you in the exchange
offer without delivering a prospectus
meeting the requirements of the
Securities Act or without an exemption
from registration of your New Notes
from these requirements, you may incur
liability under the Securities Act. We
will not assume, nor will we indemnify
you against, any such liability.
Each broker-dealer that is issued New
Notes in the exchange offer for its
own account in exchange for Old Notes
that were acquired by that
broker-dealer as a result of
market-making or other trading
activities, must acknowledge that it
will deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resale of the New
Notes. A broker-dealer may use this
prospectus for an offer to resell,
resale or other retransfer of the New
Notes issued to it in the exchange
offer.
EXPIRATION DATE..................... The exchange offer will remain open
for at least 20 full business days and
will expire at 5:00 p.m., New York
City time, on , 2004, unless
we decide to extend the expiration
date.
CONDITIONS TO THE EXCHANGE OFFER.... The exchange offer is not subject to
any conditions other than that the
exchange offer not violate applicable
law or any applicable interpretation
of the staff of the SEC, that no
proceedings have been instituted or
threatened against us which would
impair our ability to proceed with the
exchange offer, and that we have
received all necessary governmental
approvals to proceed with the exchange
offer.
PROCEDURES FOR TENDERING OLD
NOTES............................... We issued the Old Notes as global
securities. When the Old Notes were
issued, we deposited the global
securities representing the Old Notes
with The Bank of New York, as
custodian for the Depository Trust
Company, known as DTC,
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acting as book-entry depositary. The
Bank of New York issued a
certificateless depositary interest in
each global security we deposited with
it, which together represent a 100%
interest in the Old Notes, to DTC.
Beneficial interests in the Old Notes,
which are held by direct or indirect
participants in DTC through the
certificateless depositary interests,
are shown on records maintained in
book-entry form by DTC.
You may tender your Old Notes through
book-entry transfer in accordance with
DTC's Automated Tender Offer Program,
known as ATOP. To tender your Old
Notes by a means other than book-entry
transfer, a letter of transmittal must
be completed and signed according to
the instructions contained in the
letter of transmittal. The letter of
transmittal and any other documents
required by the letter of transmittal
must be delivered to the exchange
agent by mail, facsimile, hand
delivery or overnight carrier. In
addition, you must deliver the Old
Notes to the exchange agent or comply
with the procedures for guaranteed
delivery. See "The Exchange
Offer -- Procedures for Tendering Old
Notes" for more information.
Do not send letters of transmittal and
certificates representing Old Notes to
us. Send these documents only to the
exchange agent. See "The Exchange
Offer -- Exchange Agent" for more
information.
SPECIAL PROCEDURES FOR BENEFICIAL
OWNERS.............................. If you are the beneficial owner of
book-entry interests and your name
does not appear on a security position
listing of DTC as the holder of the
book-entry interests or if you are a
beneficial owner of Old Notes that are
registered in the name of a broker,
dealer, commercial bank, trust company
or other nominee and you wish to
tender the book-entry interests or Old
Notes in the exchange offer, you
should contact the person in whose
name your book-entry interests or Old
Notes are registered promptly and
instruct that person to tender on your
behalf.
WITHDRAWAL RIGHTS................... You may withdraw the tender of your
Old Notes at any time prior to 5:00
p.m., New York City time on
, 2004, or a later time if
we choose to extend this exchange
offer. Any Old Notes not accepted by
us for exchange for any reason will be
returned to you at our expense
promptly after the expiration or
termination of the exchange offer.
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FEDERAL INCOME TAX CONSIDERATIONS... The exchange of Old Notes will not be
a taxable event for United States
federal income tax purposes. See
"Certain United States Federal Income
Tax Considerations."
USE OF PROCEEDS..................... We will not receive any proceeds from
the issuance of the New Notes pursuant
to the exchange offer. We will pay all
of our expenses incident to the
exchange offer.
EXCHANGE AGENT...................... The Bank of New York is serving as the
exchange agent in connection with the
exchange offer.
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THE NEW NOTES
The form and terms of the New Notes are the same as the form and terms of the Old Notes, except that the New Notes will be registered under the Securities Act. As a result, the New Notes will not bear legends restricting their transfer and will not contain the registration rights and liquidated damage provisions contained in the Old Notes. The New Notes represent the same debt as the Old Notes. The Old Notes and the New Notes are governed by the same indenture and are together considered a "series" of securities under that indenture.
Issuer........................ Town Sports International Holdings, Inc.
The New Notes................. $213,000,000 principal amount at maturity of
11.00% Senior Discount Notes due 2014.
Maturity...................... February 1, 2014.
Interest...................... Prior to February 1, 2009, interest will accrue
on the Notes in the form of an increase in the
accreted value of such Notes. Thereafter, cash
interest on the Notes will accrue and be
payable semiannually in arrears on February 1
and August 1 of each year, commencing on August
1, 2009, at a rate of 11% per annum. The Notes
will have an initial accreted value of $585.95
per $1,000 principal amount at maturity of
Notes. The accreted value of each Note will
increase from the date of issuance until
February 1, 2009 at a rate of 11% per annum
compounded semi-annually, reflecting the
accrual of non-cash interest, such that on
February 1, 2009 the accreted value will equal
the principal amount at maturity.
Original Issue Discount....... Because the Old Notes were issued at a
substantial discount from their principal
amount, the New Notes should be treated as
being issued with substantial original issue
discount for United States federal income tax
purposes. Thus, although cash interest will not
be payable on the Notes prior to August 1,
2009, interest will accrue from the issue date
of the Notes based on the yield to maturity of
the Notes and will generally be included as
interest income (including for periods ending
prior to February 1, 2009) for U.S. federal
income tax purposes in advance of receipt of
the cash payments to which income is
attributable. See "Certain United States
Federal Income Tax Considerations."
Denominations................. $1,000 minimum and $1,000 integral multiples
thereof.
Ranking....................... The Notes will be our unsecured senior
obligations and will rank senior to all of our
existing and future subordinated debt and pari
passu to all of our existing and future senior
debt. The Notes will effectively rank junior to
any of our secured debt to the extent of the
value of the assets securing that debt. The
Notes will be structurally subordinated and
effectively rank junior to any debt of TSI,
Inc. As of December 31, 2003, TSI, Inc. had
$261.9 million of debt outstanding, excluding
approximately $48.3 million that, subject to
certain limitations, we had available to borrow
under our senior secured revolving credit
facility.
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Optional Redemption........... We may redeem any of the Notes at any time on
or after February 1, 2009, in whole or in part,
in cash at the redemption prices described in
this prospectus, plus accrued and unpaid
interest and additional interest, if any, to
the date of redemption.
In addition, before February 1, 2007, we may
redeem up to 35% of the aggregate principal
amount at maturity of Notes with the net
proceeds of certain public equity offerings of
TSI Holdings. We may make that redemption only
if, after the redemption, at least 65% of the
aggregate principal amount of Notes remains
outstanding. See "Description of New
Notes -- Optional Redemption."
Change of Control............. Upon a change of control, we will be required
to make an offer to purchase each holder's
Notes at a price equal to 101% of the principal
amount at maturity thereof, plus accrued and
unpaid interest and additional interest, if
any, to the date of purchase. See "Description
of New Notes -- Repurchase at the Option of
Holders -- Change of Control."
Asset Sales................... We may have to use the net cash proceeds from
selling assets to offer to purchase your New
Notes at their face amount, plus accrued but
unpaid interest.
Covenants..................... The indenture governing the New Notes limits
what we (and most or all of our subsidiaries)
may do. The provisions of the indenture limits
our ability to:
- incur additional indebtedness;
- create certain liens;
- permit payment or dividend restrictions
on certain of our subsidiaries;
- pay dividends on, redeem or repurchase
our capital stock;
- make investments;
- sell assets;
- engage in transactions with affiliates;
and
- sell all or substantially all of our
assets or consolidate or merge with or
into other companies.
These covenants are subject to a number of
important exceptions.
Risk Factors.................. You should carefully consider all of the
information in this prospectus and, in
particular, you should evaluate the specific
risk factors set forth under "Risk Factors."
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For more complete information about the Notes, see the "Description of New Notes" section of this prospectus.
SUMMARY HISTORICAL AND OTHER CONSOLIDATED FINANCIAL DATA
Set forth below are the summary historical and other consolidated financial data as of December 31, 2002 and 2003 and for the years ended December 31, 2001, 2002 and 2003 of TSI, Inc. The consolidated statement of operations data, balance sheet data and other financial data for years ended December 31, 2001, 2002 and 2003 were derived from our audited consolidated financial statements included elsewhere in this offering memorandum. The club and membership data, for all periods presented, were derived from our unaudited books and records. The information contained in this table should be read in conjunction with "Selected Consolidated Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and accompanying notes thereto appearing elsewhere in this offering memorandum. All amounts are presented in thousands except club and membership data.
YEARS ENDED DECEMBER 31,
------------------------------
2001 2002 2003
-------- -------- --------
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $281,633 $319,427 $342,541
Operating expenses.......................................... 252,677 281,334 298,576
Operating income............................................ 28,956 38,093 43,965
Interest expense, net of interest income.................... 14,527 16,421 23,226
Income tax provision........................................ 6,853 9,709 5,537
Income from continuing operations........................... 7,576 11,963 7,429
Net income.................................................. 7,046 10,507 7,429
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AS OF DECEMBER 31,
-----------------------
2002 2003
------------ --------
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 5,551 $ 40,802
Total assets................................................ 314,250 362,199
Long-term debt and capital lease obligations, including
current installments...................................... 160,943 261,877
Redeemable senior preferred stock........................... 62,125 --
Series A redeemable preferred stock......................... 34,841 39,890
Series B preferred stock.................................... 303 9,961
Stockholders' deficit....................................... (31,740) (34,294)
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YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
OTHER DATA:
Non-cash rental lease expense, net
of non-cash income.............. $ 3,061 $ 2,976 $ 4,224 $ 1,670 $ 1,650
Cash provided by (used in):
Operating activities............ 29,496 40,573 44,348 50,805 58,253
Investing activities............ (55,078) (70,048) (58,358) (40,182) (42,734)
Financing activities............ 33,553 5,715 16,103 (10,530) 19,732
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YEARS ENDED DECEMBER 31,
----------------------------
2001 2002 2003
------- -------- -------
CLUB AND MEMBERSHIP DATA:
Total clubs operated at end of period(1).................... 119 129 129
Members at end of period(2)................................. 317,000 342,000 342,000
Mature club revenue increase(3)............................. 12.3% 4.1% 1.6%
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(1) Includes all clubs wholly-owned or partly-owned and managed. (We operate two partly-owned clubs under the Washington Sports Club brand name as of December 31, 2003).
(2) Represents members at clubs wholly-owned or partly-owned and managed.
(3) We define mature clubs as those clubs operated by us for more than 24 months.
RISK FACTORS
You should carefully consider the following risk factors as well as the other information and data included in this prospectus prior to making a decision on whether to exchange your Old Notes for New Notes. The risks described below are not the only risk facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. Any of the following risks could materially adversely affect our business, financial condition or results of operations. In such case, you may lose all or part of your original investment.
RISK FACTORS RELATED TO THE NEW NOTES
Because there is no public market for the New Notes, you may not be able to sell your New Notes.
The New Notes will be registered under the Securities Act, but will constitute a new issue of securities with no established trading market, and uncertainty exists with regard to:
- the liquidity of any trading market that may develop;
- the ability of holders to sell their New Notes; or
- the price at which the holders would be able to sell their New Notes.
If a trading market were to develop, the New Notes might trade at higher or lower prices than their principal amount or purchase price, depending on many factors, including prevailing interest rates, the market for similar securities and our financial performance.
We understand that the initial purchaser presently intends to make a market in the New Notes. However, it is not obligated to do so, and any market-making activity with respect to the New Notes may be discontinued at any time without notice. In addition, any market-making activity will be subject to the limits imposed by the Securities Act and the Exchange Act, and may be limited during the exchange offer or the pendency of an applicable shelf registration statement. An active trading market might not exist for the New Notes and any trading market that does develop might not be liquid.
In addition, any holder of Old Notes who tenders in the exchange offer for the purpose of participating in a distribution of the New Notes may be deemed to have received restricted securities, and if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction.
Your Old Notes will not be accepted for exchange if you fail to follow the exchange offer procedures.
We will issue New Notes pursuant to this exchange offer only after a timely receipt of your Old Notes, a properly completed and duly executed letter of transmittal and all other required documents. Therefore, if you want to tender your Old Notes, please allow sufficient time to ensure timely delivery. If we do not receive your Old Notes, letter of transmittal and other required documents by the expiration date of the exchange offer, we will not accept your Old Notes for exchange. We are under no duty to give notification of defects or irregularities with respect to the tenders of Old Notes for exchange. If there are defects or irregularities with respect to your tender of Old Notes, we will not accept your Old Notes for exchange.
If you do not exchange your Old Notes, your Old Notes will continue to be subject to the existing transfer restrictions and you may be unable to sell your Old Notes.
We did not register the Old Notes, nor do we intend to do so following the exchange offer. Old Notes that are not tendered will therefore continue to be subject to the existing transfer restrictions and may be transferred only in limited circumstances under the securities laws. If
you do not exchange your Old Notes, you will lose your right to have your Old Notes registered under the federal securities laws. As a result, if you hold Old Notes after the exchange offer, you may be unable to sell your Old Notes.
If a large number of outstanding Old Notes are exchanged for New Notes issued in the exchange offer, it may be difficult for holders of outstanding Old Notes that are not exchanged in the exchange offer to sell their Old Notes, since those Old Notes may not be offered or sold unless they are registered or there are exemptions from registration requirements under the Securities Act or state laws that apply to them. In addition, if there are only a small number of Old Notes outstanding, there may not be a very liquid market in those Old Notes. There may be few investors that will purchase unregistered securities in which there is not a liquid market.
If you exchange your Old Notes, you may not be able to resell the New Notes you receive in the exchange offer without registering them and delivering a prospectus.
You may not be able to resell New Notes you receive in the exchange offer without registering those New Notes or delivering a prospectus. Based on interpretations by the Commission in no-action letters, we believe, with respect to New Notes issued in the exchange offer, that:
- holders who are not "affiliates" of TSI Holdings, Inc. within the meaning of Rule 405 of the Securities Act;
- holders who acquire their New Notes in the ordinary course of business; and
- holders who do not engage in, intend to engage in, or have arrangements to participate in a distribution (within the meaning of the Securities Act) of the New Notes;
do not have to comply with the registration and prospectus delivery requirements of the Securities Act.
Holders described in the preceding sentence must tell us in writing at our request that they meet these criteria. Holders that do not meet these criteria could not rely on interpretations of the SEC in no-action letters, and would have to register the New Notes they receive in the exchange offer and deliver a prospectus for them. In addition, holders that are broker-dealers may be deemed "underwriters" within the meaning of the Securities Act in connection with any resale of New Notes acquired in the exchange offer. Holders that are broker-dealers must acknowledge that they acquired their outstanding New Notes in market-making activities or other trading activities and must deliver a prospectus when they resell Notes they acquire in the exchange offer in order not to be deemed an underwriter.
RISKS RELATED TO THE NOTES
Our substantial leverage may impair our financial condition and we may incur significant additional debt.
We currently have, and after the issuance of the Notes will have, a substantial amount of debt. As of December 31, 2003, after giving effect to this offering, our total consolidated debt would have been $386.7 million. See "Capitalization" for additional information.
Our substantial debt could have important consequences to you, including:
- making it more difficult for us to satisfy our obligations with respect to the Notes;
- increasing our vulnerability to general adverse economic and industry conditions;
- limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions of clubs and other general corporate requirements;
- requiring a substantial portion of our cash flow from operations for the payment of interest on our debt and reducing our ability to use our cash flow to fund working capital, capital expenditures, acquisitions of new clubs and general corporate requirements; and
- limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.
These limitations and consequences may place us at a competitive disadvantage to other less-leveraged competitors.
Subject to specified limitations, the indenture will permit us and our subsidiaries to incur substantial additional debt. In addition, as of December 31, 2003, subject to certain limitations, we were able to borrow up to $50.0 million (less any standby letter of credit issuances) under our senior secured revolving credit facility. If new debt is added to our and our subsidiaries' current debt levels, the related risks that we and they now face could intensify. See "Description of Other Indebtedness -- Senior Secured Revolving Credit Facility" for additional information.
Servicing our debt will require a significant amount of cash, and our ability to generate sufficient cash depends upon many factors, some of which are beyond our control.
Our ability to make payments on and refinance our debt and to fund planned capital expenditures depends on our ability to generate cash flow in the future. To some extent, this is subject to general economic, financial, competitive, legislative and regulatory factors and other factors that are beyond our control. We may be unable to continue to generate cash flow from operations at current levels. If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may have to refinance all or a portion of our existing debt or obtain additional financing. We cannot assure you that any refinancing of this kind would be possible or that any additional financing could be obtained. The inability to obtain additional financing could have a material adverse effect on our financial condition and on our ability to meet our obligations to you under the Notes.
TSI Holdings is the sole obligor under the Notes. Its subsidiaries, including TSI, Inc., do not guarantee TSI Holdings' obligations under the Notes and do not have any obligation with respect to the Notes; the Notes are structurally subordinated to the debt and liabilities of TSI Holdings' subsidiaries, including TSI, Inc. and are effectively subordinated to any of our future secured debt.
TSI Holdings has no operations of its own and derives all of its revenues and cash flow from its subsidiaries. TSI Holdings' subsidiaries are separate and distinct legal entities and have no obligation contingent or otherwise, to pay amounts due under the Notes or to make any funds available to pay those amounts, whether by dividend, distribution, loan or other payments.
The Notes are structurally subordinated to all debt and liabilities, including trade payables, of TSI Holdings' subsidiaries, including TSI, Inc. You are only entitled to participate with all other holders of the TSI Holdings' indebtedness and liabilities in the assets of the TSI Holdings' subsidiaries remaining after the TSI Holdings' subsidiaries have paid all of their debt and liabilities. TSI Holdings' subsidiaries may not have sufficient funds or assets to permit payments to TSI Holdings in amounts sufficient to permit TSI Holdings to pay all or any portion of its indebtedness and other obligations, including its obligations on the Notes. At December 31, 2003, the aggregate debt of TSI Holdings' subsidiaries equaled $261.9 million and the aggregate amount of trade payables, accrued liabilities and other balance sheet liabilities (other than debt) of TSI Holdings' subsidiaries equaled $58.0 million. In addition, on December 31, 2003, TSI, Inc. had $48.3 million of additional borrowings available under its $50.0 million credit facility after giving effect to $1.7 million of outstanding letters of credit.
The indenture governing TSI, Inc.'s existing senior notes and TSI, Inc.'s credit facility permit us and/or our subsidiaries to incur additional indebtedness, including secured indebtedness, under certain circumstances. See "Description of Other Indebtedness." If we incur any secured debt in the future, holders of such secured debt will have claims that are prior to your claims as holders of the Notes to the extent of the value of the assets securing that other debt. In the event of a bankruptcy, liquidation or reorganization or similar proceeding relating to us, holders of secured debt will have a prior claim to the assets that constitute their collateral.
TSI Holdings may not have access to the cash flow and other assets of its subsidiaries that may be needed to make payments on the Notes.
TSI Holdings' operations are conducted through its subsidiaries and its ability to make payment on the Notes is dependent on the earnings and the distribution of funds from its subsidiaries. However, none of its subsidiaries is obligated to make funds available to TSI Holdings for payment on the Notes. In addition, the terms of the indenture governing TSI, Inc.'s existing senior notes and of TSI, Inc.'s credit facility significantly restrict TSI, Inc. and its subsidiaries from paying dividends and otherwise transferring assets to TSI Holdings. Furthermore, TSI Holdings' subsidiaries are permitted under the terms of TSI, Inc.'s credit facility and other indebtedness (including under the indenture) to incur additional indebtedness that may severely restrict or prohibit the making of distributions, the payment of dividends or the making of loans by such subsidiaries to TSI Holdings.
We cannot assure you that the agreements governing the current and future indebtedness of TSI Holdings' subsidiaries will permit TSI Holdings' subsidiaries to provide TSI, Inc. with sufficient dividends, distributions or loans to fund scheduled interest and principal payments on the Notes when due. See "Description of Indebtedness."
Original Issue Discount -- You will be required to include original issue discount in your gross income for federal income tax purposes.
The Notes were issued at a substantial discount from their principal amount at maturity. Although cash interest will not accrue on the Notes prior to February 1, 2009, original issue discount (the difference between the stated redemption price at maturity and the issue price of the Notes) will accrue from the issue date of the Notes. Consequently, a holder of a Note will have income for tax purposes arising from such original issue discount prior to the receipt of cash in respect of such income. See "Certain U.S. Federal Income Tax Considerations."
If a bankruptcy case is commenced by or against TSI Holdings under the United States Bankruptcy Code, the claim of a holder of any of the Notes with respect to the principal amount thereof may be limited to an amount equal to the sum of:
- The initial offering price allocable to the Notes;
- That portion of the original issue discount which is not deemed to constitute "unmatured interest" for purposes of the Bankruptcy Code; and
- Any original issue discount that was not amortized as of any such bankruptcy filing would constitute "unmatured interest."
Covenant restrictions under our indebtedness may limit our ability to operate our business and, in such an event, we may not have sufficient assets to pay amounts due to you on the Notes.
The indenture governing the Notes and certain of our other agreements regarding our indebtedness will contain, among other things, covenants that may restrict our ability to finance future operations or capital needs or to engage in other business activities. The indenture and
certain of our other agreements regarding our indebtedness will restrict, among other things, our ability and the ability of our restricted subsidiaries to:
- borrow money;
- pay dividends or make distributions;
- purchase or redeem stock;
- make investments and extend credit;
- engage in transactions with affiliates;
- engage in sale-leaseback transactions;
- consummate certain asset sales;
- effect a consolidation or merger or sell, transfer, lease or otherwise dispose of all or substantially all of our assets; and
- create liens on our assets.
In addition, our senior secured revolving credit facility requires us to maintain specified financial ratios and satisfy certain financial condition tests that may require that we take action to reduce our debt or to act in a manner contrary to our business objectives. Events beyond our control, including changes in general economic and business conditions, may affect our ability to meet those financial ratios and financial condition tests. We may be unable to meet those tests or that the lenders will waive any failure to meet those tests. A breach of any of these covenants would result in a default under the indenture, our senior secured revolving credit facility and the indenture governing the senior notes issued by TSI, Inc. If an event of default under our senior secured revolving credit facility occurs, the lenders could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. If an event of default occurs under the indenture governing the senior notes issued by TSI, Inc., the noteholders could elect to declare due all amounts outstanding thereunder, together with accrued interest. If any such event should occur, we might not have sufficient assets to pay amounts due on the Notes. As a result, you may receive less than the full amount you would be otherwise entitled to receive on the Notes. See "Description of Other Indebtedness--Senior Secured Revolving Credit Facility" and "Description of Notes" for additional information.
We may not have the ability to raise the funds necessary to finance the change of control offer required by the indenture.
Upon a change of control, subject to certain conditions, we are required to offer to repurchase all outstanding Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase.
The source of funds for that purchase of Notes will be our available cash or cash generated from our subsidiaries' operations or other sources, including borrowing, sales of assets or sales of equity. There might not be sufficient funds available at the time of any change of control to make required repurchases of Notes tendered. In addition, the terms of our senior secured revolving credit facility limit our ability to purchase your Notes. Our future debt agreements may contain similar restrictions and provisions. If the holders of the Notes exercise their right to require us to repurchase all of the Notes upon a change of control, the financial effect of this repurchase could cause a default under our other indebtedness, even if the change of control itself would not cause a default. Accordingly, it is possible that we will not have sufficient funds at the time of the change of control to make the required repurchase of Notes or that restrictions in the indenture, our senior secured revolving credit facility and the indenture governing the senior notes issued by TSI, Inc. will not allow such repurchases. See "Description of Notes--Change of Control" and "Description of Other Indebtedness--Senior Secured Revolving Credit Facility" for additional information.
Federal and state statutes allow courts, under specific circumstances, to void the Notes and require noteholders to return payments received from us.
Under the federal bankruptcy laws and comparable provisions of state fraudulent transfer laws, the Notes could be voided, or claims in respect of the Notes could be subordinated to all of our other debts if, among other things, we, at the time we incurred the indebtedness evidenced by the Notes:
- were insolvent or rendered insolvent by reason of such indebtedness; or
- were engaged in a business or transaction for which our remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that we would incur, debts beyond our ability to pay such debts as they mature.
In addition, any payment by us pursuant to the Notes could be voided and required to be returned to us, or to a fund for the benefit of our creditors.
The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, we would be considered insolvent if:
- the sum of our debts, including contingent liabilities, were greater than the fair saleable value of all our assets, or
- if the present fair saleable value of our assets were less than the amount that would be required to pay our probable liability on existing debts, including contingent liabilities, as they become absolute and mature, or
- we could not pay our debts as they become due.
On the basis of historical financial information, recent operating history and other factors, we believe that we, after giving effect to the indebtedness incurred in the offering and the application of the proceeds therefrom, will not be insolvent, will not have unreasonably small capital for the business in which we are engaged and will not have incurred debts beyond our ability to pay such debts as they mature. There can be no assurance, however, as to what standard a court would apply in making such determinations or that a court would agree with our conclusions in this regard.
RISK FACTORS RELATED TO THE COMPANY
We may experience losses in our recently opened greenfield clubs.
We have opened a total of 11 new club locations that we have constructed (or greenfield clubs) in the last 24 months. Upon opening a greenfield club, we typically experience an initial period of club operating losses. Although we often pre-sell memberships, such enrollment typically generates insufficient revenue for the club to generate positive cash flow. As a result, a greenfield club typically generates an operating loss in its first full year of operation and substantially lower margins in its second full year of operations than a mature club. These operating losses and lower margins will negatively impact our future results of operations. This negative impact will be increased by the initial expensing of pre-opening costs which include legal and other costs associated with lease negotiations and permitting and zoning requirements, as well as increased depreciation and amortization expenses, which will further negatively impact net income. A greenfield club typically reaches mature membership levels in three to four years. We may, at our discretion, accelerate or expand our plans to open new greenfield clubs, which may adversely affect results from operations temporarily.
Our inability to acquire additional capital on acceptable terms to finance future expansion would adversely impact our competitive position.
The opening of greenfield clubs and the acquisition of existing clubs requires considerable capital. Any material acceleration or expansion of that plan through additional greenfields or acquisitions, to the extent such acquisitions include cash payments, may require us to pursue additional sources of financing. We cannot assure you that financing will be available or that it will be available on acceptable terms. The inability to finance accelerated expansion on acceptable terms may negatively impact our competitive position and/or materially adversely affect our business, results of operations or financial condition.
We may be unable to attract and retain members, which could have a negative effect on our business.
The performance of our clubs is dependent on our ability to attract and retain members, and we cannot assure you that we will be successful in these efforts, or that the membership levels at our clubs will not materially decline. Most of our members can cancel their club membership at any time upon 30 days notice. In addition, there are numerous factors that could lead to a decline in membership levels at established clubs or that could prevent us from increasing our membership at newer clubs, including harm to our reputation, a decline in our ability to deliver quality service at a competitive cost, the presence of direct and indirect competition in the areas in which the clubs are located, the public's interest in sports and fitness clubs and general economic conditions. As a result of these factors, membership levels might not be adequate to maintain or permit the expansion of our operations. In addition, a decline in membership levels may have a material adverse effect on our performance, financial condition and results of operations.
Our geographic concentration heightens our exposure to adverse regional developments.
As of December 31, 2003, we operated 86 fitness clubs in the New York metropolitan market, 19 fitness clubs in the Boston market, 15 fitness clubs in the Washington, D.C. market, six fitness clubs in the Philadelphia market and three fitness clubs in Switzerland. Our geographic concentration in the Northeast and Mid-Atlantic regions and, in particular, the New York area, heightens our exposure to adverse developments related to competition, as well as, economic and demographic changes in these regions. In Manhattan we have experienced a 0.8% decline in our mature club revenue and a similar decline in mature club memberships during the year ended December 31, 2003, each of which we attribute to the general economic conditions in the markets we serve as well as to the continuing effects of the events of September 11, 2001. Our geographic concentration might result in a material adverse effect on our business, financial condition or results of operations in the future.
The high level of competition in the fitness club industry could make it difficult for us to generate sufficient cash flow to service our debt.
The fitness club industry is highly competitive. We compete with other
fitness clubs, physical fitness and recreational facilities established by local
governments, hospitals and businesses for their employees, amenity and
condominium clubs, the YMCA and similar organizations and, to a certain extent,
with racquet and tennis and other athletic clubs, country clubs, weight reducing
salons and the home-use fitness equipment industry. We also compete with other
entertainment and retail businesses for the discretionary income of our target
markets. We might not be able to compete effectively in the future in the
markets in which we operate. Competitors, which may include companies that are
larger and have greater resources than us, may enter these markets to our
detriment. These competitive conditions may limit our ability to increase dues
without a material loss in membership, attract new members and attract and
retain qualified personnel. Additionally, consolidation in the fitness club
industry could result
in increased competition among participants, particularly large multi-facility operators that are able to compete for attractive acquisition candidates or greenfield locations, thereby increasing costs associated with expansion through both acquisitions, and lease negotiation and real estate availability for greenfields. See "Business--Competition."
We could be subject to claims related to health or safety risks at our clubs.
Use of our clubs poses some potential health or safety risks to members or guests through exertion and use of our services and facilities including exercise equipment. Claims against us for death or injury suffered by members or their guests while exercising at a club might be asserted. We might not be able to successfully defend such claim. Additionally, we might not be able to maintain our general liability insurance on acceptable terms in the future or that such insurance will provide adequate coverage against potential claims. A claim has been filed against us by an individual for injuries sustained at one of our club locations for two billion dollars in damages for personal injuries. "Business -- Legal Proceedings."
Loss of key personnel and/or failure to attract and retain highly qualified personnel could make it more difficult for us to generate cash flow from operations and service our debt.
We are dependent on the continued services of our senior management team, particularly Mark Smith, Chairman; Robert Giardina, Chief Executive Officer; Richard Pyle, Chief Financial Officer; Alexander Alimanestianu, Chief Development Officer and Randy Stephen, Chief Operating Officer. We believe the loss of such key personnel could have a material adverse effect on us and our financial performance. Currently, we do not have any long-term employment agreements with our executive officers, and we may not be able to attract and retain sufficient qualified personnel to meet our business needs. See "Management -- Directors and Executive Officers."
The interests of our controlling shareholder may be in conflict with your interests as a holder of Notes.
Bruckmann, Rosser, Sherrill & Co., L.P. and certain of its affiliates (collectively "BRS") own approximately 36.6% of our common stock on a fully diluted basis and has the ability to elect a majority of the board of directors and generally to control the affairs and policies of our company. Circumstances may occur in which the interests of BRS, as our shareholder, in pursuing acquisitions or otherwise, could be in conflict with the interests of the holders of the Notes. See "Security Ownership and Certain Beneficial Owners" and "Certain Relationships and Related Transactions."
We are subject to extensive government regulation and changes in these regulations could have a negative effect on our financial condition.
Our operations and business practices are subject to federal, state and local government regulation in the various jurisdictions in which our clubs are located, including: (1) general rules and regulations of the Federal Trade Commission, state and local consumer protection agencies and state statutes that prescribe certain forms and provisions of membership contracts and that govern the advertising, sale, financing and collection of such memberships, (2) state and local health regulations, (3) federal regulation of health and nutritional supplements, and (4) regulation of rehabilitation service providers. Although we are not aware of any proposed changes in any statutes, rules or regulations, any changes in such laws could have a material adverse effect on our financial condition and results of operations. See "Business -- Government Regulation."
The occurrence of extraordinary events, such as war in Iraq or elsewhere may increase the likelihood of a major terrorist attack in the United States, which may adversely affect our clubs, resulting in a decrease in our revenues.
The United States is currently engaged in a military action in Iraq. Such military action may increase the likelihood of another major terrorist attack in the United States. Our geographic concentration in the major cities in the Northeast and Mid-Atlantic regions and, in particular, the New York and Washington, D.C. areas, heightens our exposure to such future terrorist attacks, which may adversely affect our clubs and result in a decrease in our revenues. Future terrorist attacks cannot be predicted, and their occurrence can be expected to further negatively affect the United States economy generally, and specifically the regional markets in which we operate.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
Simultaneously with the sale of the Old Notes, we entered into a registration rights agreement with Deutsche Bank. In the registration rights agreement, we agreed, among other things, (i) to file a registration statement with the SEC as soon as practicable after the issuance of the Old Notes, but in no event later than 120 days after the issuance of the Old Notes and (ii) to use our reasonable best efforts to cause such registration statement to be declared effective by the SEC at the earliest possible time, but in no event later than 210 days after the issuance of the Old Notes. We also agreed to use our best efforts to cause the exchange offer to be consummated on the earliest practicable day after the registration statement is declared effective, but in no event later than 30 days after the exchange registration statement is declared effective, unless required by the Securities Act or the Exchange Act. A copy of the registration rights agreement has been filed as an exhibit herewith.
We are conducting the exchange offer to satisfy our contractual obligations under the registration rights agreement. The form and terms of the New Notes are the same as the form and terms of the Old Notes, except that the New Notes will be registered under the Securities Act, and holders of the New Notes will not be entitled to the payment of any additional amounts pursuant to the terms of the registration rights agreement, as described below.
The registration rights agreements provides that, promptly after the registration statement has been declared effective, we will offer to holders of the Old Notes the opportunity to exchange their existing Notes for New Notes having a principal amount, interest rate, maturity date and other terms substantially identical to the principal amount, interest rate, maturity date and other terms of their Old Notes. We will keep the exchange offer open for at least 30 days (or longer if we are required to by applicable law) after the date notice of the exchange offer is mailed to the holders of the Old Notes and use our reasonable best efforts to complete the exchange offer no later than 30 days after the exchange registration statement is declared effective. The New Notes will be accepted for clearance through the DTC, Clearstream, Luxembourg and the Euroclear System with a new CUSIP and ISIN number and common code. All of the documentation prepared in connection with the exchange offer will be made available at the offices of The Bank of New York, our exchange agent.
Based on existing interpretations of the Securities Act by the staff of the SEC, we believe that the holders of the New Notes (other than holders who are broker-dealers) may freely offer, sell and transfer the New Notes. However, holders of Old Notes who are our affiliates, who intend to participate in the exchange offer for the purpose of distributing the New Notes, or who are broker-dealers who purchased the Old Notes from us for resale, may not freely offer, sell or transfer the Old Notes, may not participate in the exchange offer and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any offer, sale or transfer of Old Notes.
Each holder of Old Notes who is eligible to and wishes to participate in the exchange offer will be required to represent that it is not our affiliate, that it is not a broker-dealer tendering securities directly acquired from us for its own account and that it acquired the Old Notes and will acquire the New Notes in the ordinary course of its business and that it has no arrangement with any person to participate in the distribution of the New Notes. In addition, any broker-dealer who acquired the Old Notes for its own account as a result of market-making or other trading activities must deliver a prospectus (which may be the prospectus contained in the registration statement if the broker-dealer is not reselling an unsold allotment of Old Notes) meeting the requirements of the Securities Act in connection with any resales of the New Notes. We will agree to provide sufficient copies of the latest version of such prospectus to such broker-dealers, if subject to similar prospectus delivery requirements for a period ending
on the earlier of (i) 180 days from the date on which the exchange offer is consummated (ii) the date on which a broker-dealer is no longer required to deliver a prospectus in connection with market-making or other trading activities.
If,
(i) we are not permitted to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy; or
(ii) any Holder of Transfer Restricted Securities notifies us prior to the 20th day following consummation of the exchange offer that (a) it is prohibited by law or Commission policy from participating in the Exchange Offer; (b) that it may not resell the New Notes acquired by it in the exchange offer to the public without delivering a prospectus and this prospectus is not appropriate or available for such resales; or (c) that it is a broker-dealer and owns Old Notes acquired directly from the Issuer or an affiliate of the Issuer,
then we shall promptly deliver to the holders and the trustee written notice thereof, or give notice and shall file a shelf registration covering the resale of the affected securities within 120 days after the shelf notice is given to the holders and shall use our reasonable best efforts to cause the shelf registration to be effective under the Securities Act on or prior to the 210th day after the shelf notice is given.
We will use our reasonable best efforts to keep effective the shelf registration statement until the earlier of (i) two years following the effective date of the initial shelf registration statement or (ii) the time when all of the securities have been sold thereunder or are no longer restricted securities.
In the event that a shelf registration statement is filed, we will provide to each affected holder copies of the prospectus that is a part of the shelf registration statement, notify each affected holder when the shelf registration statement has become effective and take certain other actions as are required to permit unrestricted resales of the securities. A holder that sells securities pursuant to the shelf registration statement will be required to be named as a selling security holder in the prospectus and to deliver a prospectus to purchasers. A selling holder will also be subject to certain of the civil liability provisions under the Securities Act in connection with sales and will be bound by the provisions of the registration rights agreement that are applicable to it, including certain indemnification rights and obligations.
If we are permitted under SEC rules to conduct the exchange offer and we have not filed an exchange offer registration statement or a shelf registration statement by a specified date, if the exchange offer registration statement or the shelf registration statement is not declared effective by a specified date, or if either we have not consummated the exchange offer within a specified period of time or, if applicable, we do not keep the shelf registration statement effective from a specified period of time, then, in addition to the interest otherwise payable on the Notes, the interest that is accrued and payable on the principal amount of the Old Notes will increase at a rate of 0.25% per annum with respect to each subsequent 90-day period until the requirement is satisfied, up to a additional maximum amount of interest of 1.0% per annum. Upon the filing of the registration statement, the effectiveness of the exchange offer registration statement, the consummation of the exchange offer or the effectiveness of the shelf registration statement, as the case may be, the additional interest will cease to accrue from the date of filing, effectiveness or consummation, as the case may be.
If a registration statement is declared effective and we fail to keep it continuously effective or useable for resales for the period required by the registration rights agreement, then from the day that the registration statement ceases to be effective until the earlier of the date that the registration statement is again deemed effective or is useable, the date that is the second anniversary of our issuance of these securities (or, if Rule 144(k) under the Securities Act is
amended to provide a shorter restrictive period, the shorter period) or the date as of which all of the applicable securities are sold pursuant to the shelf registration statement, the interest that is accrued and payable on the principal amount of the existing Notes will increase at a rate of 0.25% per annum with respect to each subsequent 90-day period until the requirement is satisfied, up to a maximum amount of additional interest of 1.0% per annum.
Any additional amounts will be payable in cash on February 1 and August 1 of each year to the holders of record on the preceding February 1 and August 1, respectively.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, we will accept any and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer. We will issue $1,000 principal amount of New Notes in exchange for each $1,000 principal amount of Old Notes accepted in the exchange offer. Holders may tender some or all of their Old Notes pursuant to the exchange offer. However, Old Notes may be tendered only in integral multiples of $1,000.
The form and terms of the New Notes are the same as the form and terms of the existing Notes except that:
(i) the New Notes bear a series B designation and a different CUSIP number from the Old Notes;
(ii) the New Notes have been registered under the Securities Act and will therefore not bear legends restricting their transfer; and
(iii) the holders of the New Notes will be deemed to have agreed to be bound by the provisions of the registration rights agreement and each security will bear a legend to that effect.
The New Notes will evidence the same debt as the outstanding securities and will be entitled to the benefits of the indenture.
Holders of Old Notes do not have any appraisal or dissenters' rights under the Delaware General Corporations Law, or the indenture in connection with the exchange offer. We intend to conduct the exchange offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the SEC.
We will be deemed to have accepted validly tendered Old Notes when, as and if we have given oral or written notice of our acceptance to the exchange agent. The exchange agent will act as agent for the tendering holders for the purpose of receiving the New Notes from us.
If any tendered Old Notes are not accepted for exchange because of an invalid tender, the occurrence of specified other events set forth in this prospectus or otherwise, the certificates for any unaccepted Old Notes will be returned, without expense, to the tendering holder as promptly as practicable after the expiration date of the exchange offer.
Holders who tender Old Notes in the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of Old Notes pursuant to the exchange offer. We will pay all charges and expenses, other than transfer taxes in certain circumstances, in connection with the exchange offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will remain open for at least 20 full business days. The
term "expiration date" will mean 5:00 p.m., New York City time, on ,
2004, unless we, in our sole
discretion, extend the exchange offer, in which case the term "expiration date" will mean the latest date and time to which the exchange offer is extended.
To extend the exchange offer, prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date, we will:
(1) notify the exchange agent of any extension by oral notice (promptly confirmed in writing) or written notice, and
(2) mail to the registered holders an announcement of any extension.
We reserve the right, in our sole discretion,
(1) if any of the conditions below under the heading "-- Conditions" shall have not been satisfied,
(A) to delay accepting any Old Notes,
(B) to extend the exchange offer, or
(C) to terminate the exchange offer, or
(2) to amend the terms of the exchange offer in any manner.
Any delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice to the registered holders. We will give oral notice (promptly confirmed in writing) or written notice of any delay, extension or termination to the exchange agent.
PROCEDURES FOR TENDERING OLD NOTES
Only a holder of Old Notes may tender Old Notes in the exchange offer. To tender in the exchange offer, a holder must:
- complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal;
- have the signatures on the letter of transmittal guaranteed if required by the letter of transmittal or transmit an agent's message in connection with a book-entry transfer; and
- mail or otherwise deliver the letter of transmittal or the facsimile, together with the Old Notes and any other required documents, to be received by the exchange agent prior to 5:00 p.m., New York City time, on the expiration date.
To tender Old Notes effectively, the holder must complete a letter of transmittal or an agent's message and other required documents and the exchange agent must receive all the documents prior to 5:00 p.m., New York City time, on the expiration date. Delivery of the Old Notes shall be made by book-entry transfer in accordance with the procedures described below. Confirmation of the book-entry transfer must be received by the exchange agent prior to the expiration date.
The term "agent's message" means a message, transmitted by a book-entry transfer facility to, and received by, the exchange agent forming a part of a confirmation of a book-entry, which states that the book-entry transfer facility has received an express acknowledgment from the participant in the book-entry transfer facility tendering the outstanding securities that the participant has received and agrees:
(1) to participate in ATOP;
(2) to be bound by the terms of the letter of transmittal; and
(3) that we may enforce the agreement against the participant.
By executing the letter of transmittal, each holder will make to us the representations set forth above in the fifth paragraph under the heading See "-- Purpose of the Exchange Offer."
The tender by a holder and the acceptance of the tender by us will constitute agreement between the holder and us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal or agent's message.
The method of delivery of the existing Notes and the letter of transmittal or agent's message and all other required documents to the exchange agent is that the election and sole risk of the holder. As an alternative to delivery by mail, holders may wish to consider overnight or hand delivery service. In all cases, sufficient time should be allowed to assure delivery to the exchange agent before the expiration date. No letter of transmittal or Old Notes should be sent to us. Holders may request their respective brokers, dealers, commercial banks, trust companies or nominees to effect the above transactions for them.
Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct the registered holder to tender on the beneficial owner's behalf. See "Instructions to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner" included with the letter of transmittal.
An institution that is a member firm of the Medallion system must guarantee signatures on a letter of transmittal or a notice of withdrawal unless the Old Notes are tendered:
(1) by a registered holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" on the letter of transmittal; or
(2) for the account of a member firm of the Medallion system.
If the letter of transmittal is signed by a person other than the registered holder of any existing Notes listed in that letter of transmittal, the Old Notes must be endorsed or accompanied by a properly completed bond power, signed by the registered holder as the registered holder's name appears on the Old Notes. An institution that is a member firm of the Medallion System must guarantee the signature.
If the letter of transmittal or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, offices of corporations or others acting in a fiduciary or representative capacity, the person signing should so indicate when signing, and evidence satisfactory to us of its authority to so act must be submitted with the letter of transmittal.
We understand that the exchange agent will make a request promptly after the date of this prospectus to establish accounts with respect to the outstanding securities at DTC for the purpose of facilitating the exchange offer, and subject to the establishment of this account, any financial institution that is a participant in DTC's system may make book-entry delivery of outstanding securities by causing DTC to transfer the Old Notes into the exchange agent's account with respect to the Old Notes in accordance with DTC's procedures for the transfer. Although delivery of the Old Notes may be effected through book-entry transfer into the exchange agent's account at DTC, unless an agent's message is received by the exchange agent in compliance with ATOP, an appropriate letter of transmittal properly completed and duly executed with any required signature guarantee and all other required documents must in each case be transmitted to and received or confirmed by the exchange agent at its address set forth below on or prior to the expiration date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under the procedures. Delivery of documents to DTC does not constitute delivery to the exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by us in our sole
discretion, which determination will be final and binding. We reserve the absolute right to reject any and all Old Notes not properly tendered or any existing Notes our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right in our sole discretion to waive any defects, irregularities or conditions of tender as to particular Old Notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within the time we determine. Although we intend to notify holders of defects or irregularities with respect to tenders of Old Notes, neither we, the exchange agent nor any other person will incur any liability for failure to give the notification. Tenders of Old Notes will not be deemed to have been made until the defects or irregularities have been cured or waived. Any Old Notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the exchange agent to the tendering holders, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their outstanding securities and:
(1) whose Old Notes are not immediately available;
(2) who cannot deliver their Old Notes, the letter of transmittal or any other required documents to the exchange agent; or
(3) who cannot complete the procedures for book-entry transfer, prior to the expiration date, may effect a tender if:
1. they tender through an institution that is a member firm of the Medallion System;
2. prior to the expiration date, the exchange agent receives from an institution that is a member firm of the Medallion System a properly completed and duly executed notice of guaranteed delivery by facsimile transmission, mail or hand delivery setting forth the name and address of the holder, the certificate number(s) of the Old Notes and the principal amount of Old Notes tendered, stating that the tender is being made and guaranteeing that, within three New York Stock Exchange trading days after the expiration date, the letter of transmittal or facsimile thereof together with the certificate(s) representing the Old Notes or a confirmation of book-entry transfer of the Old Notes into the exchange agent's account at DTC, and any other documents required by the letter of transmittal will be deposited by the member firm of the Medallion System with the exchange agent; and
3. the exchange agent receives
(A) such properly completed and executed letter of transmittal or facsimile of the letter of transmittal,
(B) the certificate(s) representing all tendered Old Notes in proper form for transfer or a confirmation of book-entry transfer of the Old Notes into the exchange agent's account at DTC, and
(C) all other documents required by the letter of transmittal
upon three New York Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, we will send a notice of guaranteed delivery to holders who wish to tender their Old Notes according to the guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders may withdraw tenders of Old Notes at any time prior to 5:00 p.m., New York City time, on the expiration date. To withdraw a tender of Old Notes in the exchange offer, the exchange agent must receive a letter or facsimile transmission notice of withdrawal at its address set forth in this prospectus prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer. Any notice of withdrawal must:
(1) specify the name of the person having deposited the Old Notes to be withdrawn;
(2) identify the Old Notes to be withdrawn, including the certificate number(s) and principal amount of the Old Notes, or, in the case of Old Notes transferred by book-entry transfer, the name and number of the account at DTC to be credited;
(3) be signed by the holder in the same manner as the original signature on the letter of transmittal by which the Old Notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer sufficient to have the trustee with respect to the Old Notes register the transfer of the Old Notes into the name of the person withdrawing the tender; and
(4) specify the name in which any Old Notes are to be registered, if different from that of the person depositing the Old Notes to be withdrawn.
We will determine all questions as to the validity, form and eligibility, including time of receipt, of such notices. Our determination will be final and binding on all parties. We will not deem Old Notes so withdrawn to have been validly tendered for purposes of the exchange offer. We will not issue New Notes for withdrawn Old Notes unless you validly retender the withdrawn Old Notes. We will return any Old Notes which have been tendered but which are not accepted for exchange to the holder of the Old Notes at our cost as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. You may retender properly withdrawn Old Notes by following one of the procedures described above under "-- Procedures for Tendering Old Notes" at any time prior to the expiration date.
CONDITIONS
Notwithstanding any other term of the exchange offer, we will not be required to accept for exchange, or issue New Notes for, any Old Notes, and may terminate or amend the exchange offer as provided in this prospectus before the acceptance of the Old Notes, if:
(1) any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the exchange offer which, in our sole judgment, might materially impair our ability to proceed with the exchange offer or any development has occurred in any existing action or proceeding which may be harmful to us or any of our subsidiaries; or
(2) the exchange offer violates any applicable law or any applicable interpretation by the staff of the SEC; or
(3) any governmental approval has not been obtained, which we believe, in our sole discretion, is necessary for the consummation of the exchange offer as outlined in this prospectus.
If we determine in our sole discretion that any of the conditions are not satisfied, we may
(1) refuse to accept any Old Notes and return all tendered Old Notes to the tendering holders;
(2) extend the exchange offer and retain all Old Notes tendered prior to the expiration of the exchange offer, subject, however, to the rights of holders to withdraw their Old Notes (see "-- Withdrawal of Tenders"; or
(3) waive the unsatisfied conditions with respect to the exchange offer and accept all properly tendered Old Notes that have not been withdrawn.
EXCHANGE AGENT
The Bank of New York has been appointed as the exchange agent for the exchange offer. You should direct all
- executed letters of transmittal,
- questions,
- requests for assistance,
- requests for additional copies of this prospectus or of the letter of transmittal, and
- requests for Notices of Guaranteed Delivery,
to the exchange agent at the following address:
THE BANK OF NEW YORK
BY OVERNIGHT COURIER OR
BY FACSIMILE: BY HAND: REGISTERED/CERTIFIED MAIL:
------------- ----------------------------- -----------------------------
(212) 298-1915 Attention: 101 Barclay Street, 7 East 101 Barclay Street, 7 East
Customer Service New York, New York 10286 New York, New York 10286
Attention: Corporate Trust Attention: Corporate Trust
Operations Reorganization Operations Reorganization
Unit Unit
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DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation is being made by mail; however, additional solicitation may be made by telephone or in person by our and our affiliates' officers and regular employees.
We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses incurred in connection with these services.
We will pay the cash expenses to be incurred in connection with the exchange offer. Such expenses include fees and expenses of the exchange agent and trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes, which is the accreted value, as reflected in our accounting records on the date of exchange. Accordingly, we will not recognize any gain or loss for accounting purposes as a result of the exchange offer. The expenses of the exchange offer will be deferred and charged to expense over the term of the New Notes.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay any transfer taxes in connection with the exchange. However, holders who instruct us to register New Notes in the name of, or request that Old Notes not tendered or not accepted in the exchange offer be returned to, a person other than a registered tendering holder will be responsible for the payment of any applicable transfer tax on that transfer.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for New Notes pursuant to the exchange offer will remain restricted securities. Accordingly, the Old Notes may be resold only:
(1) to us upon redemption thereof or otherwise;
(2) so long as the outstanding securities are eligible for resale pursuant to Rule 144A, to a person inside the United States who is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act in a transaction meeting the requirements of Rule 144A, in accordance with Rule 144 under the Securities Act, or pursuant to another exemption from the registration requirements of the Securities Act, which other exemption is based upon an opinion of counsel reasonably acceptable to us;
(3) outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act; or
(4) pursuant to an effective registration statement under the Securities Act,
in each case in accordance with any applicable securities laws of any state of the United States.
RESALE OF THE NEW NOTES
With respect to resales of New Notes, based on interpretations by the staff of the SEC set forth in no-action letters issued to third parties, we believe that a holder or other person who receives New Notes, whether or not the person is the holder (other than a person that is our affiliate within the meaning of Rule 405 under the Securities Act) in exchange for Old Notes in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of the New Notes, will be allowed to resell the New Notes to the public without further registration under the Securities Act and without delivering to the purchasers of the New Notes a prospectus that satisfies the requirements of Section 10 of the Securities Act. However, if any holder acquires New Notes in the exchange offer for the purpose of distributing or participating in a distribution of the New Notes, the holder cannot rely on the position of the staff of the SEC expressed in the no-action letters or any similar interpretive letters, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, unless an exemption from registration is otherwise available. Further, each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where the Old Notes were acquired by the broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the New Notes.
THE TRANSACTIONS
TSI Holdings is a holding company with no material assets or operations other than its ownership of the common stock of TSI, Inc. and was formed to serve as issuer of the Old Notes.
In connection with, and as a condition to, the offering of the Old Notes, we consummated the following transactions, which we refer to as the "transactions."
PAYMENT OF DIVIDEND TO HOLDERS OF OUR COMMON STOCK
We made a payment of dividends to holders of our common stock in an aggregate amount of $68.9 million.
REDEMPTION OF PREFERRED STOCK
We redeemed all of our issued and outstanding shares of preferred stock, then held by BRS, Farallon Capital Partners, L.P. and certain of its affiliates, Rosewood Capital, L.P. and certain of its affiliates and certain of our directors in an aggregate amount of $50.6 million. See "Security Ownership and Certain Beneficial Owners."
USE OF PROCEEDS
This exchange offer is intended to satisfy our obligations under the registration rights agreement. We will not receive any cash proceeds from the issuance of the New Notes. In consideration for issuing the New Notes contemplated in this prospectus, we will receive outstanding securities in like principal amount, the form and terms of which are the same as the form and terms of the New Notes, except as otherwise described in this prospectus. The old Notes surrendered in exchange for New Notes will be retired and canceled. Accordingly, no additional debt will result from the exchange. We have agreed to bear the expense of the exchange offer.
The gross proceeds from the sale of the Old Notes were approximately $124,807. We used the net proceeds, together with funds from borrowings under our new credit facility, as follows (all amounts presented in thousands):
USES:
Redeem preferred stock...................................... $ 50,634
Shareholder dividend(1)..................................... 68,405
Employee bonus in lieu of dividend(2)....................... 1,090
Transaction fees and expenses............................... 4,316
General corporate purposes.................................. 362
--------
Total uses.................................................. $124,807
========
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(1) The total dividend amount is shown net of $526 of stock option exercise proceeds received.
(2) Employees with vested stock options as of the dividend payment date, were paid bonuses in amounts equivalent to the dividend they would have received had they exercised and been a common shareholder.
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents and capitalization as of December 31, 2003 on an actual basis and as adjusted to reflect the transactions. This table should be read in conjunction with our consolidated financial statements and the related notes to the consolidated financial statements included elsewhere in this offering memorandum.
All amounts presented in thousands.
AS OF DECEMBER 31, 2003
------------------------
ACTUAL AS ADJUSTED
--------- ------------
Cash and cash equivalents................................... $ 40,802 $ 41,947(1)
======== =========
Debt:
Senior secured revolving credit facility.................. $ -- $ --(2)
Notes payable for acquired businesses..................... 4,358 4,358
Capitalized lease obligations............................. 2,519 2,519
Existing senior notes..................................... 255,000 255,000
Senior discount notes offered hereby, net of discount..... -- 124,807
-------- ---------
Total debt.................................................. 261,877 386,684
Series A redeemable preferred stock......................... 39,890 --
Total shareholders' deficit(3).............................. (34,294) (113,750)
-------- ---------
Total capitalization...................................... $267,473 $ 272,934
======== =========
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(1) The increase of as adjusted cash and cash equivalents reflects expected cash outflows associated with $783 of accretion of our preferred stock for periods subsequent to December 31, 2003 and $362 of cash maintained for general business purposes. See "Use of Proceeds."
(2) Does not reflect $50,000 in revolving credit loans and letters of credit available under our senior secured revolving credit facility.
(3) As of December 31, 2003 actual total shareholders' deficit includes $10,000 of Series B preferred stock.
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(IN THOUSANDS, EXCEPT CLUB AND MEMBERSHIP DATA)
Set forth below is TSI, Inc.'s selected historical consolidated financial, other operating data and club and membership data as of the dates and for the periods presented. The selected historical consolidated statement of operations data for the years ended December 31, 2001, 2002, and 2003 and the selected historical consolidated balance sheet data as of December 31, 2002 and 2003, were derived from the audited Consolidated Financial Statements, which are included herein. The selected historical consolidated statement of operations data for the year ended December 31, 1999 and 2000 and the selected historical consolidated balance sheet data as of December 31, 1999, 2000 and 2001 were derived from our audited consolidated financial statements of the Company, which are not included herein. The information contained in this table and accompanying notes should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and accompanying notes thereto appearing elsewhere herein.
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Revenues............................................ $158,184 $223,828 $281,633 $319,427 $342,541
Operating expenses:
Payroll and related............................... 63,838 90,801 112,766 129,105 130,585
Club operating.................................... 52,048 68,806 88,941 99,113 111,069
General and administrative........................ 10,797 14,626 18,785 21,368 21,995
Depreciation and amortization(1).................. 20,513 26,248 32,185 31,748 34,927
-------- -------- -------- -------- --------
Operating income.................................... 10,988 23,347 28,956 38,093 43,965
Loss on extinguishment of debt(2)................... -- -- -- -- 7,773
Interest expense, net of interest income............ 10,243 13,120 14,527 16,421 23,226
-------- -------- -------- -------- --------
Income from continuing operations before provision
for corporate income tax.......................... 745 10,227 14,429 21,672 12,966
Provision for corporate income tax.................. 622 5,031 6,853 9,709 5,537
-------- -------- -------- -------- --------
Income from continuing operations................... 123 5,196 7,576 11,963 7,429
Loss from discontinued operations of closed clubs(3)
(including loss on club closure of $996 in 2002),
net of income taxes............................... (74) (365) (530) (767) --
Cumulative effect of a change in accounting
principle, net of income tax
benefit of $612(4)................................ -- -- -- (689) --
-------- -------- -------- -------- --------
Net income 49 4,831 7,046 10,507 7,429
Accreted dividends on preferred stock............... (7,880) (9,016) (10,201) (11,543) (10,984)
-------- -------- -------- -------- --------
Net loss attributable to common stockholders........ $ (7,831) $ (4,185) $ (3,155) $ (1,036) $ (3,555)
======== ======== ======== ======== ========
OTHER DATA:
Non-cash rental lease expense, net of non-cash
income............................................ $ 3,061 $ 2,976 $ 4,224 $ 1,670 $ 1,650
Cash provided by (used in):
Operating activities.............................. 29,496 40,573 44,348 50,805 58,253
Investing activities.............................. (55,078) (70,048) (58,358) (40,182) (42,734)
Financing activities.............................. 33,553 5,715 16,103 (10,530) 19,732
CLUB AND MEMBERSHIP DATA:
New clubs opened(5)................................. 14 9 12 8 3
Clubs acquired(5)................................... 4 11 2 4 --
Closed, relocated or sold clubs..................... (1) (1) -- (2) (3)
Wholly-owned clubs operated at
end of period(5).................................. 82 103 117 127 127
Total clubs operated at end of period(6)............ 86 105 119 129 129
Members at end of period(7)......................... 203,000 278,000 317,000 342,000 342,000
Mature club revenue increase(8)..................... 16.0% 18.6% 12.3% 4.1% 1.6%
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YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
Revenue per weighted average club
(in thousands)(9)................................. $ 2,130 $ 2,428 $ 2,619 $ 2,606 $ 2,691
Ratio of earnings to fixed charges(10).............. 1.0:1.0 1.4:1.0 1.5:1.0 1.7:1.0 1.3:1.0
Pro forma ratio of earnings to fixed charges(11).... 1.0:1.0
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AS OF DECEMBER 31,
----------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
Working capital deficit(12)......................... $ (1,015) $(38,414) $(42,565) $(43,192) $ (9,087)
Total assets........................................ 215,678 256,085 296,005 314,250 362,199
Long-term debt, including current installments...... 132,202 144,498 163,979 160,943 261,877
Redeemable senior preferred stock................... 42,066 48,029 54,687 62,125 --
Redeemable Series A preferred stock(13)............. 23,216 26,580 30,432 34,841 39,890
Total stockholders' deficit(13)..................... $(28,813) $(30,491) $(32,797) $(31,740) $(34,294)
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(1) Effective January 1, 2002 we implemented Statement of Financial Accounting Standards ("SFAS") No. 142 No. 142 ("SFAS 142"), Goodwill and Other Intangible Assets. In connection with this implementation we no longer amortize goodwill, but rather test it for impairment when circumstances indicate it is necessary, and at a minimum annually. A reconciliation of reported net income to net income adjusted for the impact of SFAS 142 is as follows for the presented periods:
YEAR ENDED DECEMBER 31,
---------------------------
1999 2000 2001
------- ------- -------
Net income as reported...................................... $ 49 $ 4,831 $ 7,046
Goodwill amortization....................................... 2,845 3,545 4,436
Deferred tax benefit........................................ (1,195) (1,064) (1,344)
------- ------- -------
Net income as adjusted...................................... $ 1,699 $ 7,312 $10,138
======= ======= =======
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(2) The $7.8 million loss on extinguishment of debt recorded in 2003 is a result of the refinancing of our debt on April 16, 2003. In connection with this refinancing, we wrote-off $3.7 million of deferred financing costs related to extinguished debt, paid a $3.0 million call premium, and incurred $1.0 million of additional interest on the 9 3/4% old Notes representing interest incurred during the 30 day redemption notification period.
(3) In the fourth quarter of 2002, we closed or sold two remote underperforming, wholly-owned clubs. In connection with the closure of one of the clubs, we recorded club closure costs of $996 related to the write-off fixed assets. We have accounted for these two clubs as discontinued operations and, accordingly, the results of their operations have been classified as discontinued in the Consolidated Statement of Operations and prior periods have been reclassified in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets To Be Disposed Of.
Loss from operations of these discontinued clubs was as follows for the periods presented:
YEAR ENDED DECEMBER 31,
-------------------------------
1999 2000 2001 2002
----- ----- ----- -------
Loss from operations of discontinued clubs, (including loss
of club closure of $996 in 2002).......................... $(125) $(597) $(894) $(1,318)
Benefit for corporate income tax............................ (51) (232) (364) (551)
----- ----- ----- -------
Loss from discontinued operations........................... $ (74) $(365) $(530) $ (767)
===== ===== ===== =======
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(4) Effective January 1, 2002 we implemented SFAS 142. In connection with the SFAS 142 transitional impairment test we recorded a $1.3 million write-off of goodwill. A deferred tax benefit of $612 was recorded as a result of this goodwill write-off, resulting in a net cumulative effect of change in accounting principle of $689 in 2002. The write-off of goodwill related to four, remote underperforming clubs. The impairment test was performed with discounted estimated future cash flows as the criteria for determining fair market value. The impairment loss recorded was measured by comparing the carrying value to the fair value of goodwill.
(5) During 2000, we acquired two formerly partly-owned clubs and relocated one club on expiration of lease.
(6) Includes wholly-owned or partly-owned and managed clubs.
(7) Represents members at wholly-owned or partly-owned clubs.
(8) We define mature clubs as those clubs operated by us for more than 24 months.
(9) Revenue per weighted average club is calculated as total revenue divided by the product of the total numbers of clubs and their weighted average months in operation as a percentage of the total year.
(10) For purposes of determining the ratio of earnings to fixed charges, "earnings" consist of income from continuing operations before provisions for corporate income taxes and fixed charges. "Fixed charges" consist of interest expense, which includes the amortization of deferred debt issuance costs and the interest portion of our rent expense (assumed to be one third of rent expense).
(11) Pro forma ratio reflects the issuance of the Old Notes and the use of proceeds thereof as if they had occurred on the first day of the relevant period.
(12) Working capital deficit is calculated as current assets less current liabilities. We normally operate with a working capital deficit because we receive dues or fee revenue either (i) during the month services are rendered, or (ii) when paid-in-full in advance. As a result, we have no material accounts receivable, and record a deferred revenue liability for membership or ancillary services billed in advance. We also record deferred revenue liability, because initiation fees are received at enrollment and are deferred and recognized over the estimated average term of a membership.
(13) We had 153,637 shares of Series A Redeemable Preferred Stock ("Series A") outstanding at December 31, 1999, 2000, 2001, 2002 and 2003. We have reclassified our 2001 financial statements to account for a redemption feature included in the Series A stock, in accordance with the guidance in EITF Topic No. D-98: Classification and Measurement of Redeemable Securities ("EITF Topic No. D-98"). EITF Topic No. D-98 provided additional guidance on the appropriate classification of redeemable preferred stock upon the occurrence of an event that is not solely within the control of an issuer. EITF Topic No. D-98 requires retroactive application in the first fiscal quarter ending after December 15, 2001 by reclassifying the financial statements of prior periods. The carrying value of the Series A stock, which was previously presented as a component of stockholders' deficit, has been reclassified as redeemable preferred stock outside of stockholders' deficit. The reclassification of the 2001 financial statements for the Series A stock had no effect on our net income, net loss attributable to common stockholders', cash flow provided by operations or total assets. The following sets forth the overall effect of the reclassification on our stockholders' deficit:
AS OF DECEMBER 31,
------------------------------
1999 2000 2001
-------- -------- --------
Stockholders' deficit prior to reclassification............. $ (5,597) $ (3,911) $ (2,365)
Reclassification of Series A stock.......................... (23,216) (26,580) (30,432)
-------- -------- --------
Stockholders' deficit after the reclassification............ $(28,813) $(30,491) $(32,797)
======== ======== ========
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The balance sheet data for all periods presented have been adjusted to reflect the above reclassification.
FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus are forward-looking statements, including, without limitation, statements regarding future financial results and performance, potential sales revenue, legal contingencies and tax benefits. These statements are subject to various risks and uncertainties, many of which are outside of our control, including the level of market demand for our services, competitive pressures, the ability to achieve reductions in operating costs and to continue to integrate acquisitions, environmental matters, the application of Federal and state tax laws and regulations, and other specific factors discussed herein and in other Securities and Exchange Commission filings by us. The information contained herein represents management's best judgement as of the date hereof based on or as to information currently available; however, we do not intend to update this except as required by law, information to reflect development or information obtained after the date hereof and disclaim any legal obligation to the contrary.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected Consolidated Financial and Other Data" and our consolidated financial statements and the related notes included elsewhere in this prospectus. This prospectus contains, in addition to historical information, forward-looking statements that include risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements.
OVERVIEW
We are one of the two leading owners and operators of fitness clubs in the Northeast and Mid-Atlantic regions of the United States. As of December 31, 2003, we operated 129 clubs that collectively served approximately 342,000 members. We develop clusters of clubs to serve densely populated major metropolitan regions in which a high percentage of the population commutes to work. We service such populations by clustering clubs near the highest concentrations of our target members' areas of both employment and residence. Our target member is college-educated, typically between the ages of 21 and 50 and has an annual income of between $50,000 and $150,000.
Our goal is to develop the premier health club network in each of the major metropolitan regions we enter. We believe that clustering clubs allows us to achieve strategic operating advantages that enhance our ability to achieve this goal. In entering new regions, we develop these clusters by initially opening or acquiring clubs located in the more central urban markets of the region and then branching out from these urban centers to suburbs and ancillary communities. Capitalizing on this clustering of clubs, as of December 31, 2003, approximately 52% of our members participated in a membership plan that allows unlimited access to all of our clubs for a higher membership fee.
We have executed this strategy successfully in the New York region through the network of clubs we operate under our NYSC brand name. We are the largest fitness club operator in Manhattan with 36 locations and operate a total of 86 clubs under the NYSC name within a defined radius of New York City. We operate 19 clubs in the Boston region, 15 clubs in the Washington D.C. region under our BSC and WSC brand names respectively and have begun establishing a similar cluster in the Philadelphia region with six clubs under is PSC brand name. In addition we operate three clubs in Switzerland. Our goal is to increase our club count by ten percent per year. In 2003, we slowed our club expansion plans and maintained our club count at 129 while we recapitalized the company to position it for future growth. While we maintained our club count at 129 in 2003 we plan to open or acquire 12 clubs in 2004. We employ localized brand names for our clubs to create an image and atmosphere consistent with the local community, and to foster the recognition as a local network of quality fitness clubs rather than a national chain.
Our operating and selling expenses are comprised of both fixed and variable costs. The fixed costs include salary expense, rent, utilities, janitorial expenses and depreciation. Variable costs are primarily related to sales commissions, advertising and supplies. As clubs mature and increase their membership base, fixed costs are typically spread over an increasing revenue base and operating margins tend to improve.
During the last several years, we have increased revenues, operating income, net income, and cash flows provided by operating activities by expanding our club base in New York, Boston, Washington, DC, and Philadelphia. As a result of expanding our club base and the relatively fixed nature of our operating costs, our operating income has increased from $11.0 million for the year ended December 31, 1999 to $44.0 million for the year ended December 31, 2003. Net income improved from $49,000 in 1999 to $7.4 million for the year ended December 31, 2003. Cash flows provided by operating activities increased from
$29.5 million in 1999 to $58.3 million for the year ended December 31, 2003. We expect growth in revenues and operating income to continue as the 29 clubs opened or acquired since the beginning of 2001 continue to mature. Based on our historical experience, a new club tends to experience significant increase in revenues during its first three years of operation as it reaches maturity. Because there is relatively little incremental cost associated with such increasing revenue, there is a greater proportionate increase in profitability. We believe that the revenues and operating income of these 29 clubs will increase as they mature. As a result of our expansion, however, operating income margins may be negatively impacted in the near term, as further new clubs are added.
HISTORICAL CLUB GROWTH
YEAR ENDED DECEMBER 31,
--------------------------------
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
Clubs at beginning of period.......................... 69 86 105 119 129
Greenfield clubs(1)................................... 14 9 12 8 3
Acquired clubs........................................ 4 11 2 4 --
Sold, relocated or closed clubs....................... (1) (1) -- (2) (3)
-- --- --- --- ---
Clubs at end of period(2)............................. 86 105 119 129 129
== === === === ===
Number of partly owned clubs included at the end of
period(3)........................................... 4 2 2 2 2
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(1) A "Greenfield club" is a new location constructed by us.
(2) We include in the club count wholly owned and partly owned clubs. In addition, as of December 31, 2003 we managed two additional clubs in which we did not have an equity stake.
(3) In March 2000, two clubs previously managed by us were purchased. Including these two clubs, the total number of clubs opened or acquired in 2000 totals 22.
MATURE CLUB REVENUE
We define mature clubs as those clubs that were operated by us for the entire period of the period presented and that same entire period of the preceeding year. Under this definition, mature clubs for periods shown are those clubs that were operated for more than 24 months. Our mature club revenue increased 16.0%, 18.6%, 12.3%, 4.1%, and 1.6% for the years ended December 31, 1999, 2000, 2001, 2002 and 2003, respectively. We believe the decline in mature club revenue growth has been driven primarily by general economic softness, particularly in the New York metropolitan region. We have also seen increases in competition throughout our markets and this has depressed revenue growth at select mature clubs throughout our chain. In addition, we believe that the decline in mature club revenue growth is also attributable to the increasing age of our mature clubs.
Results of Operations
The following table sets forth certain operating data as a percentage of revenue for the periods indicated:
YEAR ENDED DECEMBER 31,
------------------------
2001 2002 2003
------ ------ ------
Revenues.................................................. 100.0% 100.0% 100.0%
Operating expenses:
Payroll and related..................................... 40.0 40.4 38.1
Club operating.......................................... 31.6 31.1 32.5
General and administrative.............................. 6.7 6.7 6.4
Depreciation and amortization........................... 11.4 9.9 10.2
----- ----- -----
Operating income........................................ 10.3 11.9 12.8
Loss on extinguishment of debt............................ -- -- 2.2
Interest expense.......................................... 5.3 5.1 6.8
Interest income........................................... (0.1) -- --
----- ----- -----
Income from continuing operations before provision for
corporate income taxes............................... 5.1 6.8 3.8
Provision for corporate income taxes...................... 2.4 3.1 1.6
----- ----- -----
Income from continuing operations......................... 2.7 3.7 2.2
Loss from discontinued operations of closed clubs, net of
income tax.............................................. (0.2) (0.2) --
Cumulative effect of a change in accounting principle, net
of income tax........................................... -- (0.2) --
----- ----- -----
Net income................................................ 2.5 3.3 2.2
Accreted dividends on preferred stock..................... (3.6) (3.6) (3.2)
----- ----- -----
Net loss attributable to common stockholders.............. (1.1)% (0.3)% (1.0)%
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YEAR ENDED DECEMBER 31, 2003 COMPARED TO THE YEAR ENDED DECEMBER 31, 2002
Revenues. Revenues increased $23.1 million or 7.2%, to $342.5 million during 2003 from $319.4 million in 2002. This increase resulted from the 12 clubs opened or acquired in 2002 (approximately $14.8 million), and the three clubs opened in 2003 (approximately $3.1 million). In addition, revenues increased during 2003 by approximately $4.9 million or 1.6% at our mature clubs (clubs owned and operated for at least 24 months). In 2003 we received $2.8 million of insurance proceeds related to our business interruption insurance settlement; a $1.8 million increase over the $1.0 million received in 2002. These increases were offset by a $1.7 million decrease in revenue related to three clubs we relocated in 2003.
Our mature club revenue increased 12.3%, 4.1% and 1.6% for the years ended December 31, 2001, 2002 and 2003, respectively. We believe the decline in mature club revenue growth had been driven primarily by the general economic climate, particularly in the New York metropolitan region. We have also seen increases in competition throughout our markets and this has depressed revenue growth at select mature clubs throughout our chain. In addition, we believe that the decline in mature club revenue growth is also attributable to the increasing age of our mature clubs.
Operating Expenses. Operating expenses increased $17.2 million, or 6.1% to $298.6 million in 2003, from $281.3 million in 2002. This increase was due to a 3.3% increase in the total months of club operations to 1,528 in 2003 from 1,479 in 2002. The increase is also attributable to increases in club operating costs, particularly occupancy costs and utilities.
Payroll and related expenses increased by $1.5 million, or 1.1% to $130.6 million in 2003, from $129.1 million in 2002. This increase was partially offset by a $1.0 million decrease in non-cash compensation expense which decreased from $1.2 million in 2002 to $197,000 in 2003. The non-cash compensation expense incurred during 2002 principally related to outstanding Series B stock options and such options were exercised in the first quarter of 2003.
Club operating increased by $12.0 million, or 12.1% to $111.1 million in 2003, from $99.1 million in 2002. This increase is attributable to a 3.3% increase in the total months of club operations to 1,528 in 2003 from 1,479 in 2002. The increase is also attributable to a $2.4 million or 20.6% increase in utilities and a $7.6 million or 13.8% increase in occupancy costs. Occupancy costs increased due to increases in real estate taxes as well as increases in base rent associated with the opening of three flagship locations and several club expansions.
General and administrative increased by $627,000, or 2.9% to $22.0 million in 2003, from $21.4 million in 2002. This increase is principally attributable to a $369,000 increase in liability and property insurance, as well as increases in information technology maintenance and related costs.
Depreciation and amortization increased by $3.2 million or 10.0% to $34.9 million in 2003, from $31.7 million in 2002. This increase is principally due to a full year of depreciation and amortization for fixed asset additions, acquisitions or club openings in 2002. The increase is also attributable to depreciation related to the three clubs opened in 2003 as well as depreciation related to 2003 expansions and renovations.
Loss on Extinguishment of Debt. The $7.8 million loss on extinguishment of debt recorded in 2003 is a result of the refinancing of our debt on April 16, 2003. In connection with this refinancing, we wrote-off $3.7 million of deferred financing costs related to extinguished debt, paid a $3.0 million call premium, and incurred $1.0 million of additional interest on the 9 3/4% old Notes representing interest incurred during the 30 day redemption notification period.
Interest Expense. Interest expense increased $7.1 million to $23.7 million in 2003 from $16.6 million in 2002. Interest expense increased $8.8 million due to the refinancing of our Senior Notes as discussed in Financing Activities. This increase was partially offset by decreases in interest on credit line and subordinated credit line borrowings, which were completely repaid on April 16, 2003 in connection with the refinancing.
Interest Income. Interest income increased $306,000 to $444,000 in 2003 from $138,000 in 2002. This increase is due to increases in cash balances in 2003 compared to 2002.
Provision for Corporate Income Taxes. The provision for corporate income taxes decreased $4.2 million from $9.7 million in 2002 to $5.5 million in 2003. Our effective tax rate decreased to 42.7% in 2003 from 44.8% in 2002 principally due to decreases in the effective New York State and New York City rates. With the exception of deferred tax assets of $384,000 related to certain state net operating loss carry-forwards, which have been reserved for, we expect future taxable income to be sufficient to realize the $16.8 million of net deferred tax assets.
Accreted Dividends on Preferred Stock. Accreted dividends on the Preferred Stock decreased $559,000 to $11.0 million in 2003, from $11.5 million in 2002. Accreted dividends on Series A preferred stock increased $640,000 due to the compounding of accreted and unpaid dividends, and accreted dividends on the Series B preferred stock increased $1.1 million due to the increase in shares outstanding. These increases were offset by a $2.3 million decrease in redeemable senior preferred stock dividends. The redeemable senior preferred stock was redeemed in April 2003 and no dividends were accreted thereafter.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE YEAR ENDED DECEMBER 31, 2001
Revenues. Revenues increased $37.8 million or 13.4%, to $319.4 million during 2002 from $281.6 million in 2001. This increase resulted from the 14 clubs opened or acquired in 2001 (approximately $17.0 million), and the 12 clubs opened or acquired in 2002 (approximately $9.1 million). In addition, revenues increased during 2002 by approximately $11.1 million or 4.1% at our mature clubs (clubs owned and operated for at least 24 months). The mature club revenue increase is attributable to a 1.6% increase in membership, a 2.2% increase in dues, and a 0.3% increase in ancillary revenues.
Our mature club revenue increased 18.6%, 12.3% and 4.1% for the years ended December 31, 2000, 2001 and 2002, respectively. We believe the decline in mature club revenue growth had been driven primarily by the general economic climate, particularly in the New York metropolitan region, which has had an industry-wide effect. In addition, we believe that the decline in mature club revenue growth is also attributable to the increasing age of our mature clubs.
Operating Expenses. Operating expenses increased $28.6 million, or 11.3% to $281.3 million in 2002, from $252.7 million in 2001. This increase was due to a 13.9% increase in total months of club operations to 1,479 in 2002 from 1,298 in 2001. This increase was partially offset by a $437,000 decrease in depreciation and amortization from 2001 to 2002. In accordance with SFAS 142 as of January 1, 2002 goodwill is no longer being amortized.
Payroll and related expenses increased by $16.3 million, or 14.4% to $129.1 million in 2002, from $112.8 million in 2001. This increase was primarily attributable to the acquisition or opening of 12 clubs in 2002 and a full year of operating the 14 clubs opened or acquired in 2001. This increase was also attributable to an increase in health and workers' compensation insurance, and payroll associated with fee-for-service programs.
Club operating increased by $10.2 million, or 11.4% to $99.1 million in 2002, from $88.9 million in 2001. This increase is primarily attributable to the acquisition or opening of 12 clubs in 2002 and the additional expenses attributable to operating the 14 clubs opened or acquired in 2001.
General and administrative increased by $2.6 million, or 13.8% to $21.4 million in 2002, from $18.8 million in 2001. This increase is principally attributable to a $1.3 million increase in liability and property insurance, and increases attributable to expenses associated with our expansion, including the enhancement of our management communication and information systems.
Depreciation and amortization decreased by $437,000, or 1.4% to $31.7 million in 2002, from $32.2 million in 2001. A $2.3 million and a $1.6 million increase in depreciation and amortization expenses related to clubs opened or acquired in 2001 and 2002, respectively, and was offset by a $4.3 million decrease in goodwill amortization expense.
Interest Expense. Interest expense increased $1.6 million to $16.6 million in 2002 from $14.9 million in 2001, primarily as a result of an increase in subordinated credit borrowings associated with our club base expansion.
Interest Income. Interest income decreased $253,000 to $138,000 in 2002 from $391,000 in 2001. This decrease is due to lower interest rates earned on cash balances in 2002 as compared to 2001.
Provision for Corporate Income Taxes. The provision for corporate income taxes increased $2.8 million from $6.9 million in 2001 to $9.7 million in 2002. Our effective tax rate decreased to 44.8% in 2002 from 47.5% in 2001. This decrease is due to a decrease in goodwill amortization which was not deductible for taxes. With the exception of deferred tax assets of $384,000 related to certain state net operating loss carry-forwards, which have been reserved
for, we expect future taxable income to be sufficient to realize the $20.3 million of net deferred tax assets.
Discontinued Operations. In the fourth quarter of 2002, we sold or closed two remote, underperforming, wholly-owned clubs. In connection with the closure of one of the clubs we recorded club closure costs of $996 related to the write-off of fixed assets. We have accounted for these two clubs as discontinued operations and, accordingly, the results of their operations have been classified as discontinued in the Consolidated Statement of Operations, and prior periods have been reclassified in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of.
Revenue and pre-tax losses for these discontinued clubs were $1.7 million and $894,000 in 2001, and $1.6 million and $322,000 in 2002, respectively.
Cumulative Effect of a Change in Accounting Principle. In connection with the implementation of SFAS 142 we recorded a goodwill write-off of $1.3 million in the first quarter of 2002. A deferred tax benefit of $612,000 was recorded in connection with this goodwill write-off, resulting in a net cumulative effect of a change in accounting principle of $689,000.
Accreted Dividends on Preferred Stock. Accreted dividends on the Preferred Stock increased $1.3 million to $11.5 million in 2002, from $10.2 million in 2001. This increase is due to the compounding of accreted dividends.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. Historically, we have satisfied our liquidity needs through cash from operations and various borrowing arrangements. Principal liquidity needs have included the acquisition and development of new clubs, debt service requirements and other capital expenditures necessary to maintain existing clubs.
Operating Activities. Net cash provided by operating activities for the year ended December 31, 2003 was $58.3 million compared to $50.8 million for the year ended December 31, 2002. Cash flows from operations have improved with our increase in operating income, and in addition, because of the favorable impact of management's exercise of stock options in 2003, which provided us with a current tax deduction of approximately $8.6 million.
Investing Activities. We invested $42.7 million and $40.2 million in capital expenditures and asset acquisitions during the years ended December 31, 2003 and 2002, respectively, primarily as a result of our expansion efforts. Our capital expenditures are net of landlord contributions of $617,000 and $3.5 million respectively for the years ended December 31, 2003 and 2002. We estimate that for the year ended December 31, 2004, we will invest an additional $60.0 million in capital expenditures, which includes $7.2 million that management intends to invest to expand and renovate certain existing clubs, $14.5 million to maintain existing clubs and to maintain our management information systems, and $2.0 million to further upgrade our management information system. The remainder of our 2004 capital expenditures will be to build or acquire clubs. This $60.0 million in expenditures will be funded by cash flow provided by operations and available cash on hand.
Financing Activities. On April 16, 2003 we successfully completed a refinancing of our debt. This refinancing included an offering of $255.0 million of 9 5/8% Senior Notes ("Existing Notes") that will mature April 15, 2011, and the entering into of a new $50.0 million senior secured revolving credit facility (the "Senior Credit Facility") that will expire April 15, 2008. The Existing Notes accrue interest at 9 5/8% per annum and interest is payable semiannually on April 15, and October 15. In connection with this refinancing, we wrote-off $3.7 million of deferred financing costs related to extinguished debt, paid a call premium of $3.0 million and incurred $1.0 million of interest on the 9 3/4% Notes representing the interest incurred during the
30 day redemption notification period. The uses of proceeds from the Note offering were as follows:
($000'S)
--------
Redemption of existing 9 3/4% Senior Notes, principal and
interest.................................................. $126,049
Call premium on existing 9 3/4% Senior Notes................ 3,048
Redemption of senior preferred stock, at liquidation
value..................................................... 66,977
Repayment of line of credit principal borrowings and
interest.................................................. 4,013
Repayment of subordinated credit principal borrowings and
interest.................................................. 9,060
Underwriting fees and other closing costs................... 9,578
Available for general corporate purposes.................... 36,275
--------
Total use of funds.......................................... $255,000
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We currently have a substantial amount of debt. As of December 31, 2003, our total consolidated debt is $261.9 million. Our substantial debt could have significant consequences, including:
- Making it more difficult to satisfy our obligations;
- Increasing our vulnerability to general adverse economic and industry conditions;
- Limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions of new clubs and other general corporate requirements;
- Requiring a substantial portion of our cash flow from operations for the payment of interest on our debt and reducing our ability to use our cash flow to fund working capital, capital expenditures, acquisitions of new clubs and general corporate requirements; and
- Limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.
These limitations and consequences may place us at a competitive disadvantage to other less-leveraged competitors.
Net cash used in financing activities was $19.7 million for the year ended December 31, 2003 compared to net cash provided by financing activities of $10.5 million for the same period in 2002 and compared to $16.1 million for the same period in 2001.
As of December 31, 2003, TSI, Inc. had $255.0 million of Senior Notes outstanding. The Senior Notes bear interest at a rate of 9 5/8% and mature in 2011. Under the provisions of the Senior Note Indenture, TSI, Inc. may not issue additional Senior Notes without modification of the indenture with the bondholders' consent. Our line of credit with our principal bank provides for direct borrowings and letters of credit of up to $50.0 million. The line of credit carries interest at our option based upon the Eurodollar borrowing rate plus 4.0% or the bank's prime rate plus 3.0% as defined, and we are required to pay a commitment fee of 0.75% per annum on the daily unutilized amount. As of December 31, 2003, no borrowings were outstanding under this line. As of December 31, 2003 outstanding letters of credit totaled $1.7 million. As of December 31, 2003, we had approximately $48.3 million available under the line of credit, which matures in April 2008, and has no scheduled amortization requirements. As of December 31, 2003 we also had $40.8 million of cash on hand.
The line of credit contains restrictive covenants including a leverage
ratio and interest coverage ratio and dividend payment restrictions and is
collateralized by all the assets of the Company. As of December 31, 2003 our Net
Leverage Ratio, and Net Interest Coverage Ratio as defined by the terms of the
line of credit agreement are 3.3 and 3.2 to 1.0, respectively. Our ability to
incur additional debt is limited by the terms of the line of credit facility in
that the Net Leverage Ratio, as defined, cannot exceed 4.0 to 1.0 and the Net
Interest Coverage Ratio must
be greater than 2.25 to 1.0. Our common stock is not publicly traded and therefore our ability to raise equity financing is not as readily available as it is for companies that have publicly traded common stock.
We believe that we have or will be able to obtain or generate sufficient funds to finance our current operating and growth plans through the end of 2007, any material acceleration or expansion of that plan through additional greenfields or acquisitions (to the extent such acquisitions include cash payments) may require us to pursue additional sources of financing prior to the end of 2007. There can be no assurance that such financing will be available, or that it will be available on acceptable terms. The line of credit accrues interest at variable rates based on market conditions, accordingly, future increases in interest rates could have a negative impact on net income.
Notes payable were incurred upon the acquisition of various clubs and are subject to the right of offset for possible post acquisition adjustments arising out of operations of the acquired clubs. These notes bear interest at rates between 5% and 9%, and are non-collateralized. The notes are due on various dates through 2012.
CONTRACTUAL AND COMMERCIAL COMMITMENTS SUMMARY
The aggregate long-term debt, capital lease, operating lease, and Redeemable Preferred Stock Obligations as of December 31, 2003 were as follows:
PAYMENTS DUE BY PERIOD
-------------------------------------------------------
LESS THAN AFTER
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS
----------------------- -------- --------- --------- --------- --------
Long-Term Debt(1)................... $259,358 $ 1,191 $ 1,451 $ 849 $255,867
Capital Lease Obligations(2)........ 2,519 2,295 224 -- --
Operating Lease Obligations(3)...... 620,953 50,976 103,159 96,987 369,831
Redeemable Preferred Stock(4)....... 39,890 39,890 -- -- --
-------- ------- -------- ------- --------
Total Contractual Cash
Obligations....................... $922,720 $94,352 $104,834 $97,836 $625,698
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Notes:
(1) The long-term debt contractual cash obligations include principal payment requirements only. Interest on our 9 5/8% Senior Notes amounts to $24.5 million annually.
(2) Capital lease obligations represent principal and interest payments.
(3) Operating lease obligations include base rent only. Certain leases provide for additional rent based on increases in real estate tax indexation, utilities, and defined amounts based on the operating results of the lessee.
(4) The redeemable preferred stock was redeemed in February 2004 and therefore has been included as due in less than one year.
LEGAL PROCEEDINGS
On February 13, 2003, an individual filed suit against us in the Supreme Court, New York County, alleging that on January 14, 2003, he sustained an injury at one of our club locations resulting in serious bodily injury. He filed an amended complaint on September 17, 2003 seeking two billion dollars in damages for personal injuries. His cause of action seeking punitive damages in the amount of two hundred and fifty million dollars was dismissed on January 26, 2004. We have in force fifty one million dollars of insurance coverage to cover claims of this nature. We intend to vigorously contest this lawsuit and presently anticipate that these matters will be covered by insurance.
EFFECT ON RECENT CHANGES IN ACCOUNTING STANDARDS
In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. Interpretation No. 46 requires a variable interest entity, or VIE, to be consolidated by a company if that company is subject to a majority of the risk of loss from the VIE's activities or is entitled to receive a majority of the entity's residual return or both. Interpretation No. 46 also provides criteria for determining whether an entity is a VIE subject to consolidation. Interpretation No. 46 also sets forth certain disclosures regarding interests in VIE that are deemed significant, even if consolidation is not required. In December 2003, a modification to Interpretation No. 46 was issued (Interpretation No. 46R) which delayed the effective date until no later than fiscal periods ending after March 31, 2004 and provided additional technical clarifications to implementation issues. The Company does not currently have any variable interest entities as defined in Interpretation No. 46R. The Company does not expect that the adoption of this statement will have a material impact on the consolidated financial statements.
In May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liability and Equity (FAS 150), which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. FAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. As of December 31, 2003 the Company does not have financial instruments within the scope of this pronouncement.
SEPTEMBER 11, 2001 EVENTS
The terrorist attacks of September 11, 2001 ("the September 11 events"), resulted in a tremendous loss of life and property. Secondarily, those events interrupted the operations at four of our clubs located in downtown Manhattan. Three of the affected four clubs were back on operation by October 2001, while the fourth club reopened in September 2002.
We carry business interruption insurance to mitigate certain lost revenue and profits experienced with the September 11 events. In this regard in the third quarter of 2001 a $175,000 insurance receivable was recorded representing an estimate of costs incurred in September 2001. Such costs included rent, payroll benefits, and other club operating costs incurred during period of closure. In 2002, we collected this $175,000 receivable and received additional on-account payments of $1.0 million. In 2003, we received $2.8 million from our insurer and we entered into a final settlement agreement. These on-account and final payments were classified with fees and other revenues when received.
USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
The most significant assumptions and estimates relate to the allocation and fair value ascribed to assets acquired in connection with the acquisition of clubs under the purchase method of accounting, the useful lives, recoverability and impairment of fixed and intangible assets, deferred income tax valuation, valuation of, and expense incurred in connection with stock options and warrants, legal contingencies and the estimated membership life.
Our one-time member initiation fees and related direct expenses are deferred, and recognized, on a straight-line basis, in operations over an estimated membership life of 24 months. This estimated membership life has been derived from actual membership retention experienced by us. Although the average membership life approximated 24 months over each of the past several years, this estimated life could increase or decrease in future periods. Consequently, the amount of initiation fees and direct expenses deferred by us would increase or decrease in similar proportion.
Fixed assets are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the assets, which are thirty years for building and improvements, five years for club equipment, furniture, fixtures and computer equipment, and three years for computer software. Leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining period of the lease. Expenditures for maintenance and repairs are charged to operations as incurred. The cost and related accumulated depreciation or amortization of assets retired or sold are removed from the respective accounts and any gain or loss is recognized in operations. The costs related to developing web applications, developing HTML web pages and installing developed applications on the web servers are capitalized and classified as computer software. Web site hosting fees and maintenance costs are expensed as incurred.
Long-lived assets, such as fixed assets, goodwill and intangible assets are reviewed for impairment when events or circumstances indicate that the carrying value may not be recoverable. Estimated undiscounted expected future cash flows are used to determine if an asset is impaired, in which case the asset's carrying value would be reduced to fair value.
Actual cash flows realized could differ from those estimated and could result in asset impairments in the future.
Effective January 1, 2002, we implemented SFAS 142. There were no changes to the estimated useful lives of amortizable intangible assets due to the SFAS 142 implementation. In connection with the SFAS 142 transition impairment test we recorded a $1.3 million write-off of goodwill. A deferred tax benefit of $612,000 was recorded as a result of this goodwill write-off, resulting in a net cumulative effect of change in accounting principle of $689,000, in the first quarter of 2002. The write-off of goodwill related to four, remote underperforming clubs. The impairment test was performed with discounted estimated future cash flows as the criteria for determining fair market value. Goodwill has been allocated to reporting units that closely reflect the regions served by our four trade names; New York Sports Club, Boston Sports Club, Washington Sports Club and Philadelphia Sports Club, with certain more remote clubs that do not benefit from a regional cluster being considered single reporting units. In 2003, the Company did not have to record a charge to earnings for an impairment of goodwill as a result of its annual review conducted during the first quarter.
As of December 31, 2003 our net deferred tax assets totaled $16.8 million. These net assets represent cumulative net "temporary differences" that will result in tax deductions in future years. The realizability of these assets greatly depends on our ability to generate sufficient future taxable income. Our pre-tax profit was $13.5 million, $20.4 million and $13.0 million, and current tax liabilities were $11.0 million, $10.3 million and $2.1 million for the years ended December 31, 2001, 2002 and 2003, respectively. Because there is currently no evidence we will not continue to be profitable, the weight of available evidence indicates we will be able to realize these net deferred tax assets. If at some time in the future the weight of available evidence does not support the realizability of a portion of, or the entire net deferred tax assets, the write-down of this asset could have a significant impact on our financial statements.
INFLATION
Although we cannot accurately anticipate the effect of inflation on our operations, we believe that inflation has not had, and is not likely in the foreseeable future to have, a material impact on our results of operations.
BUSINESS
OUR COMPANY
We are one of the two leading owners and operators of fitness clubs in the Northeast and Mid-Atlantic regions of the United States. As of December 31, 2003, we owned and operated 127 fitness clubs and partly owned and operated two fitness clubs. These 129 clubs collectively served approximately 342,000 members. We develop clusters of clubs to serve densely populated major metropolitan regions in which a high percentage of the population commutes to work. We service such populations by clustering clubs near the highest concentrations of our target members' areas of both employment and residence. Our target member is college-educated, typically between the ages of 21 and 50 and earns an annual income between $50,000 and $150,000.
Our goal is to develop the premier health club network in each of the major metropolitan regions we serve. We believe that clustering clubs allows us to achieve strategic operating advantages that enhance our ability to achieve this goal. When entering new regions, we develop clusters by initially opening or acquiring clubs located in the more central urban markets of the region and then branching out from these urban centers to suburbs and ancillary communities. Capitalizing on this clustering of clubs, as of December 31, 2003, approximately 52% of our members participated in a membership plan that allows unlimited access to all of our clubs for a higher membership fee.
We have executed this strategy successfully in the New York region through the network of fitness clubs we operate under our New York Sports Club ("NYSC") brand name. We are the largest fitness club operator in Manhattan with 36 locations and operate a total of 86 clubs under the NYSC name within a defined radius of New York City. We operate 19 clubs in the Boston region and 15 clubs in the Washington, DC region under our Boston Sports Club ("BSC") and Washington Sports Club ("WSC") brand names, respectively and have begun establishing a similar cluster in the Philadelphia region with six clubs under our Philadelphia Sports Club ("PSC") brand name. In addition, we operate three clubs in Switzerland. We employ localized brand names for our clubs to create an image and atmosphere consistent with the local community and to foster recognition as a regional network of quality fitness clubs rather than a national chain.
We sell month-to-month membership payment plans that are generally cancelable by our members at any time with 30 days notice. Effective October, 2003 we also began to sell one and two year commit memberships at a discount to the month-to-month non-commit membership plan. The one year commit membership is typically the same monthly rate, which is paid monthly as the month-to-month plan but with a discounted initiation fee, and the two year commit memberships are typically at a 10% discount to the month-to-month plan also with a discounted initiation fee. As of December 31, 2003, approximately 81% of our members had a month-to-month non-commit membership plan. We believe members prefer to have the choice to commit for a year or two at a discount to the month-to-month plan or to have the flexibility of the month-to-month non-commit plan.
We have experienced significant growth over the past several years through a combination of (i) acquiring existing, privately owned, single and multi-club businesses, and (ii) developing and opening "greenfield" club locations (a greenfield club is a new location we have constructed). From January 1, 1999, to December 31, 2003, we acquired 21 existing clubs, opened 46 greenfield clubs, relocated five clubs, sold one club, and closed one club to increase our total clubs under operation from 69 to 129. We currently plan to open twelve more clubs prior to December 31, 2004. We have achieved revenue growth over the five year period ended December 31, 2003 at a compound annual rate of approximately 21.3% from $158.2 million for the year ended December 31, 1999 to $342.5 million for the year ended
December 31, 2003. This growth has been driven not only by the addition of acquired and greenfield club locations, but also through mature club revenue growth, which has ranged from 1.6% to 18.6% for the five year period ended December 31, 2003 and averaged 10.5% over that period. Such growth was 1.6% for the year ended December 31, 2003. Mature club, defined as those clubs that we operated for more than 24 months, revenue growth has enabled us to increase revenue per weighted average club over the five year period ended December 31, 2003. Revenue per weighted average club (as defined in Selected Financial Data) has risen from $2.1 million for the year ended December 31, 1999 to $2.7 million for the year ended December 31, 2003. Based on our historical experience, a new club tends to achieve significant increases in revenues during its first three years of operation as it matures. Because clubs experience little incremental cost associated with such revenue increases, we realize a greater proportionate increase in profitability. This operating leverage has allowed us to achieve consistent increases in cash flows from operations over the five year period ended December 31, 2003. Cash flows from operations improved from $29.5 million in 1999 to $58.3 million for the year ended December 31, 2003. Net income improved from $49,000 in 1999 to $7.4 million for the year ended December 31, 2003.
Over our 30-year history, we have developed and refined a model club format that allows us to cost effectively construct and efficiently operate our fitness clubs. Our urban model club ranges in size from approximately 15,000 to 25,000 square feet and averages approximately 20,000 square feet and our suburban clubs vary in size from 15,000 square feet to 75,000 square feet, with one club being 200,000 square feet. Excluding this single large club, our average suburban club is 25,000 square feet. Clubs typically have an open space to accommodate cardiovascular and strength-training exercise, as well as special purpose rooms to accommodate group fitness class instruction and other exercise programs as well as massage. Locker rooms generally include a sauna and steam room. We seek to provide a broad array of high quality exercise programs and equipment that is both popular and effective, while reinforcing the quality exercise experience we strive to make available to our members. We strive to establish at least one flagship club that has amenities such as swimming pools or racquet and basketball courts in each of our key target areas.
We engage in detailed site analyses and selection process based upon information provided by our customized development software to identify potential target areas for additional clubs based upon population demographics, psychographics, traffic and commuting patterns, availability of sites and competitive market information. In addition to our existing 129 clubs under operation and the seven sites for which we have entered into lease commitments, we have identified approximately 70 target areas in which we may add clubs under the brand names NYSC, BSC, WSC, or PSC. Once we begin to approach saturation of these regions, we will explore expansion opportunities in other markets in the United States sharing similar demographic characteristics to those in which we currently operate.
We possess an experienced management team, four of the top five executives of which have been working together at the Company since 1990. We believe that we have the depth, experience and motivation to manage our internal and external growth, and that we have put in place the infrastructure and systems to manage effectively our planned expansion. We believe that the presence of such infrastructure will enable us over time to leverage certain fixed cost aspects of corporate overhead to realize increased operating margins as we continue to expand our club base. This operating leverage has already helped us to increase operating income as a percent of revenue increased to 12.8% for the year ended December 31, 2003 compared to 6.9% in 1999.
INDUSTRY OVERVIEW
Demographic trends have helped fuel the growth experienced by the fitness industry over the past decade. The industry has benefited from the aging of the "baby boomer" generation (ages 39 to 57) and the coming of age of their offspring, the "echo boomers" (ages eight to 26). In 2001, Americans over the age of fifty-five account for 6.9 million members, up nearly fourfold since 1993. Government-sponsored reports, such as the Surgeon General's Report on Physical Activity & Health (1996) and the Call to Action to Prevent and Decrease Overweight and Obesity (2002) have helped to increase the general awareness of the benefits of physical exercise to these demographic segments over those of prior generations. Membership penetration (defined as club members as a percentage of the total U.S. population over the age of six) has increased significantly from 7.4% in 1990 to 13.5% in 2001.
FITNESS CLUB REVENUES(1)
(IN $ BILLIONS)
[FITNESS CLUB REVENUES BAR GRAPHIC]
(1) Industry revenues for 1991 and 1992 are not available.
U.S. FITNESS CLUBS MEMBERSHIP
(IN MILLIONS)
[FITNESS CLUB MEMBERSHIP BAR GRAPHIC]
Total U.S. fitness club industry revenues increased at a compound annual growth rate of 8.1% from $6.5 billion in 1993 to $13.1 billion in 2002, while the total number of clubs increased at a compound annual growth rate of 4.7%, from 12,146 in 1991 to 20,207 in 2002. Growth in club memberships outpaced club growth during this period, increasing at a compound annual growth rate of 5.1% from 20.9 million in 1991 to 36.3 million in 2002.
Notwithstanding these longstanding growth trends, the fitness club industry continues to be highly fragmented. Less than 10% of clubs in the United States are owned and operated by companies that own more than 25 clubs, and the two largest fitness club operators each generate less than 8% of total fitness club revenues.
As a large operator with recognized brand names, leading regional market shares and an established operating history, we believe we are well positioned to benefit from these favorable industry dynamics.
We believe that the growth in fitness club memberships is attributable to several factors. Americans are focused on achieving a healthier, more active and less stressful lifestyle. Of the factors members consider very important in their decision to join a fitness club, the most
commonly mentioned is health, closely followed by appearance related factors including muscle tone, looking better and weight control. We believe that the increased emphasis on appearance and wellness in the media has heightened the focus on self image and fitness and will continue to do so. We also believe that fitness clubs provide a more convenient venue for exercise than outdoor activities, particularly in densely populated metropolitan areas. According to published industry reports, convenience is an important factor in choosing a fitness club.
We believe the industry can be segregated into three tiers based upon price, service and quality: (i) an upper tier consisting of clubs with monthly membership dues averaging in excess of $95.00 per month; (ii) a middle tier consisting of clubs with monthly membership dues averaging between $45.00 and $95.00 per month; and (iii) a lower tier consisting of clubs with monthly membership dues averaging less than $45.00 per month. We compete in the middle tier in terms of pricing and because of our wide array of programs and services coupled with our commitment to customer service and our convenience to work and home we are positioned toward the upper end of this tier. Based upon the quality and service we provide to our members, we believe that we provide an attractive value to our members at the monthly membership dues we charge.
MARKETING
Our marketing campaign, which has become a large driver of the brand, is directed by our in-house media department which is headed by the Chief Executive Officer and the newly appointed V.P. of Marketing. This team develops advertising strategies to convey each of the our regionally branded networks as the premier network of fitness clubs in that region. Our media team's goal is to achieve broad awareness of our regional brand names primarily through radio, television, newspaper, billboard, and direct mail advertising. We believe that clustering clubs creates economies in our marketing and advertising strategy that increase the efficiency and effectiveness of these campaigns.
Advertisements generally feature creative slogans that communicate the serious approach we take toward fitness in a provocative and/or humorous tone, rather than pictures of our clubs, pricing specials or members exercising. Promotional marketing campaigns will typically feature opportunities to participate in value-added services such as personal training for a limited time at a discount to the standard rate. We will also offer reduced initiation fees to encourage enrollment. Additionally, we frequently sponsor member referral incentive programs. Such incentive programs include a free month of membership, personal training sessions, and sports equipment.
We also engage in public relations and special events to promote our image in the local communities. We believe that these public relations efforts enhance our image and the image of our local brand names in the communities in which we operate. We also seek to build our community image through co-operative advertising campaigns with local and regional retailers.
We maintain the following web site: www.mysportsclubs.com that provides information about club locations, program offerings, exercise class schedules and on-line promotions. Our web site provides our members a venue to give us direct feedback on all of our services and offerings. We also use our web site to promote career opportunities.
SALES
Sales of new memberships are generally handled at the club level. We employ approximately 465 "in-club" membership consultants who are responsible for new membership sales. Each club generally has two or three full-time and one part-time membership consultants. These consultants report both to our area sales managers, who in turn report to our Vice President Sales. Membership consultants' compensation consists of a base salary plus commission. Sales commissions range from $45 to $70 per new member enrolled. We provide additional
incentive-based compensation in the form of bonuses contingent upon individual, club and Company-wide enrollment goals. Membership consultants must successfully complete a three-month, in-house training program through which they learn our sales strategy. In making a sales presentation, membership consultants emphasize: (i) the proximity of our clubs to concentrated commercial and residential areas convenient to where target members live and work; (ii) for non-commit membership plans, the lack of a long-term obligation on the part of the enrollee; (iii) the price value relationship of a Town Sports membership; and (iv) access to value-added services. We believe that providing employees with opportunities for career advancement is essential to our ability to attract and retain qualified sales personnel. We also employ seven full-time corporate sales managers whose responsibility is to solicit group memberships through senior level corporate contacts.
We believe that clustering clubs allows us to sell memberships based upon the opportunity for members to utilize multiple club locations to differing degrees. We have a streamlined membership structure to simplify the sales process. In addition, our proprietary centralized computer software ensures consistency of pricing and controls enrollment processing at the club level. We generally offer three principal types of memberships:
The Passport Membership, priced from $45 to $92 per month, is our higher priced membership and entitles members to use any Town Sports club at any time. This membership is held by approximately 52% of our members. In addition, we have introduced a Passport Premium membership for a select club, that includes more member services, at a price greater than $100 per month.
The Gold Membership, priced from $39 to $84 per month based on the market area of enrollment, enables members to use a specific club, or a group of specific clubs, at any time and any Town Sports club during off-peak times. This membership is held by over 47% of our members.
The Off-peak Membership, priced from $39 to $75 per month, is the least expensive membership, and allows members to use any Town Sports club only during off-peak times. This membership is held by approximately 1% of our members.
We also offer corporate membership plans that vary in price depending on the respective corporation's needs. The corporate membership plans are typically at a discount to that of individual membership plans.
By clustering a group of clubs in a geographic area, the value of our memberships is enhanced by our ability to offer Passport Memberships, which allow our members to use any of our clubs at any time. We believe the popularity of the Passport Membership results from the broader privileges and greater convenience this membership plan provides through the opportunity for members to access club facilities near to both their homes and workplace. Our clustering strategy also allows us to provide access to special facilities and programs such as tennis, squash, basketball and racquetball courts, swimming pools and programs targeted at children and other groups, through flagship locations strategically located in key target areas, without offering such facilities or programs in every location.
In joining a club, a new member signs a membership agreement which obligates the member to pay a one-time initiation fee and monthly dues on an ongoing basis. Monthly Electronic Funds Transfer "EFT" of individual membership dues averaged approximately $70 per month for the year ended December 31, 2003. During that same period, initiation fees averaged $74 for EFT members. We collect 92.8% of all monthly membership dues through EFT and EFT revenue constituted over 73% of consolidated revenue for the year ended December 31, 2003. Substantially all other membership dues are paid in advance. Based upon a study of the membership base at our clubs open over 24 months, the average length of our memberships is approximately 24 months. Our membership agreements call for monthly dues
to be collected by EFT based on credit card or bank account debit authorization contained in the agreement. We believe that our EFT program of monthly dues collection provides a predictable and stable cash flow for us, eliminates the traditional accounts receivable function, and minimizes bad-debt write-offs while providing a significant competitive advantage in terms of the sales process, dues collection, and working capital management. In addition, it enables us to increase our dues in an efficient and consistent manner which we typically do annually by between 1% and 3%, in line with cost of living increases. During the first week of each month, we receive the EFT dues for that month initiated by a third party EFT processor. Discrepancies and insufficient funds incidents are researched and resolved by our in-house staff. For the year ended December 31, 2003, we experienced an average of uncollected EFT dues of 1.3%.
Our total monthly EFT revenue has increased by $10.1 million or 88.6% from $11.4 million in December, 1999 to $21.5 million in December, 2003. While we strongly encourage monthly EFT memberships, approximately 7% of our members (often corporate group members) purchase paid-in-full memberships for a one year term.
ANCILLARY REVENUE
Over the past five years we have expanded the level of ancillary services provided to our members. Ancillary revenue has increased by $28.7 million from $17.3 million in 1999 to $46.0 million in 2003. Increases in personal training revenue in particular have contributed to $18.9 million of the increase in ancillary revenue from 1999 to 2003. In addition the Company has added Sports Club for Kids and Group Exclusives (both additional fee for service programs) at selected clubs. Ancillary revenue as a percentage of total revenue has increased from 10.9% for the year ended December 31, 1999 to 13.4% for the year ended December 31, 2003. Personal training revenue as a percentage of sales increased from 7.7% of revenue in 1999 to 9.1% of revenue in 2003.
CLUB FORMAT AND LOCATIONS
Our clubs are typically located in well-established, higher-income residential, commercial or mixed urban neighborhoods within major metropolitan areas which are capable of supporting the development of a cluster of clubs. Our clubs generally have relatively high "retail" visibility, and close proximity to transportation. In the New York City, Boston and Washington, DC markets, we have created clusters of clubs in urban areas and their commuter suburbs in accordance with our operating strategy of offering our target members the convenience of multiple locations close to where they live and work, reciprocal use privileges and standardized facilities and services. We have begun establishing a similar cluster in Philadelphia.
Approximately half of the clubs we operate are urban clubs while half are suburban. Our urban clubs generally range in size from 15,000 to 25,000 square feet and average approximately 20,000 square feet. Our suburban clubs vary in size from 15,000 square feet to 75,000 square feet, with one club being 200,000 square feet. Excluding this single large club, the average suburban club is 25,000 square feet. Membership for each club generally ranges from 2,000 to 4,500 members at maturity. Although club members represent a cross-section of the population in a given geographic market, our target member is college educated, between the ages of 21 and 50 and has an annual income of between $50,000 and $150,000.
Our facilities include state-of-the-art cardiovascular equipment, including upright and recumbent bikes, steppers, treadmills, and elliptical motion machines; strength equipment and free weights, including Cybex, Icarian, Nautilus, Free Motion, and Hammer Strength equipment; group exercise and cycling studio(s); the Sportsclub Network entertainment system; locker rooms, including shower facilities, towel service, and other amenities such as, saunas and steamrooms; babysitting, and a retail shop. Personal training services are offered at all locations and massage is offered at most clubs, each at an additional charge. At certain flagship
locations, additional facilities also are offered, including swimming pools, racquet and basketball courts. Also, we have significantly expanded the availability of fee-based programming at many of our clubs, including programs targeted at children, members and non-member adult customers.
We have completed the launch of our Xpressline strength workout. Xpressline is a trainer-supervised, eight-station total-body circuit workout designed to accommodate all fitness levels. This service is a free service provided to our members. We have also introduced FitMap, which is a visual tool that provides our members with guidance on how to use our equipment through safe progressions of difficulty.
We have over 5,000 Sportsclub Network personal entertainment units installed in our clubs. The units are typically mounted on cardiovascular equipment and are equipped with a color screen for television viewing, a compact disk player and most models have audio cassette players. The Sportsclub Network also broadcasts our own personalized music video channel that provides us with a direct means of advertising products and services to our membership base.
CLUB SERVICES AND OPERATIONS
We emphasize consistency and quality in all of our club operations, including:
Management. We believe that our success is largely dependent on the selection and training of our staff and management. Our management structure is designed, therefore, to support the professional development of highly motivated managers who will execute our directives and support growth.
Corporate departments are responsible for each area of club services, such as exercise group programs, fitness programming, personal training, facility and equipment maintenance, housekeeping and laundry. This centralization allows local general managers at each club to focus on customer service, club staffing and providing a high quality exercise experience. General managers are responsible for the day-to-day management of each club, and directly report to district managers, who liaise with senior operations management and other corporate staff ensuring consistent service at all locations.
Personal Training. All of our fitness clubs offer one-on-one personal training, which is sold by the single session or in multi-session packages. We have implemented a comprehensive staff education curriculum which progresses from basic knowledge and practical skills to advanced concepts and training techniques. Our education program provides professional standards to ensure that our trainers provide superior service and fitness expertise to our members. There are four levels of professional competency for which different levels of compensation are paid, with mandatory requirements trainers must meet in order to achieve and maintain such status. We believe the qualifications of the personal training staff helps ensure that members receive a consistent level of quality service throughout our club base. We believe that our personal training programs provide valuable guidance to our members and a significant source of incremental revenue from value-added services. In addition, we believe that members who participate in personal training programs have a longer membership life.
Group Fitness. Our commitment to providing a quality workout experience to our members extends to the employment of program instructors, who teach aerobics, cycling, strength conditioning, boxing, yoga, pilates and step aerobics classes, among others. Our clustering strategy enables us to staff program instructors and professional personal trainers at more than one club. As a result, we can vary a given club's instructors, while providing instructors sufficient classes to effectively and economically treat these instructors as full-time employees. All program instructors report to a centralized management structure, headed by the Vice President of Programs and Services whose department is responsible for overseeing auditions
and providing in-house training to keep instructors current in the latest training techniques and program offerings. We also provide Group Exclusive offerings to our members, which are for-fee based programs that have smaller groups and provide more focused, and typically more advanced training classes. Some examples of these offerings include: Pilates, boxing camps, and cycling.
Sports Clubs for Kids. During 2000, we began offering programs for children under the Sports Club for Kids ("SCFK") brand. As of December 2003, SCFK was operating in 15 locations throughout our NYSC, BSC, and PSC regions. In addition to extending fitness offerings to a market not previously served by us, we expect that SCFK programming will help position our suburban clubs as family clubs, which should provide us with a competitive advantage. Depending upon the facilities available at a location, Sports Clubs for Kids programming can include traditional youth offerings such as day camps, sports camps, swim lessons, hockey and soccer leagues, gymnastics, dance, martial arts and birthday parties. It also can include innovative and proprietary programming such as Kidspin Theater, a multi-media cycling experience, and non-competitive "learn-to-play" sports programs. In selected locations we also offer laser tag.
Employee Compensation and Benefits. We provide performance-based incentives to our management. Senior management compensation, for example, is tied to our overall performance. Departmental directors, district managers and general managers have bonuses tied to financial and member retention targets for a particular club or group of clubs. We offer our employees various benefits including; health, dental, disability, insurance, pre-tax healthcare and dependent care accounts, and a 401(k) plan. We believe the availability of employee benefits provides us with a strategic advantage in attracting and retaining quality managers, program instructors and professional personal trainers and that this strategic advantage in turn translates into a more consistent and higher quality workout experience for those members who utilize such services.
PROPRIETARY CENTRALIZED INFORMATION SYSTEMS
We are utilizing a proprietary system developed internally to track and analyze sales, leads, and membership statistics, the frequency of member workouts, multi-club utilization, value-added services and demographic profiles by member, which enables us to develop targeted direct marketing programs and to modify our broadcast and print advertising to improve consumer response. This system also assists us in evaluating staffing needs and program offerings. In addition, we rely on certain data gathered through our information systems to assist in the identification of new markets for clubs and site selection within those markets.
INFORMATION SYSTEM DEVELOPMENTS
We recognize the value of enhancing and extending the uses of information technology in virtually every area of our business. After developing an information technology strategy to support the business strategy, we developed a comprehensive multi-year plan to replace or upgrade key systems.
During 2001, we implemented a new time capture system that integrates with our payroll processing system. This system integrates with the new club management system to fully automate the various compensation plans for all employees. In addition, during 2002, we implemented a new budgeting and forecasting product that was expanded in 2003 for data warehousing capabilities which will enable enhanced managerial and analytical reporting. We implemented application and telephone systems to manage our internal customer service center which supports information technology, facilities, equipment and Sportsclub Network service call requests for all locations. Numerous infrastructure changes were implemented to accommo-
date our growth, to provide network redundancy, efficiencies in operations, and to improve management of all components of the technical architecture.
In 2003 we implemented a new fully integrated club management system. This system incorporates contemporary browser-based technology and open architecture to allow for scalability to support our projected growth and diversification of services. This system provides enhanced or new functionality for member services, contract management, electronic billing, point of sale, scheduling resources, and reservations.
Our website will be expanded in 2004 to incorporate e-business functionality such as sales of products, services and memberships. We have built an intranet to provide the portal for the newly implemented browser-based application. Development of intranet features to support corporate communications, human resources programs, and training is ongoing.
In 2004, we will also implement an updated Disaster Recovery plan that will include a designated "hot site", recovery procedures, data restoration testing, and training of personnel.
STRATEGIC PLANNING
During 2001, the Company began a strategic planning process. That process, spearheaded by the Chairman and the Chief Executive Officer, produced a new set of Core Values, a revised Mission Statement and a set of five-year performance targets. In 2002, more than 40 projects were completed in support of the Plan's Strategic Initiatives and Objectives. Our Chairman and Chief Executive led the strategy process, which produced significant changes in our approach to our Brand, our Core Business Development process and our Intranet strategy.
The Strategic Plan was updated in 2003 with new Strategic Initiatives in several areas. Senior Management continues to support the Strategic Planning process and believes that accomplishing our strategic objectives will cause us to attain the five-year performance targets outlined in the 2003 Plan.
INTELLECTUAL PROPERTY
We have registered, various trademarks and service marks with the U.S. Patent and Trademark Office, including NEW YORK SPORTS CLUBS, WASHINGTON SPORTS CLUBS, BOSTON SPORTS CLUBS, PHILADELPHIA SPORTS CLUBS, TSI, AND TOWN SPORTS INTERNATIONAL, INC. We continue to register other trademarks and service marks as they are created.
COMPETITION
The fitness club industry is highly competitive and continues to become more competitive as the number of health clubs in the U.S. has increased from 12,146 in 1991 to 20,207 in 2002. We compete with other fitness clubs, physical fitness and recreational facilities established by local governments and hospitals and by businesses for their employees, amenity and condominium clubs, the YMCA and similar organizations and, to a certain extent, with racquet and tennis and other athletic clubs, country clubs, weight reducing salons and the home-use fitness equipment industry. We also compete with other entertainment and retail businesses for the discretionary income of our target markets. There can be no assurance that we will be able to compete effectively in the future in the markets in which we operate. Competitors, which may include companies which are larger and have greater resources than we have, may enter these markets to our detriment. These competitive conditions may limit our ability to increase dues without a material loss in membership, attract new members and attract and retain qualified personnel. Additionally, consolidation in the fitness club industry could result in increased competition among participants, particularly large multi-facility operators that are able to compete for attractive acquisition candidates, and real estate availability thereby increasing costs associated with expansion through both acquisitions, and greenfields.
We believe that our market leadership, experience and operating efficiencies enable us to provide the consumer with a superior product in terms of convenience, quality service and affordability. We believe that there are significant barriers to entry in our urban markets, including restrictive zoning laws, lengthy permit processes and a shortage of appropriate real estate, which could discourage any large competitor from attempting to open a chain of clubs in these markets. However, such a competitor could enter these markets more easily through one or a series of acquisitions.
EMPLOYEES
At December 31, 2003, the Company had approximately 7,200 employees, of which approximately 2,750 were employed full-time. Approximately 325 employees were corporate personnel working in the Manhattan, Boston or Washington, DC offices. We are not a party to any collective bargaining agreement with our employees. We have never experienced any significant labor shortages nor had any difficulty in obtaining adequate replacements for departing employees and consider our relations with our employees to be good. We believe that we offer employee benefits (including health, dental, disability insurance, pre-tax healthcare and dependent care accounts, and a 401(k) plan) which are superior to those generally offered by our competitors.
GOVERNMENT REGULATION
Our operations and business practices are subject to regulation at the federal, state and, in some cases, local levels. State and local consumer protection laws and regulations govern our advertising, sales and other trade practices.
Statutes and regulations affecting the fitness industry have been enacted in states in which we conduct business; many other states into which we may expand have adopted or likely will adopt similar legislation. Typically, these statutes and regulations prescribe certain forms and provisions of membership contracts, afford members the right to cancel the contract within a specified time period after signing, require an escrow of funds received from pre-opening sales or the posting of a bond or proof of financial responsibility, and may establish maximum prices for membership contracts and limitations on the term of contracts. In addition, we are subject to numerous other types of federal and state regulations governing the sale of memberships. These laws and regulations are subject to varying interpretations by a number of state and federal enforcement agencies and the courts. We maintain internal review procedures in order to comply with these requirements, and believe that our activities are in substantial compliance with all applicable statutes, rules and decisions.
Under so-called state "cooling-off" statutes, a member has the right to cancel his or her membership for a period of three to ten days (depending on the applicable state law) and, in such event, is entitled to a refund of any initiation fee paid. In addition, our membership contracts provide that a member may cancel his or her membership at any time for medical reasons or relocation a certain distance from the nearest club. The specific procedures for cancellation in these circumstances vary due to differing state laws. In each instance, the canceling member is entitled to a refund of prepaid amounts only. Furthermore, where permitted by law, a cancellation fee is due upon cancellation and we may offset such amount against any refunds owed.
PROPERTIES
The following table provides information regarding our club locations:
DATE OPENED OR MANAGEMENT
LOCATION ADDRESS ASSUMED
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NEW YORK SPORTS CLUBS:
1. Manhattan 151 East 86th Street January, 1977
2. Manhattan 61 West 62nd Street July, 1983
3. Manhattan 614 Second Avenue July, 1986
4. Manhattan 151 Reade Street January, 1990
5. Manhattan 1601 Broadway September, 1991
6. Manhattan 50 West 34th Street August, 1992
7. Manhattan 349 East 76th Street April, 1994
8. Manhattan 248 West 80th Street May, 1994
9. Manhattan 502 Park Avenue February, 1995
10. Manhattan 117 Seventh Avenue South March, 1995
11. Manhattan 303 Park Avenue South December, 1995
12. Manhattan 30 Wall Street May, 1996
13. Manhattan 1635 Third Avenue October, 1996
14. Manhattan 575 Lexington Avenue November, 1996
15. Manhattan 278 Eighth Avenue December, 1996
16. Manhattan 200 Madison Avenue February, 1997
17. Manhattan 131 East 31st Street February, 1997
18. Manhattan 2162 Broadway November, 1997
19. Manhattan 633 Third Avenue April, 1998
20. Manhattan 1657 Broadway July, 1998
21. Manhattan 217 Broadway March, 1999
22. Manhattan 23 West 73rd Street April, 1999
23. Manhattan 34 West 14th Street July, 1999
24. Manhattan 503-511 Broadway July, 1999
25. Manhattan 1372 Broadway October, 1999
26. Manhattan 300 West 125th Street May, 2000
27. Manhattan 102 North End Avenue May, 2000
28. Manhattan 14 West 44th Street August, 2000
29. Manhattan 128 Eighth Avenue December, 2000
30. Manhattan 2521-23 Broadway August, 2001
31. Manhattan 3 Park Avenue August, 2001
32. Manhattan 19 Irving Place November, 2001
33. Manhattan 160 Water Street November, 2001
34. Manhattan 230 West 41st Street November, 2001
35. Manhattan 1221 Avenue of the Americas January, 2002
36. Manhattan 200 Park Avenue December, 2002
37. Brooklyn, NY 110 Boerum Place October, 1985
38. Brooklyn, NY 1736 Shore Parkway June, 1998
39. Brooklyn, NY 179 Remsen Street May, 2001
40. Brooklyn, NY 453 Fifth Avenue August, 2003
41. Queens, NY 69-33 Austin Street April, 1997
42. Queens, NY 153-67 A Cross Island Parkway June, 1998
43. Queens, NY 2856-2861 Steinway Street February, 2004
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DATE OPENED OR MANAGEMENT
LOCATION ADDRESS ASSUMED
-------------------------------------------------------------------------------------------
44. Staten Island, NY 300 West Service Road June, 1998
45. Scarsdale, NY 696 White Plains Road October, 1995
46. Mamaroneck, NY 124 Palmer Avenue January, 1997
47. White Plains, NY 1 North Broadway September, 1997
48. Croton-on-Hudson, NY 420 South Riverside Drive January, 1998
49. Larchmont, NY 15 Madison Avenue December, 1998
50. Nanuet, NY 58 Demarest Mill Road May, 1998
51. Great Neck, NY 15 Barstow Road July, 1989
52. East Meadow, NY 625 Merrick Avenue January, 1999
53. Commack, NY 6136 Jericho Turnpike January, 1999
54. Oceanside, NY 2909 Lincoln Avenue May, 1999
55. Long Beach, NY 265 East Park Avenue July, 1999
56. Garden City, NY 833 Franklin Avenue May, 2000
57. Huntington, NY 350 New York Avenue February, 2001
58. Syosset, NY 49 Ira Road March, 2001
59. West Nyack, NY 3656 Palisades Center Drive February, 2002
60. Woodmere, NY 158 Irving Street March, 2002
61. Stamford, CT 6 Landmark Square December, 1997
62. Stamford, CT 16 Commerce Road January, 1998
63. Danbury, CT 38 Mill Plain Road January, 1998
64. Stamford, CT 1063 Hope Street November, 1998
65. Norwalk, CT 250 Westport Avenue March, 1999
66. Greenwich, CT 6 Liberty Way May, 1999
67. Westport, CT 427 Post Road, East January, 2002
68. Greenwich, CT 67 Mason Street February, 2004
69. East Brunswick, NJ 8 Cornwall Court January, 1990
70. Princeton, NJ 301 North Harrison Street May, 1997
71. Freehold, NJ 200 Daniels Way April, 1998
72. Matawan, NJ 163 Route 34 April, 1998
73. Old Bridge, NJ Gaub Road and Route 516 April, 1998
74. Marlboro, NJ 34 Route 9 North April, 1998
75. Fort Lee, NJ 1355 15th Street June, 1998
76. Ramsey, NJ 1100 Route 17 North June, 1998
77. Mahwah, NJ 7 Leighton Place June, 1998
78. Parsippany, NJ 2651 Route 10 August, 1998
79. Springfield, NJ 215 Morris Avenue August, 1998
80. Colonia, NJ 1250 Route 27 August, 1998
81. Franklin Park, NJ 3911 Route 27 August, 1998
82. Plainsboro, NJ 10 Schalks Crossing August, 1998
83. Somerset, NJ 120 Cedar Grove Lane August, 1998
84. Hoboken, NJ 221 Washington Street October, 1998
85. West Caldwell, NJ 913 Bloomfield Avenue April, 1999
86. Jersey City, NJ 147 Two Harborside Financial Center June, 2002
87. Newark, NJ 1 Gateway Center October, 2002
88. Ridgewood, NJ 129 S. Broad Street June, 2003
89. Westwood, NJ 35 Jefferson Avenue Opening 2004
90. Livingston, NJ 39 W. North Field Rd. Opening 2004
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DATE OPENED OR MANAGEMENT
LOCATION ADDRESS ASSUMED
-------------------------------------------------------------------------------------------
91. Hoboken, NJ 1225 Willow Avenue Opening 2005
BOSTON SPORTS CLUBS:
92. Boston, MA 561 Boylston Street November, 1991
93. Allston, MA 15 Gorham Street July, 1997
94. Boston, MA 1 Bulfinch Place August, 1998
95. Natick, MA Sherwood Plaza, 124 Worcester Rd September, 1998
96. Weymouth, MA 553 Washington Street May, 1999
97. Boston, MA 201 Brookline Avenue June, 2000
98. Wellesley, MA 140 Great Plain Avenue July, 2000
99. Andover, MA 307 Lowell Street July, 2000
100. Lynnfield, MA 425 Walnut Street July, 2000
101. Lexington, MA 475 Bedford Avenue July, 2000
102. Franklin, MA 750 Union Street July, 2000
103. Framingham, MA 1657 Worcester Street July, 2000
104. Danvers, MA 50 Ferncroft Road July, 2000
105. Cambridge, MA 625 Massachusetts Avenue January, 2001
106. East Cambridge, MA 6 Museum Way January, 2001
107. Boston, MA 361 Newbury Street November, 2001
108. West Newton, MA 1359 Washington Street November, 2001
109. Boston, MA 350 Washington Street February, 2002
110. Waltham, MA 840 Winter Street November, 2002
WASHINGTON SPORTS CLUBS:
111. Washington, D.C. 214 D Street, S.E. January, 1980
112. Washington, D.C. 1835 Connecticut Avenue, N.W. January, 1990
113. Washington, D.C. 1990 M Street, N.W. February, 1993
114. Washington, D.C. 2251 Wisconsin Avenue, N.W. May, 1994
115. Washington, D.C. 1211 Connecticut Avenue, N.W. July, 2000
116. Washington, D.C. 1345 F Street, N.W. August, 2002
117. Washington, D.C. 5346 Wisconsin Ave., N.W. February, 2002
118. Washington, D.C. 1990 K Street, N.W. February, 2004
119. Washington, D.C. 7th & H Street, N.W. Opening 2004
120. Bethesda, MD 4903 Elm Street May, 1994
121. North Bethesda, MD 10400 Old Georgetown Road June, 1998
122. Germantown, MD 12623 Wisteria Drive July, 1998
123. Silver Spring, MD Wayne Ave Opening 2004
124. Alexandria, VA 3654 King Street June, 1999
125. Sterling, VA 21800 Town Center Plaza October, 1999
126. Fairfax, VA 11001 Lee Highway October, 1999
127. West Springfield, 8430 Old Keene Mill September, 2000
VA
128. Clarendon, VA 2700 Clarendon Boulevard November, 2001
PHILADELPHIA SPORTS CLUBS:
129. Philadelphia, PA 220 South 5th Street January, 1999
130. Philadelphia, PA 2000 Hamilton Street July, 1999
131. Chalfont, PA One Highpoint Drive January, 2000
132. Cherry Hill, NJ Route 70 and Kings Highway April, 2000
133. Philadelphia, PA 1735 Market Street October, 2000
134. Ardmore, PA 34 W. Lancaster Avenue March, 2002
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DATE OPENED OR MANAGEMENT
LOCATION ADDRESS ASSUMED
-------------------------------------------------------------------------------------------
SWISS SPORTS CLUBS:
135. Basel, Switzerland St. Johanns-Vorstadt 41 August, 1987
136. Zurich, Switzerland Glarnischstrasse 35 August, 1987
137. Basel, Switzerland Basel FC Soccer Stadium August, 2001
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We have also signed two leases for greenfield club development. These locations are, however, part of development projects and are subject to various conditions, including delivery of the space as specified in the lease.
We own the 151 East 86th Street location, which houses a fitness club and a retail tenant that generated $614,000 of rental income for us during the year ended December 31, 2003. Our fitness clubs occupy leased space pursuant to long-term leases (generally 15 to 25 years, including options). In the next five years (ending December 31, 2008), only one of our fitness club leases will expire without any renewal option.
We lease approximately 40,000 square feet of office space in New York City, and have smaller regional offices in Fairfax, VA, East Brunswick, NJ, Old Bridge, NJ, Philadelphia, PA, Stamford, CT and Wakefield, MA, for administrative and general corporate purposes. We also lease warehouse and commercial space in Long Island City, New York, NY and Brooklyn, NY, for storage purposes and for the operation of a centralized laundry facility for certain New York fitness clubs.
As of December 31, 2003, 127 of the existing fitness clubs were wholly owned by us and two were managed and partly owned (the "Partly Owned Clubs"). In addition, we provide management services at two fitness clubs in which we have no equity interest.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and a brief account of the business experience of each person who is a director or executive officer of Town Sports.
NAME AGE POSITION
---- --- --------
Mark Smith............................. 44 Chairman and Director
Robert Giardina........................ 46 Chief Executive Officer, Office of the President
Alexander Alimanestianu................ 45 Chief Development Officer, Office of the
President
Richard Pyle........................... 45 Chief Financial Officer, Office of the President
Randy Stephen.......................... 46 Chief Operating Officer
Robert S. Herbst....................... 45 Vice President and General Counsel
Keith E. Alessi........................ 49 Director
Paul Arnold............................ 57 Director
Bruce Bruckmann........................ 50 Director
J. Rice Edmonds........................ 33 Director
Jason Fish............................. 46 Director
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Mark Smith joined us in 1985 and has served as Chief Executive Officer from 1995 to 2001 and became Chairman in January 2002. Prior to these appointments, he held the position of Executive Vice President of Development and International Operations. Mr. Smith has also served as a director since September 1995. He was appointed to the Board of the International Health, Racquet and Sportsclub Association (the club industry trade association) in 2001. Before joining us, Mr. Smith was a chartered accountant with Coopers & Lybrand in New York City, London and New Zealand, and a professional squash player.
Robert Giardina joined us in 1981 and has served as President and Chief Operating Officer from 1992 to 2001, and became Chief Executive Officer in January 2002. With over 20 years of experience in the club industry, Mr. Giardina has expertise in virtually every aspect of facility management and club operations. In addition to operations, Mr. Giardina has primary responsibility for sales and marketing.
Alexander Alimanestianu joined us in 1990 and became Executive Vice President, Development in 1995 and Chief Development Officer in January 2002. From 1990 to 1995, Mr. Alimanestianu served as Vice President and Senior Vice President. Before joining us, he worked as a corporate attorney for six years with one of our outside law firms. Mr. Alimanestianu has been involved in the development or acquisition of over 100 of our clubs.
Richard Pyle, a British chartered accountant, joined us in 1987 and has been chiefly responsible for our financial matters since that time, as a Vice President in 1988, Senior Vice President and Chief Financial Officer in 1992 and Executive Vice President and Chief Financial Officer in 1995, successively. Before joining us, Mr. Pyle worked in public accounting (in the United States, Bermuda, Spain and England) specializing in the hospitality industry, and as the corporate controller for a British public company in the leisure industry.
Randy Stephen joined us in 2002 as Chief Operating Officer. Prior to joining us and since 1987, Mr. Stephen held various positions with Circuit City Stores, including Director of Human Resources and General Manager. In 1995, he was appointed Circuit City Stores' Vice President, Corporate Operations, focusing on marketing, promotions and business process re-engineering and in 1996 he became the Northeast Division President. Prior to 1987, Mr. Stephen worked
with several premier retailers including Eastern Mountain Sports, Eddie Bauer, Keeger & Sons and Britches of Georgetown.
Robert S. Herbst joined us in November 2003 as Vice President and General Counsel. From 1984 through 1995, Mr. Herbst was an attorney in private practice in New York City. He served as Assistant General Counsel of Coty Inc. from 1999 through 2003 and as Senior Corporate Counsel of Pfizer Inc. from 1995 through 1999. Mr. Herbst has a broad background in the fitness industry, having been a competitive powerlifter and coach for more than 20 years.
Keith E. Alessi has served as a director of Town Sports since April 1997. Mr. Alessi is an adjunct professor of Law at Washington and Lee University School of Law. Mr. Alessi served as President, Chief Executive Officer and a director of Telespectrum Worldwide, Inc. from March 1998 to April 2000. From May 1996 to March 1998, Mr. Alessi served as Chairman, President and Chief Executive Officer of Jackson Hewitt, Inc.
Paul Arnold has served as a director of Town Sports since April 1997. Mr. Arnold has served as Chairman and Chief Executive Officer of Cort Business Services, Inc., a Berkshire Hathaway Company, since 2000. From 1992 to 2000, Mr. Arnold served as President, Chief Executive Officer and Director of Cort Business Services. Prior to 1992, Mr. Arnold held various positions over a 24 year period within Cort Furniture Rental, a division of Mohasco Industries. Mr. Arnold is currently a Director of Relocation Central Corp. and Penhall International, Inc.
Bruce Bruckmann has served as a director of Town Sports since December 1996. Since 1994, Mr. Bruckmann has served as Managing Director of BRS. From 1983 until 1994, Mr. Bruckmann served as an officer and subsequently a Managing Director of Citicorp Venture Capital, Ltd. Mr. Bruckmann is currently a director of Penhall International, Inc., Mohawk Industries, Inc., H&E Equipment Services L.L.C. and Anvil Knitwear, Inc. and a director of several private companies.
J. Rice Edmonds has served as a director of Town Sports since July 2002. Mr. Edmonds is a Principal of BRS. Prior to joining BRS in 1996, Mr. Edmonds worked in the high yield finance group of Bankers Trust. Mr. Edmonds is currently a director of H&E Equipment Services L.L.C. and several other private companies.
Jason Fish has been a director of Town Sports since December 1996. Mr. Fish is a co-founder and President of CapitalSource Inc., and a member of CapitalSource's board of directors, a position he has held since September 2000. Prior to founding CapitalSource, Mr. Fish was employed from 1990 to 2000 by Farallon Capital Management, L.L.C., serving as a managing member from 1992 to 2000. Before joining Farallon, Mr. Fish worked at Lehman Brothers Inc., where he was a Senior Vice President responsible for its financial institution investment banking coverage on the West Coast.
EXECUTIVE COMPENSATION
The following summarizes, for the year indicated, the principal components of compensation for our Chief Executive Officer and the other four highest compensated executive officers (collectively, the "named executive officers"). The compensation set forth below fully reflects compensation for work performed on our behalf.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
COMMON
STOCK
OTHER ANNUAL UNDERLYING
SALARY BONUS (1) COMPENSATION OPTIONS/SARS
NAME AND PRINCIPAL POSITION PERIOD ($) ($) ($) (#)
--------------------------- ------ ------- --------- ------------ ------------
Mark Smith.......................... 2003 434,594 511,133 -- 6,000
Chairman 2002 426,072 429,224 -- --
2001 413,662 364,597 -- --
Robert Giardina..................... 2003 412,179 406,227 -- 6,000
Chief Executive Officer, 2002 404,097 327,312 -- --
Office of the President 2001 392,327 276,678 -- --
Richard Pyle........................ 2003 306,270 251,746 -- 5,000
Chief Financial Officer, 2002 236,539 252,815 -- --
Office of the President 2001 215,035 216,258 -- --
Alexander Alimanestianu............. 2003 306,270 251,746 -- 5,000
Chief Development Officer, 2002 236,539 252,815
Office of the President 2001 215,035 216,258 -- --
Randy Stephen....................... 2003 225,000 95,755 -- 4,000
Chief Operating Officer,
Senior Vice President
Deborah Smith(2).................... 2002 178,098 171,690 -- --
Senior Vice President, 2001 172,911 145,839 -- --
Operations
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(1) Includes annual bonus payments under our Annual Bonus Plan.
(2) Ms. Smith has resigned her position with the Company effective January 2003.
OPTION/SAR GRANTS DURING THE YEAR ENDED DECEMBER 31, 2003
In 2003 common stock options with an exercise price of $144.00 and a term of ten years were granted to named executive officers as follows:
Mark Smith........................................... 6,000 Robert Giardina...................................... 6,000 Richard Pyle......................................... 5,000 Alexander Alimanestianu.............................. 5,000 Randy Stephen........................................ 4,000 |
AGGREGATED OPTION/SAR EXERCISES DURING THE YEAR ENDED DECEMBER 31, 2003 AND 2003 YEAR-END OPTION/SAR VALUES
The following summarizes exercises of stock options (granted in prior years) by the named executive officers during the year ended December 31, 2003 as well as the number and value of all unexercised options held by the named executive officers as of December 31, 2003.
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES AT FY-END (#) AT FY-END ($)(1)
ACQUIRED ON VALUE VALUE EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
EXERCISE (#) REALIZED ($) REALIZED ($) ------------------------- -------------------------
NAME COMMON COMMON PREFERRED COMMON COMMON PREFERRED
---- ------------ ------------ ------------ ------------------------- ----------- -----------
Mark Smith........... -- -- $2,479,901 10,030/4,800 529,800/0 --
Robert Giardina...... -- -- 1,899,575 10,029/4,800 529,740/0 --
Richard Pyle......... -- -- 1,596,961 9,828/4,000 529,680/0 --
Alexander
Alimanestianu...... -- -- 1,575,547 9,828/4,000 529,680/0 --
Randy Stephen........ -- -- -- 800/3,200 -- --
Deborah Smith........ 540,653 5,750/0 338,400/0 --
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TOWN SPORTS INTERNATIONAL, INC. STOCK OPTION PLAN
Our board of directors has adopted a stock option plan, which provides for the grant to some of our key employees and/or directors of stock options. The compensation committee of our board of directors administers the stock option plan. The compensation committee has broad powers under the stock option plan, including exclusive authority (except as otherwise provided in the stock option plan) to determine:
(1) who will receive awards,
(2) the type, size and terms of awards,
(3) the time when awards will be granted, and
(4) vesting criteria, if any, of the awards.
Options awarded under the plan are exercisable into shares of our common stock. The total number of shares of common stock as to which options may be granted may not exceed 160,759 shares of common stock. Options may be granted to any of our employees, directors or consultants.
If we undergo a reorganization, recapitalization, stock dividend or stock split or other change in shares of our common stock, the compensation committee may make adjustments to the plan in order to prevent dilution of outstanding options. The compensation committee may also cause options awarded under the plan to become immediately exercisable if we undergo specific types of changes in the control of our Company.
COMPENSATION OF DIRECTORS
We reimburse directors for any out-of-pocket expenses incurred by them in connection with services provided in such capacity.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of our compensation committee are Bruce Bruckmann, Paul Arnold and Mark Smith. Bruce Bruckmann and Paul Arnold are non-employee directors.
MANAGEMENT EQUITY AGREEMENTS
We have entered into executive stock agreements with our named executive officers. Pursuant to these executive stock agreements, our named executive officers each have purchased our shares of common stock and/or shares of series B preferred stock at a purchase price of $1.00 per share of common stock and $35.00 per share of series B preferred stock.
OUR BENEFIT PLANS
We maintain a 401(k) defined contribution plan and are subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). The Plan provides for us to make discretionary contributions; however, we elected not to make contributions for the year ended December 31, 2000. The Plan was amended, effective January 1, 2001, to provide for an employer matching contribution in an amount equal to 25% of the participant's contribution with a limit of five hundred dollars per annum. In February 2003 and 2004, employer matching contributions totaling $200,000 and $195,000, respectively, were made for the Plan years ended December 31, 2002 and 2003.
SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS
The following table sets forth (as of December 31, 2003) certain information with respect to the beneficial ownership of the common stock and preferred stock by: (i) each person or entity who owns of record or beneficially more than 5% or more of any class of our voting securities; (ii) each named executive officer and director of TSI Holdings; and (iii) all directors and named executive officers. TSI Holdings preferred stock will be redeemed with the proceeds of this offering and the transactions. See "The Transactions."
COMMON
STOCK PERCENTAGE OF SERIES A SERIES B
BENEFICIALLY COMMON STOCK PREFERRED PREFERRED
NAME OWNED(1) OUTSTANDING(1) STOCK STOCK
---- ------------ -------------- ---------- ---------
BRS(2)
126 East 56th Street, 29th Floor
New York, New York 10022........................ 504,456 36.6%
104,330 --
Farallon Partners, L.L.C.(3)
One Maritime Plaza, Suite 1325
San Francisco, California 94111................. 270,091 19.6%
41,045 --
The Canterbury Entities
600 Fifth Avenue, 23rd Floor
New York, New York 10020........................ 139,437 10.1%
-- --
CapitalSource Holdings L.L.C
4445 Willard Avenue
Chevy Chase, Maryland 20815..................... 23,000 1.7%
-- --
Rosewood Capital L.P.
One Maritime Plaza, Suite 1330
San Francisco, California 94111................. 17,908 1.3%
-- 109,541
Executive Officers and Directors:
Mark Smith(4)................................... 74,955 5.6%
-- --
Robert Giardina(4).............................. 59,480 4.4%
-- --
Richard Pyle(4)................................. 51,410 3.8%
-- --
Alexander Alimanestianu(4)...................... 50,839 3.8%
-- --
Deborah Smith(4)................................ 15,908 1.3%
-- --
Bruce C. Bruckmann(5)........................... 517,642 37.5%
107,057 --
J. Rice Edmonds(6).............................. 504,456 36.6%
104,330 --
Jason Fish(7)................................... 23,000 1.7%
-- --
Paul Arnold..................................... * *
591 --
Keith Alessi.................................... * *
591 --
Executive Officers and Directors as a Group:
11 Persons(8)................................... 813,531 59.0%
108,240 --
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* Represents less than 1%.
(1) Beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of March 15, 2004 are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person.
(2) Excludes shares held individually by Mr. Bruckmann and other individuals (and affiliates and family members thereof), each of whom are employed by BRS.
(3) Farallon Capital Partners, L.P., Farallon Capital Institutional Partners, L.P., Farallon Capital Institutional Partners II, L.P. and R.R. Capital Partners, L.P. (collectively, the "Farallon Entities"), directly hold, in aggregate, the shares listed above. As the general partner of each of the Farallon Entities, Farallon Partners, L.L.C. ("FPLLC"), may, for purposes of Rule 13d-3 under the Exchange Act, be deemed to own beneficially the shares held by the Farallon Entities. FPLLC disclaims beneficial ownership of such shares. All of the above-mentioned entities disclaim group attribution.
(4) Includes options to acquire common stock, options exercisable within 60 days, pursuant to the option plan. Messrs. Smith, Giardina, Pyle, and Alimanestianu each hold such options on 8,830, 8,829, 8,828, and 8,828 shares of common stock, respectively. The address for each of these named executive officers is the same as the address of our principal executive offices.
(5) Includes 504,456 shares held by BRS, and approximately 2,276 shares held by certain other family members of Mr. Bruckmann. Mr. Bruckmann disclaims beneficial ownership of such shares held by BRS.
(6) Includes shares held by BRS. Mr. Edmonds disclaims beneficial ownership of such shares.
(7) Includes shares held by CapitalSource Holdings, L.L.C. Mr. Fish is a co-founder and president of CapitalSource Inc. Mr. Fish disclaims beneficial ownership of such shares.
(8) Includes (i) shares held by BRS, which may be deemed to be owned beneficially by Messrs. Bruckmann and Edmonds, and (ii) shares held by CapitalSource, which may be deemed to be owned beneficially by Mr. Fish.
Excluding the shares beneficially owned by BRS and CapitalSource, the directors and named executive officers as a group beneficially own (i) 272,889 shares of common stock (which represents approximately 19.8% of the common stock on a fully diluted basis), and (ii) 1,182 shares of series A preferred stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
REGISTRATION RIGHTS AGREEMENT
In connection with our recapitalization in 1996, we, BRS, the Farallon Entities, Canterbury Mezzanine Capital, L.P. ("CMC"), certain members of management and other shareholders of Town Sports entered into a registration rights agreement, dated December 10, 1996 (as amended on November 13, 1998, in connection with the issuance of senior preferred stock, the "Registration Rights Agreement"). Pursuant to the terms of the Registration Rights Agreement, BRS, the Farallon Entities and CMC have the right to require us, at our expense and subject to certain limitations, to register under the Securities Act all or part of the shares of common stock (the "Registrable Securities") held by them. BRS is entitled to demand up to three long-form registrations at any time and unlimited short-form registrations. Farallon is entitled to demand one long-form registration (but only one year after we have consummated an initial registered public offering of our common stock) and up to three short-form registrations. CMC is entitled to demand up to two short-form registrations.
All holders of Registrable Securities are entitled to an unlimited number of "piggyback" registrations, with us paying all expenses of the offering, whenever we propose to register our common stock under the Securities Act. Each such holder is subject to certain pro rata limitations on its ability to participate in such a "piggyback" registration. In addition, pursuant to the Registration Rights Agreement, we have agreed to indemnify all holders of registrable securities against certain liabilities, including certain liabilities under the Securities Act.
PROFESSIONAL SERVICES AGREEMENT
In connection with our recapitalization, Bruckmann, Rosser, Sherrill & Co., Inc. ("BRS Co."), an affiliate of BRS, and Town Sports entered into a Professional Services Agreement, whereby BRS Co. agreed to provide us certain advisory and consulting services. In exchange for such services, BRS Co. receives an annual fee of $250,000 per calendar year while they own at least 20.0% of our outstanding common stock.
DESCRIPTION OF INDEBTEDNESS
SENIOR SECURED REVOLVING CREDIT FACILITY
Our senior secured revolving credit facility, with TSI, Inc., as borrower, Deutsche Bank Trust Company Americas, as administrative agent, Deutsche Bank Securities Inc., as joint lead arranger and BNP Paribas Securities Corp., as joint lead arranger and syndication agent, is a five-year facility, providing for borrowings of up to $50.0 million (containing a sublimit of $15.0 million available for the issuance of letters of credit).
Permanent reductions to the commitments under the TSI, Inc. senior secured revolving credit facility are required in an amount equal to (a) 100.0% of the net cash proceeds of all asset sales and dispositions by TSI Holdings and TSI, Inc. and its subsidiaries, subject to certain exceptions and reinvestment rights, (b) 100.0% of the net cash proceeds of issuances of certain debt obligations by TSI Holdings and TSI, Inc. and its subsidiaries, subject to certain exceptions, and (c) 100.0% of certain insurance proceeds received by TSI Holdings and TSI, Inc. and its subsidiaries, subject to certain exceptions and reinvestment rights.
Voluntary prepayments and commitment reductions are permitted in whole or in part, subject to minimum prepayment or reduction requirements, provided that voluntary prepayments of eurodollar loans on a date other than the last day of the relevant interest period are subject to the payment of customary breakage costs, if any. Such voluntary prepayments and commitment reductions may be made without premium or penalty.
All of our obligations under the senior secured revolving credit facility are unconditionally guaranteed by each of TSI Holdings' and TSI, Inc.'s existing and each subsequently acquired or organized domestic subsidiaries. The senior secured revolving credit facility and the related guarantees are secured by the capital stock of TSI, Inc. and by substantially all of the present and future assets of TSI, Inc. and all present and future assets of each guarantor, including but not limited to (i) a first-priority pledge of all of the outstanding capital stock owned by TSI, Inc. and each guarantor (limited to 65% of the voting stock of TSI, Inc.'s first tier foreign subsidiaries) and (ii) perfected first-priority security interests in all of TSI, Inc.'s present and future tangible and intangible assets and the present and future tangible and intangible assets of each guarantor (in each case, other than certain equipment assets subject to capitalized lease obligations). Guarantees from foreign subsidiaries and security in respect thereof may be required in certain circumstances.
Loans under the senior secured revolving credit facility, at our option, bear interest at either the base rate or a floating rate equal to the reserve adjusted London inter-bank offered rate ("LIBOR"), in each case plus a margin. Overdue principal and, to the extent permitted by law, overdue interest does, in each case bear interest at the greater of (x) the rate which is 2% in excess of the rate otherwise applicable to base rate loans and (y) the rate which is 2% in excess of the rate then borne by such loans. Interest on all loans under the senior secured revolving credit facility is payable (x) in the case of base rate loans, quarterly and (y) in the case of LIBOR loans, on the last day of the interest period applicable thereto and every three months in the case of interest periods in excess of three months and, in each case, at the time of repayment of any such loans and at maturity. In addition to paying interest on any outstanding principal amount under the senior secured revolving credit facility, we are required to pay an unused revolving credit facility fee to the senior lenders equal to 0.75% per annum on the unused daily balance of the revolving credit commitment, commencing on the execution and delivery of the senior secured revolving credit facility and payable quarterly in arrears, based upon the actual number of days elapsed in a 360 day year. For each letter of credit we issue, we will be required to pay (i) a per annum fee equal to the margin over the LIBOR rate from time to time in effect, (ii) a fronting fee equal to 1/4 of 1% on the aggregate outstanding stated amounts of such letters of credit, plus (iii) customary administrative charges.
The credit agreement documentation contains certain customary representations and warranties and contains customary covenants restricting TSI, Inc.'s and in certain instances, TSI Holdings' ability to, among others (i) declare dividends or redeem or repurchase capital stock, (ii) prepay, redeem or purchase other debt, (iii) incur liens, (iv) make loans and investments, (v) incur additional indebtedness, (vi) amend or otherwise alter debt and other material agreements, (vii) make capital expenditures, (viii) engage in mergers, acquisitions and asset sales, (ix) transact with affiliates, and (x) alter the business we conduct. TSI, Inc. is also required to comply with specified financial covenants and affirmative covenants.
Events of default under the credit agreement documentation include, but are
not limited to, (i) TSI, Inc.'s failure to pay principal or interest when due,
(ii) TSI, Inc.'s material breach of any representations or warranty, (iii)
covenant defaults, (iv) events of bankruptcy, (v) cross default to certain other
debt, (vi) unsatisfied final judgments over a certain threshold, and (vii) a
change of control. Certain of these events of default may apply to TSI Holdings.
TSI, Inc. is obligated to pay the senior lenders certain syndication and
administration fees, reimburse certain expenses and provide certain indemnities
to the senior lenders, the administrative agent and the arranger, in each case
which are customary for credit facilities of this type.
9 5/8% SENIOR NOTES DUE 2011
TSI, Inc. issued $255 million principal amount of 9 5/8% Senior Notes due 2011 pursuant to an indenture dated as of April 16, 2003 by and among TSI, Inc., the guarantors party thereto and The Bank of New York. Interest is payable semiannually on April 15 and October 15. The 9 5/8% Senior Notes are redeemable at any time on or after April 15, 2007 at the redemption prices set forth in the 9 5/8% Senior Notes plus accrued and unpaid interest to the date of redemption. If a change of control of TSI, Inc. occurs, it is required, subject to certain conditions, to give holders of the 9 5/8% Senior Notes the opportunity to sell the notes to us at 101% of their face amount plus accrued and unpaid interest.
DESCRIPTION OF NOTES
GENERAL
The New Notes will be issued under an indenture (the "Indenture"), dated as of February 4, 2004, between us and The Bank of New York, as Trustee. The following summary of the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of the Indenture (a copy of the form of which may be obtained from us), including the definitions of certain terms therein and those terms made a part of the Indenture by reference to the TIA as in effect on the date of the Indenture. The definitions of most of the capitalized terms used in the following summary are set forth below under "-- Certain Definitions."
The Notes will be our unsecured obligations, ranking equal in right of payment to all of our unsubordinated debt.
We will issue the Notes in fully registered form only, without coupons, in denominations of $1,000 principal amount at maturity and integral multiples thereof. Initially, the Trustee will act as Paying Agent and Registrar for the Notes. The Notes may be presented for registration or transfer and exchange at the offices of the Registrar, which initially will be the Trustee's corporate trust office. We may change any Paying Agent and Registrar without notice to holders of the Notes. We will pay principal (and premium, if any) on the Notes at the Trustee's corporate office in New York, New York. At our option, interest may be paid at the Trustee's corporate trust office or by check mailed to the registered address of Holders. Any Old Notes that remain outstanding after the completion of the Exchange Offer, together with the New Notes issued in connection with the Exchange Offer, will be treated as a single class of securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be unlimited in aggregate principal amount, with $213.0 million aggregate principal amount at maturity to be issued in this offering and will mature on February 1, 2014. Additional Notes may be issued from time to time subject to the limitations set forth under "-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness."
No cash interest will accrue on the Notes prior to February 1, 2009, although for U.S. federal income tax purposes a significant amount of original issue discount, taxable as ordinary income, will be recognized by a holder as such discount accretes. See "Material United States Federal Tax Consequences" for a discussion regarding the taxation of such original issue discount. Cash interest will accrue on the Notes at 11% per annum from February 1, 2009, or from the most recent date to which interest has been paid, and will be payable semiannually on February 1 and August 1 of each year, commencing August 1, 2009, to the holders of record at the close of business on January 15 and July 15 immediately preceding the applicable interest payment date.
The Notes will not be entitled to the benefit of any mandatory sinking fund.
HOLDING COMPANY STRUCTURE
The Company is a holding company and does not have any material assets or operations other than ownership of TSI. All of its operations are conducted through its Subsidiaries. Claims of creditors of such Subsidiaries, including trade creditors, and claims of preferred stockholders (if any) of such Subsidiaries generally will have priority with respect to the assets and earnings of such Subsidiaries over the claims of the Company's creditors, including holders of the Notes. The Notes, therefore, will be structurally subordinated to creditors (including trade creditors)
and preferred stockholders (if any) of our Subsidiaries including TSI. As of December 31, 2003, on a pro forma basis after giving effect to this offering and the use of proceeds, the Company would have had Indebtedness of approximately $386.7 million outstanding, and our Subsidiaries would have had Indebtedness and other liabilities of approximately $261.9 million outstanding including, in both instances, no borrowings outstanding under the senior credit facility. Although the Indenture limits the incurrence of Indebtedness and the issuance of preferred stock of our Restricted Subsidiaries, such limitation is subject to a number of significant qualifications. Moreover, the Indenture does not impose any limitation on the incurrence by such Restricted Subsidiaries of liabilities that are not considered Indebtedness under the Indenture. See "Risk Factors".
REDEMPTION
Optional Redemption. The Notes will be redeemable, at the Company's option, in whole at any time or in part from time to time, on and after February 1, 2009, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount at maturity thereof) if redeemed during the twelve-month period commencing on February 1 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption:
YEAR PERCENTAGE ---- ---------- 2009........................................................ 105.500% 2010........................................................ 103.667% 2011........................................................ 101.833% 2012 and thereafter......................................... 100.000% |
Optional Redemption upon Equity Offerings. At any time, or from time to time, on or prior to February 1, 2007, the Company may, at its option, use the net cash proceeds of one or more Equity Offerings (as defined below) to redeem up to 35% of the Notes issued under the Indenture, in each case at a redemption price equal to 111% of the Accreted Value thereof at the redemption date; provided that:
(1) at least 65% of the aggregate principal amount at maturity of Notes issued under the Indenture remains outstanding immediately after any such redemption; and
(2) the Company shall make such redemption not more than 120 days after the consummation of any such Equity Offering.
As used in the preceding paragraph, "Equity Offering" means a public or private offering of Qualified Capital Stock of the Company (other than to a Subsidiary of the Company) that generates gross proceeds to the Company of at least $15.0 million.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time, selection of such Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which such Notes are listed or, if such Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however:
(1) that no Notes of a principal amount at maturity of $1,000 or less shall be redeemed in part; and
(2) that if a partial redemption is made with the proceeds of an Equity Offering, selection of the Notes or portions thereof for redemption shall be made by the Trustee only
on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to DTC procedures), unless such method is otherwise prohibited.
Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in a principal amount at maturity equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date Accreted Value will cease to accrete and interest will cease to accrue, in each case to the extent applicable, on Notes or portions thereof called for redemption as long as the Company has deposited with the Paying Agent funds in satisfaction of the applicable redemption price pursuant to the Indenture.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder will have the right to require that the Company purchase all or a portion of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer"), at a purchase price equal to 101% of the Accreted Value thereof plus accrued and unpaid interest to the date of purchase.
Within 30 days following the date upon which the Change of Control occurred, the Company must send, by first class mail, a notice to each Holder, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. Such notice will state, among other things, the purchase date, which must be no earlier than 30 days nor later than 45 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Holders electing to have a Note purchased pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third business day prior to the Change of Control Payment Date.
The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.
If a Change of Control Offer is made, there can be no assurance that the Company will have available funds sufficient to pay the Change of Control purchase price for all the Notes that might be delivered by Holders seeking to accept the Change of Control Offer. The Credit Agreement contains, and any future other agreements relating to other indebtedness to which we become, or one of our Subsidiaries becomes, a party may contain restrictions or prohibitions on the Company's ability to repurchase Notes or may provide that an occurrence of a Change of Control constitutes an event of default under, or otherwise requires payments of amounts borrowed under, those agreements. If a Change of Control occurs at a time when the Company is prohibited from repurchasing the Notes, we could seek the consent of our then existing lenders or the lenders of TSI to the repurchase of the Notes or could attempt to refinance the indebtedness containing such prohibitions. If the Company does not obtain such consent or repay the indebtedness, it would remain prohibited from repurchasing the Notes. In that case, failure to repurchase tendered Notes would constitute an Event of Default under the Indenture and may constitute a default under the terms of other indebtedness that we may enter into from time to time. In the event the Company is required to purchase outstanding Notes pursuant to a Change of Control Offer, the Company expects that it would seek third
party financing to the extent it does not have available funds to meet our purchase obligations. However, there can be no assurance that the Company would be able to obtain such financing.
Neither the Board of Directors of the Company nor the Trustee may waive the covenant relating to a Holder's right to redemption upon a Change of Control. Restrictions in the Indenture described herein on the ability of the Company and its Restricted Subsidiaries to incur additional Indebtedness, to grant liens on its property, to make Restricted Payments and to make Asset Sales may also make more difficult or discourage a takeover of the Company, whether favored or opposed by the management of the Company. Consummation of any such transaction in certain circumstances may require redemption or repurchase of the Notes, and there can be no assurance that the Company or the acquiring party will have sufficient financial resources to effect such redemption or repurchase. Such restrictions and the restrictions on transactions with Affiliates may, in certain circumstances, make more difficult or discourage any leveraged buyout of the Company or any of its Subsidiaries by the management of the Company. While such restrictions cover a wide variety of arrangements that have traditionally been used to effect highly leveraged transactions, the Indenture may not afford the Holders of Notes protection in all circumstances from the adverse aspects of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Change of Control" provisions of the Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Change of Control" provisions of the Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively "incur") any Indebtedness (other than Permitted Indebtedness); provided, however, that if no Default or Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, (i) the Company may incur Indebtedness (including, without limitation, Acquired Indebtedness) if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.00 to 1.00 and (ii) any of TSI and its Restricted Subsidiaries may incur Indebtedness (including, without limitation, Acquired Indebtedness) if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, TSI's Consolidated Fixed Charge Coverage Ratio is greater than 2.00 to 1.00.
Limitation on Restricted Payments. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any distribution (other than dividends or distributions payable in the Qualified Capital Stock of the Company) on or in respect of shares of the Company's Capital Stock to holders of such Capital Stock,
(2) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock,
(3) make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to:
(a) any scheduled maturity,
(b) any scheduled or mandatory repayment or
(c) any scheduled sinking fund payment, any Indebtedness of the Company that is subordinate or junior in right of payment to the Notes; or
(4) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses(1), (2), (3) and (4) being referred to as a "Restricted Payment");
if at the time of such Restricted Payment or immediately after giving effect thereto:
(1) a Default or an Event of Default shall have occurred and be continuing; or
(2) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the covenant described under "Limitation on Incurrence of Additional Indebtedness"; or
(3) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to April 16, 2003 (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined reasonably and in good faith by the Board of Directors of the Company (or if prior to the Issue Date, by the Board of Directors of TSI)) shall exceed the sum of, without duplication:
(a) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned subsequent to the end of the fiscal quarter immediately prior to April 16, 2003 (determined as if the Company owned TSI for all periods prior to the Issue Date) and on or prior to the end of the most recently ended fiscal quarter for which internal financial statements are available as of the date the Restricted Payment occurs (treating such period as a single accounting period), plus
(b) 100% of the aggregate net cash proceeds received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to April 16, 2003 and on or prior to the date the Restricted Payment occurs of Qualified Capital Stock of the Company (or if prior to the Issue Date, Qualified Capital Stock of TSI), plus
(c) without duplication of any amounts included in clause (3)(b) above, 100% of the aggregate net cash proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock subsequent to April 16, 2003 (or if prior to the Issue Date, received by TSI from a holder of TSI's Capital Stock) and on or prior to the date the Restricted Payment occurs, plus
(d) without duplication, an amount equal to the sum of
(x) the net reduction in Investments in Unrestricted Subsidiaries resulting from dividends, repayments of loans or advances or other transfers of assets by any Unrestricted Subsidiary to the Company or any Restricted Subsidiary or the receipt of proceeds by the Company or any Restricted Subsidiary from the sale or other disposition of any portion of the Capital Stock of any Unrestricted Subsidiary, in each case occurring subsequent to April 16, 2003 and
(y) the consolidated net Investments on the date of Revocation made by the Company or any of its Restricted Subsidiaries in any Subsidiary of the Company that has been designated an Unrestricted Subsidiary after April 16, 2003 upon its
redesignation as a Restricted Subsidiary in accordance with the covenant described under "-- Limitation on Designations of Unrestricted Subsidiaries."
Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit:
(1) the payment of any dividend or redemption payment within 60 days after the date of declaration of such dividend or the mailing of such irrevocable redemption notice if the dividend or redemption payment, as the case may be, would have been permitted on the date of declaration or the date of mailing of such notice;
(2) if no Default or Event of Default shall have occurred and be continuing, the acquisition of any shares of Capital Stock of the Company, either
(a) solely in exchange for shares of Qualified Capital Stock of the Company or
(b) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Restricted Subsidiary of the Company) of shares of Qualified Capital Stock of the Company;
(3) if no Default or Event of Default shall have occurred and be continuing, the acquisition of any Indebtedness of the Company that is subordinate or junior in right of payment to the Notes either
(a) solely in exchange for shares of Qualified Capital Stock of the Company, or
(b) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Restricted Subsidiary of the Company) of
(x) shares of Qualified Capital Stock of the Company or
(y) Refinancing Indebtedness;
(4) if no Default or Event of Default shall have occurred and be continuing, repurchases by the Company of Capital Stock of the Company or options or warrants to purchase Capital Stock of the Company, stock appreciation rights or any similar equity interest in the Company from consultants, directors, officers and employees of the Company or any of its Subsidiaries or their authorized representatives upon the death, disability, retirement or termination of employment of such consultants, directors, officers or employees in an aggregate amount not to exceed $750,000 in any calendar year plus the amount of any proceeds received under key-man life insurance policies that are used to make such payments;
(5) if no Default shall have occurred and be continuing, the purchase, redemption, defeasance or other acquisition or retirement of Indebtedness of the Company that is subordinate or junior in right of payment to the Notes in connection with an asset sale net proceeds amount offer or change of control offer after complying with the covenants set forth under "-- Limitation on Asset Sales" and "-- Change of Control";
(6) if no Default or Event of Default shall have occurred and be continuing, Restricted Payments in an aggregate amount not to exceed $10.0 million; and
(7) any payments made in furtherance of the Transactions with the net proceeds received by the Company from the sale of the Notes on the Issue Date.
In determining the aggregate amount of Restricted Payments made subsequent to April 16, 2003 in accordance with clause (3) of the second preceding paragraph, amounts expended pursuant to clauses (1) , (2)(b), (3)(b)(x), (4) and (6) of the immediately preceding paragraph shall be included in such calculation.
Limitation on Asset Sales. The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) the Company or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Board of Directors of the Company);
(2) at least 75% of the consideration received by the Company or its Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash or Cash Equivalents and shall be received at the time of such disposition; provided, however, that the amount of:
(a) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet or the notes thereto) of the Company or any Restricted Subsidiary (other than liabilities that are by their terms subordinated to the Notes) that are assumed by the transferee in such Asset Sale and from which the Company or such Restricted Subsidiary is released and
(b) any notes, securities or other obligations received by the Company or by any such Restricted Subsidiary from such transferee that are immediately converted by the Company or by such Restricted Subsidiary into cash or Cash Equivalents (to the extent of the cash or Cash Equivalents received),
shall be deemed to be cash for the purposes of this provision;
(3) upon the consummation of an Asset Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within 360 days of receipt thereof either:
(a) to pay (i) Indebtedness under the Credit Agreement (and, in the case of any such Indebtedness under any revolving credit facility, effect a corresponding permanent reduction in the availability under such revolving credit facility) or other Indebtedness ranking pari passu with the Notes; provided, however, that if the Company repays such other pari passu Indebtedness it must make an equal and ratable offer to all holders of Notes as provided in the following paragraph, or (ii) in the case of an Asset Sale by a Restricted Subsidiary, Indebtedness of such Restricted Subsidiary,
(b) to make an investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets that will be used in the business of the Company and its Restricted Subsidiaries as existing on the Issue Date or in businesses reasonably related thereto ("Replacement Assets") or
(c) a combination of prepayment and investment permitted by the foregoing clauses (3)(a) and (3)(b).
On the 361st day after an Asset Sale or such earlier date, if any, as the Board of Directors of the Company or of such Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses (3)(a), (3)(b) and (3)(c) of the next preceding paragraph (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds that have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in clauses (3)(a), (3)(b) and (3)(c) of the next preceding paragraph (each a "Net Proceeds Offer Amount") shall be applied by the Company or such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date not less than 45 nor more than 60 days following the applicable Net Proceeds Offer Trigger Date, the maximum Accreted Value of Notes and principal amount of other Indebtedness of the Company that ranks pari passu in right of payment with the Notes (to the extent required by the
instrument governing such other Indebtedness), that may be purchased out of the Net Proceeds Offer Amount; provided, however, notwithstanding the foregoing, in the case of an Asset Sale by a Restricted Subsidiary of the Company, the Company shall not be required to make a Net Proceeds Offer to the extent such Restricted Subsidiary is not permitted pursuant to its outstanding Indebtedness to make a Restricted Payment to the Company. Any Notes and other Indebtedness to be purchased pursuant to a Net Proceeds Offer shall be purchased pro rata based on the aggregate principal amount of Notes and such other Indebtedness outstanding and all Notes shall be purchased at an offer price in cash in an amount equal to 100% of the Accreted Value thereof, plus accrued and unpaid interest to the date of purchase.
The Company may defer the Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $10.0 million resulting from one or more Asset Sales (at which time, the entire unutilized Net Proceeds Offer Amount, not just the amount in excess of $10.0 million, shall be applied as required pursuant to the preceding paragraph).
In the event of the transfer of substantially all (but not all) of the property and assets of the Company and its Restricted Subsidiaries as an entirety to a Person in a transaction permitted under "-- Merger, Consolidation and Sale of Assets," the successor corporation shall be deemed to have sold the properties and assets of the Company and its Restricted Subsidiaries not so transferred for purposes of this covenant, and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. In addition, the fair market value of such properties and assets of the Company or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this covenant.
Notwithstanding the four immediately preceding paragraphs, the Company and its Restricted Subsidiaries will be permitted to consummate an Asset Sale without complying with such paragraphs to the extent:
(1) at least 75% of the consideration for such Asset Sale constitutes Replacement Assets; and
(2) such Asset Sale is for fair market value;
provided that any consideration not constituting Replacement Assets received by the Company or any of its Restricted Subsidiaries in connection with any Asset Sale permitted to be consummated under this paragraph shall constitute Net Cash Proceeds subject to the provisions of the four preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 30 days following the Net Proceeds Offer Trigger Date, with a copy to the Trustee, and shall comply with the procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their Notes in whole or in part in integral multiples of $1,000 principal amount at maturity in exchange for cash. To the extent Holders properly tender Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open for a period of 20 business days or such longer period as may be required by law.
The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Asset Sale" provisions of the Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Asset Sale" provisions of the Indenture by virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on or in respect of its Capital Stock;
(2) make loans or advances or to pay any Indebtedness or other obligation owed to the Company or any other Restricted Subsidiary; or
(3) transfer any of its property or assets to the Company or any other Restricted Subsidiary,
in each case except for such encumbrances or restrictions existing under or by reason of:
(a) applicable law;
(b) the Indenture, the Notes, the Existing TSI Indenture as in effect on the Issue Date and the Existing TSI Notes and the guarantees thereof;
(c) customary non-assignment provisions of any contract or any lease governing a leasehold interest of any Restricted Subsidiary;
(d) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person so acquired (including, but not limited to, such Person's direct and indirect Subsidiaries);
(e) agreements existing on the Issue Date (other than the Credit Agreement) to the extent and in the manner such agreements are in effect on the Issue Date;
(f) the Credit Agreement or an agreement governing any other Indebtedness of the Company or any Restricted Subsidiary permitted to be incurred under the Indenture; provided that either (y) with respect to any agreement governing such other Indebtedness, the provisions relating to such encumbrance or restriction are no less favorable to the Company in any material respect than the provisions contained in the Credit Agreement as in effect on the Issue Date or (z) any encumbrance or restriction contained in such other Indebtedness does not prohibit (except upon a default or event of default thereunder) the payment of dividends or the making of loans or advances in an amount sufficient, as determined by our Board of Directors in its reasonable and good faith judgment (including the use of reasonable projections of future operating performance), to make scheduled payments of cash interest on the Notes;
(g) restrictions on the transfer of assets subject to any Lien permitted under the Indenture imposed by the holder of such Lien;
(h) restrictions imposed by any agreement to sell assets or Capital Stock permitted under the Indenture to any Person pending the closing of such sale;
(i) customary provisions in joint venture agreements and other similar agreements in each case relating solely to the respective joint venture or similar entity or to the equity interest therein;
(j) customary provisions imposed by agreements governing Indebtedness of a Foreign Restricted Subsidiary permitted to be incurred under the Indenture to the extent that such encumbrance or restriction relates solely to the respective Foreign Restricted Subsidiary; and
(k) an agreement governing Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred pursuant to an agreement referred to in clause (b) and
(d) through (g) above; provided, however, that the provisions relating to such encumbrance or restriction contained in any such Indebtedness are no less favorable to the Company in any material respect as determined by the Board of Directors of the Company in its reasonable and good faith judgment than the provisions relating to such encumbrance or restriction contained in agreements referred to in such clause (b) and (d) through (g) above.
Limitation on Preferred Stock of Restricted Subsidiaries. The Company will not permit any of its Restricted Subsidiaries to issue any Preferred Stock (other than to the Company or to a Wholly Owned Restricted Subsidiary) or permit any Person (other than the Company or a Wholly Owned Restricted Subsidiary) to own any Preferred Stock of any Restricted Subsidiary.
Limitation of Guarantees by Restricted Subsidiaries. The Company will not permit any of its Restricted Subsidiaries, directly or indirectly, by way of the pledge of any intercompany note or otherwise, to assume, guarantee or in any other manner become liable with respect to any Indebtedness of the Company (other than Indebtedness represented by any guarantees (including through the pledge of intercompany notes or otherwise) of Indebtedness under the Credit Agreement and the Existing TSI Notes), unless, in any such case (a) such Restricted Subsidiary executes and delivers a supplemental indenture to the Indenture, providing a Guarantee and (b) if any such assumption, guarantee or other liability of such Restricted Subsidiary is provided in respect of Indebtedness that is expressly subordinated to the Notes, the guarantee or other instrument provided by such Restricted Subsidiary in respect of such subordinated Indebtedness shall be subordinated to the Guarantee substantially to the same extent as such Indebtedness is subordinated to the Notes. This covenant shall not apply to guarantees by Restricted Subsidiaries of Indebtedness of Restricted Subsidiaries.
Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged, without any further
action required on the part of the Trustee or any Holder, upon: (i) the
unconditional release of such Restricted Subsidiary from its liability in
respect of the Indebtedness in connection with which such Guarantee was executed
and delivered pursuant to the preceding paragraph or (ii) any sale or other
disposition (by merger or otherwise) to any Person which is not a Restricted
Subsidiary of the Company of all of the Company's Capital Stock in, or all or
substantially all of the assets of, such Restricted Subsidiary; provided that
(a) such sale or disposition of such Capital Stock or assets is otherwise in
compliance with the terms of the Indenture and (b) such assumption, guarantee or
other liability of such Restricted Subsidiary has been released by the holders
of the other Indebtedness so guaranteed.
Limitation on Liens. The Company will not, directly or indirectly, create, incur, assume or permit or suffer to exist any Liens upon any property or assets of the Company (excluding property, assets and Capital Stock of Restricted Subsidiaries to secure Indebtedness of Restricted Subsidiaries) whether owned on the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or assign or otherwise convey any right to receive income or profits therefrom unless:
(1) in the case of Liens securing Subordinated Indebtedness, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens; and
(2) in all other cases, the Notes are secured on an equal and ratable basis, except for
(a) Liens existing as of the Issue Date to the extent and in the manner such Liens are in effect on the Issue Date;
(b) (x) Liens securing Indebtedness permitted by clauses (2) and
(15) of the definition of Permitted Indebtedness and (y) Liens securing
Indebtedness permitted by the covenant described under "-- Limitation on
Additional Indebtedness" (other than Indebtedness permitted by clauses
(2) and (15) of the definition of Permitted Indebtedness); provided that
such Indebtedness and all other Indebtedness secured by
Liens permitted by this clause (y) shall, at the time such Indebtedness is incurred and after giving effect to such incurrence, not exceed an aggregate principal amount equal to the difference between (i) 1.25 times Consolidated EBITDA of the Company for the most recently ended four fiscal quarters for which internal financial statements are available and (ii) the amount of Indebtedness then outstanding under clauses (2) and (15) of the definition of Permitted Indebtedness;
(c) Liens securing the Notes;
(d) Liens of the Company on assets of any Restricted Subsidiary of the Company;
(e) Liens securing Refinancing Indebtedness that is incurred to Refinance any Indebtedness that has been secured by a Lien permitted under the Indenture and that has been incurred in accordance with the provisions of the Indenture; provided, however, that such Liens
(x) are no less favorable to the Holders and are not more favorable to the lienholders with respect to such Liens, in each case in any material respect, than the Liens in respect of the Indebtedness being Refinanced; and
(y) do not extend to or cover any property or assets of the Company not securing the Indebtedness so Refinanced,
(f) Liens in favor of the Company; and
(g) Permitted Liens.
Merger, Consolidation and Sale of Assets. The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and its Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person unless:
(1) either:
(a) the Company will be the surviving or continuing corporation or
(b) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition of properties and assets of the Company and of its Restricted Subsidiaries substantially as an entirety (the "Surviving Entity")
(x) will be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and
(y) will expressly assume, by supplemental indenture (in form and substance satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Notes and the performance of every covenant of the Notes, the Indenture and the Registration Rights Agreement on the part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction and the assumption contemplated by clause (1)(b)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to clause (i) of the covenant described under "-- Limitation on Incurrence of Additional Indebtedness";
(3) immediately before and immediately after giving effect to such transaction and the assumption contemplated by clause (1)(b)(y) above (including, without limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred and any Lien granted in connection with or in respect of the transaction), no Default or Event of Default shall have occurred or be continuing; and
(4) the Company or the Surviving Entity shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture complies with the applicable provisions of the Indenture and that all conditions precedent in the Indenture relating to such transaction have been satisfied:
For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, will be deemed to be the transfer of all or substantially all of the properties and assets of the Company.
The Indenture provides that upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, in which the Company is not the continuing corporation, the Surviving Entity shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture and the Notes with the same effect as if such Surviving Entity had been named as such.
Limitations on Transactions with Affiliates.
(1) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of its Affiliates (each an "Affiliate Transaction"), other than:
(a) Affiliate Transactions permitted under paragraph (2) below and
(b) Affiliate Transactions on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of $2.5 million will be approved by the Board of Directors of the Company or such Restricted Subsidiary, as the case may be, such approval to be evidenced by a Board Resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Restricted Subsidiary enters into an Affiliate Transaction (or a series of related Affiliate Transactions related to a common plan) that involves an aggregate fair market value of more than $10.0 million, the Company or such Restricted Subsidiary, as the case may be, will, prior to the consummation thereof, obtain an opinion from an Independent Financial Advisor stating that such transaction or series of related transactions are fair to the Company or to the relevant Restricted Subsidiary, as the case may be, from a financial point of view.
(2) The restrictions set forth in clause (1) shall not apply to:
(a) reasonable fees and compensation paid to and indemnity provided on behalf of, our officers, directors, employees or consultants or those of any Restricted Subsidiary as determined in good faith by the Company's Board of Directors or senior management,
(b) transactions exclusively between or among the Company and any of its Restricted Subsidiaries or exclusively between or among such Restricted Subsidiaries; provided such transactions are not otherwise prohibited by the Indenture,
(c) Restricted Payments and Permitted Investments permitted by the Indenture and
(d) management or advisory fees to BRS Group or its affiliates in accordance with the terms of the Management Agreement as in effect on the Issue Date or as the same may be modified or amended; provided, however, that such modification or amendment cannot provide for the annual payment of such fees in an amount in excess of 1.5% of Consolidated EBITDA for the immediately preceding fiscal year.
Reports to Holders. Whether or not required by the rules and regulations of the Commission, so long as any Notes are outstanding, the Company will furnish the holders of Notes, with a copy to the Trustee:
(1) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and its consolidated Subsidiaries (showing in reasonable detail, either on the face of the financial statements or in the footnotes thereto and in Management's Discussion and Analysis of Financial Condition and Results of Operations, the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company, if any) and, with respect to the annual information only, a report thereon by the Company's certified independent accountants; and
(2) the information that would be required to be included in all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports, in each case within the time periods specified in the Commission's rules and regulations.
In addition, following the consummation of the exchange offer contemplated by the Registration Rights Agreement, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and reports with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, the Company has agreed that, for so long as any Notes remain outstanding, it will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Limitation on Designations of Unrestricted Subsidiaries. The Company may designate any Subsidiary of the Company (other than a Subsidiary of the Company that owns Capital Stock of a Restricted Subsidiary) as an "Unrestricted Subsidiary" under the Indenture (a "Designation") only if:
(1) no Default shall have occurred and be continuing at the time of or after giving effect to such Designation; and
(2) the Company would be permitted under the Indenture to make an Investment at the time of Designation (assuming the effectiveness of such Designation) in an amount (the "Designation Amount") equal to the sum of:
(a) the fair market value of the Capital Stock of such Subsidiary owned by the Company and its Restricted Subsidiaries on such date and
(b) the aggregate amount of other Investments of the Company and its Restricted Subsidiaries in such Subsidiary on such date; and
(3) the Company would be permitted to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "-- Limitation on Incurrence of Additional Indebtedness" at the time of Designation (assuming the effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to have made an Investment constituting a Restricted Payment pursuant to the covenant described under -- Limitation on Restricted Payments" for all purposes of the Indenture in the Designation Amount. The Indenture will further provide that the Company shall not, and shall not permit any Restricted Subsidiary to, at any time:
(1) provide direct or indirect credit support for or a guarantee of any Indebtedness of any Unrestricted Subsidiary (including of any undertaking, agreement or instrument evidencing such Indebtedness); or
(2) be directly or indirectly liable for any Indebtedness of any Unrestricted Subsidiary.
The Indenture further provides that the Company may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"), whereupon such Subsidiary shall then constitute a Restricted Subsidiary, if:
(1) no Default shall have occurred and be continuing at the time of and after giving effect to such Revocation; and
(2) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if incurred at such time, have been permitted to be incurred for all purposes of the Indenture.
All Designations and Revocations must be evidenced by Board Resolutions of the Company certifying compliance with the foregoing provisions.
Payments for Consent. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid and is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(1) the failure to pay interest on any Note when the same becomes due and payable and the default continues for a period of 30 days;
(2) the failure to pay the principal of any Note, when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer) on the date specified for such payment in the applicable offer to purchase;
(3) a default in the observance or performance of any other covenant or agreement contained in the Indenture which default continues for a period of 30 days after the Company receives written notice specifying the default (and demanding that such default be remedied) from the Trustee or the Holders of at least 25% of the outstanding principal amount of the Notes (except in the case of a default with respect to the covenant described under "-- Certain Covenants -- Merger, Consolidation and Sale of Assets," which will constitute an Event of Default with such notice requirement but without such passage of time requirement);
(4) the failure to pay at final stated maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness of the Company or any Restricted Subsidiary, or the acceleration of the final stated maturity of any such Indebtedness (which acceleration is not rescinded, annulled or otherwise cured within 20 days of receipt by the Company or such Restricted Subsidiary of notice of any such acceleration) if the aggregate principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at final maturity or which has been accelerated (in each case with respect to which the 20-day period described above has passed), aggregates $5.0 million or more at any time;
(5) one or more judgments in an aggregate amount in excess of $5.0 million (to the extent not covered by insurance) shall have been rendered against the Company or any of its Significant Subsidiaries and such judgments remain undischarged, unpaid or unstayed for a period of 60 days after such judgment or judgments become final and nonappealable; or
(6) certain events of bankruptcy affecting the Company or any of its Significant Subsidiaries.
If an Event of Default (other than an Event of Default specified in clause
(6) above relating to the Company) shall occur and be continuing, the Trustee or
the Holders of at least 25% in principal amount at maturity of outstanding Notes
may declare the Accreted Value of and accrued and unpaid interest, if any, on
all the Notes to be due and payable by notice in writing to the Company and the
Trustee specifying the respective Event of Default and that it is a "notice of
acceleration", and the same shall become immediately due and payable. If an
Event of Default specified in clause (6) above relating to the Company occurs
and is continuing, then all unpaid Accreted Value of, and premium, if any, and
accrued and unpaid interest, if any, on all of the outstanding Notes shall ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of acceleration with respect to the Notes as described in the preceding paragraph, the Holders of a majority in principal amount at maturity of the Notes may rescind and cancel such declaration and its consequences:
(1) if the rescission would not conflict with any judgment or decree;
(2) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration;
(3) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid;
(4) if the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances; and
(5) in the event of the cure or waiver of an Event of Default of the type described in clause (6) of the description above of Events of Default, the Trustee shall have received an officers' certificate and an opinion of counsel stating that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right consequent thereto.
The Holders of a majority in principal amount at maturity of the Notes may waive any existing Default or Event of Default under the Indenture, and its consequences, except a default in the payment of the principal of or interest on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture and under the TIA. Subject to the provisions of the Indenture relating to the duties of the Trustee, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request, order or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable indemnity. Subject to all provisions of the Indenture and applicable law, the Holders of a majority in aggregate principal amount at maturity of the then outstanding Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers' certificate to the Trustee promptly upon any such officer obtaining knowledge of any Default or Event of Default (provided that such officers shall provide such certification at least annually whether or not they know of any Default or Event of Default) that has occurred and, if applicable, describe such Default or Event of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its obligations and the obligations of the Guarantors (if any) discharged with respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes, except for:
(1) the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on the Notes when such payments are due;
(2) the Company's obligations with respect to the Notes concerning
- issuing temporary Notes,
- registration of Notes,
- mutilated, destroyed, lost or stolen Notes and
- the maintenance of an office or agency for payments;
(3) the rights, powers, trust, duties and immunities of the Trustee and our obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or an Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, reorganization and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders cash in U.S. dollars, non-callable U.S. government obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be;
(2) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that
(a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or
(b) since the date of the Indenture, there has been a change in the applicable federal income tax law,
in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or an Event of Default resulting from the borrowing of funds to be applied to such deposit and the grant of any Lien securing such borrowings);
(5) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, the Indenture (other than a Default or an Event of Default resulting from the borrowing of funds to be applied to such deposit and the grant of any Lien securing such borrowings) or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound;
(6) the Company shall have delivered to the Trustee an officers' certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others;
(7) the Company shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with;
(8) the Company shall have delivered to the Trustee an opinion of counsel to the effect that, assuming no intervening bankruptcy of the Company between the date of deposit and the 91st day following the date of deposit and that no Holder is an insider of the Company, after the 91st day following the date of deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and
(9) certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the opinion of counsel required by clauses
(2)(a) and (3) above need not be delivered if all the Notes not theretofore
delivered to the Trustee for cancellation:
(1) have become due and payable;
(2) will become due and payable on the maturity date within one year; or
(3) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by such Trustee in the name, and at the expense, of the Company.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect (except as to surviving rights or registration of transfer or exchange of the Notes, as expressly provided for in the Indenture) as to all Notes then outstanding when:
(1) either
(a) all the Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation, or
(b) all Notes not theretofore delivered to the Trustee for cancellation have become due and payable or will be due and payable within one year and the Company has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Notes to the date of deposit together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be;
(2) the Company has paid all other sums payable by the Company under the Indenture; and
(3) the Company has delivered to the Trustee an officers' certificate and an opinion of counsel stating that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, without the consent of the Holders, may amend the Indenture for certain specified purposes, including curing ambiguities, defects or inconsistencies, so long as such change does not, in the opinion of the Trustee, adversely affect the rights of any of the Holders in any material respect. In formulating its opinion on such matters, the Trustee will be entitled to rely on such evidence as it deems appropriate, including, without limitation, solely on an opinion of counsel. Other modifications and amendments of the Indenture may be made with the consent of the Holders of a majority in principal amount at
maturity of the then outstanding Notes issued under the Indenture, except that, without the consent of each Holder affected thereby, no amendment may:
(1) reduce the amount of Notes whose Holders must consent to an amendment;
(2) reduce the rate of or change or have the effect of changing the time for payment of interest, including defaulted interest, on any Notes;
(3) reduce the principal or Accreted Value of or change or have the effect of changing the fixed maturity of any Notes, or change the date on which any Notes may be subject to redemption or repurchase, or reduce the redemption or repurchase price therefor;
(4) make any Notes payable in money other than that stated in the Notes;
(5) make any change in provisions of the Indenture protecting the right of each Holder to receive payment of principal of and interest on such Note on or after the due date thereof or to bring suit to enforce such payment, or permitting Holders of a majority in principal amount at maturity of Notes to waive Defaults or Events of Default;
(6) after the Company's obligation to purchase Notes arises under the Indenture, amend, change or modify in any material respect the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control or make and consummate a Net Proceeds Offer with respect to any Asset Sale that has been consummated or modify any of the provisions or definitions with respect thereto; or
(7) modify or change any provision of the Indenture or the related definitions affecting the ranking of the Notes in a manner that adversely affects the Holders; provided, that ranking shall not be affected by the existence or lack thereof of a security interest or by priority with respect to a security interest.
GOVERNING LAW
The Indenture provides that it, and the Notes, will be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it by the Indenture, and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on the rights of the Trustee, should it become a creditor of the Company or of a Subsidiary of the Company, to obtain payments of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. Subject to the TIA, the Trustee will be permitted to engage in other transactions; provided that if the Trustee acquires any conflicting interest as described in the TIA, it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all such terms, as well as any other terms used herein for which no definition is provided.
"Accreted Value" means, as of any date (the "Specified Date"), the amount provided below for each $1,000 principal amount at maturity of Notes:
(1) if the Specified Date occurs on one of the following dates (each, a "Semi-Annual Accrual Date"), the Accreted Value will equal the amount set forth below for such Semi-Annual Accrual Date:
SEMI-ANNUAL ACCRUAL DATE ACCRETED VALUE ------------------------ -------------- August 1, 2004....................................... $ 617.63 February 1, 2005..................................... $ 651.60 August 1, 2005....................................... $ 687.44 February 1, 2006..................................... $ 725.25 August 1, 2006....................................... $ 765.13 February 1, 2007..................................... $ 807.22 August 1, 2007....................................... $ 851.61 February 1, 2008..................................... $ 898.45 August 1, 2008....................................... $ 947.87 February 1, 2009..................................... $1,000.00 |
(2) if the Specified Date occurs before the first Semi-Annual Accrual Date, the Accreted Value will equal the sum of (A) the original issue price of a Note and (B) an amount equal to the product of (x) the Accreted Value for the first Semi-Annual Accrual Date less such original issue price multiplied by (y) a fraction, the numerator of which is the number of days from the Issue Date to the Specified Date, using a 360-day year of twelve 30-day months, and the denominator of which is the number of days elapsed from the Issue Date to the first Semi-Annual Accrual Date, using a 360-day year of twelve 30-day months;
(3) if the Specified Date occurs between two Semi-Annual Accrual Dates, the Accreted Value will equal the sum of (A) the Accreted Value for the Semi-Annual Accrual Date immediately preceding such Specified Date and (B) an amount equal to the product of (x) the Accreted Value for the immediately following Semi-Annual Accrual Date less the Accreted Value for the immediately preceding Semi-Annual Accrual Date multiplied by (y) a fraction, the numerator of which is the number of days from the immediately preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day year of twelve 30-day months, and the denominator of which is 180; or
(4) if the Specified Date occurs after the last Semi-Annual Accrual Date, the Accreted Value will equal $1,000.
"Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or at the time it merges or consolidates with the Company or any of its Restricted Subsidiaries or assumed in connection with the acquisition of assets from such Person and in each case not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary or such acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing.
"Affiliate Transaction" has the meaning set forth under "-- Certain Covenants -- Limitation on Transactions with Affiliates."
"Asset Acquisition" means
(1) an Investment by the Company or any Restricted Subsidiary in any other Person pursuant to which such Person shall become a Restricted Subsidiary or shall be merged with or into the Company or any Restricted Subsidiary; or
(2) the acquisition by the Company or any Restricted Subsidiary of the assets of any Person (other than a Restricted Subsidiary) which constitute all or substantially all of the assets of such Person or comprise any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer for value by the Company or any of its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any Person other than the Company or a Restricted Subsidiary of:
(1) any Capital Stock of any Restricted Subsidiary; or
(2) any other property or assets of the Company or any Restricted Subsidiary other than in the ordinary course of business;
provided, however, that Asset Sales shall not include
(a) a transaction or series of related transactions for which the Company or its Restricted Subsidiaries receive aggregate consideration of less than $2.5 million,
(b) the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets of the Company as permitted under "-- Certain Covenants -- Merger, Consolidation and Sale of Assets,"
(c) disposals or replacements of obsolete equipment in the ordinary course of business,
(d) the sale, lease, conveyance, disposition or other transfer by the Company or any Restricted Subsidiary of assets or property to the Company or one or more Restricted Subsidiaries and
(e) any Restricted Payment permitted by the "Limitation on Restricted Payments" covenant or any Permitted Investment.
"Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee.
"BRS Group" means Bruckmann, Rosser, Sherrill & Co., Inc. and its Affiliates.
"Business Day" means a day other than a Saturday, Sunday or other day on which commercial banking institutions (including, without limitation, the Federal Reserve System) are authorized or required by law to close in New York City.
"Capitalized Lease Obligation" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date
shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means:
(1) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of Common Stock and Preferred Stock of such Person; and
(2) with respect to any Person that is not a corporation, any and all partnership, membership or other equity interests of such Person.
"Cash Equivalents" means:
(1) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody's;
(3) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250.0 million;
(5) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (1) above entered into with any bank meeting the qualifications specified in clause (4) above; and
(6) investments in money market funds that invest substantially all
their assets in securities of the types described in clauses (1) through
(5) above.
"Change of Control" means the occurrence of one or more of the following events:
(1) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets
of the Company to any Person or group of related Persons for purposes of
Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates
thereof (whether or not otherwise in compliance with the provisions of the
Indenture), other than to a Permitted Holder;
(2) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of the Indenture);
(3) any Person or Group, other than a Permitted Holder, shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company;
(4) the replacement of a majority of the Board of Directors of the Company over a two-year period from the directors who constituted the Board of Directors of the Company at the beginning of such period, and such replacement shall not have been approved by a vote of at least a majority of the Board of Directors of the Company then still in office who either were members of any such Board of Directors at the beginning of such period or whose election as a member of any such Board of Directors was previously so approved; or
(5) the failure at any time by the Company to beneficially own (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) directly or indirectly , 100% of the Common Stock of TSI.
"Change of Control Offer" has the meaning set forth under "-- Change of Control."
"Change of Control Payment Date" has the meaning set forth under "-- Change of Control."
"Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of, such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock.
"Consolidated EBITDA" means, for any period, the sum (without duplication) of:
(1) Consolidated Net Income; and
(2) to the extent Consolidated Net Income has been reduced thereby,
(a) all income taxes of such Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary, unusual or nonrecurring gains or losses or taxes attributable to sales or dispositions outside the ordinary course of business),
(b) Consolidated Interest Expense and
(c) Consolidated Non-cash Charges less any non-cash items increasing Consolidated Net Income for such period, all as determined on a consolidated basis for such Person and its Restricted Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means with respect to any Person, the ratio of Consolidated EBITDA of such Person during the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma (including any pro forma expense and cost reductions calculated on a basis consistent with Regulation S-X under the Securities Act) basis for the period of such calculation to:
(1) the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period; and
(2) any asset sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any Consolidated EBITDA attributable to the assets that are the subject of the Asset Acquisition or asset sale during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such asset sale or Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or any such Restricted Subsidiary of such Person had directly incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio":
(1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and that will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date;
(2) if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Four Quarter Period; and
(3) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of:
(1) Consolidated Interest Expense; plus
(2) the product of
(a) the amount of all dividend payments on any series of Preferred Stock of such Person (other than dividends paid or to be paid in such period in Qualified Capital Stock) paid or required to be paid during such period, and
(b) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local income tax rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any period, the sum of, without duplication:
(1) the aggregate of the interest expense of such Person and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, including without limitation,
(a) any amortization of debt discount,
(b) the net costs under Interest Swap Obligations,
(c) all capitalized interest and
(d) the interest portion of any deferred payment obligation; and
(2) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any period, the aggregate net income (or loss) of such Person and its Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; provided that there shall be excluded therefrom:
(1) after-tax gains or losses from Asset Sales (without regard to the $2.5 million limitation set forth in the definition thereof) or abandonment or reserves relating thereto;
(2) after-tax items classified as extraordinary or nonrecurring gains or losses;
(3) the net income (or loss) of any Person acquired in a "pooling of interests" transaction accrued prior to the date it becomes a Restricted Subsidiary or is merged or consolidated with the Company or with any Restricted Subsidiary;
(4) the net income (but not loss) of any Restricted Subsidiary to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is restricted by a contract, operation of law or otherwise (other than restrictions permitted by the "Limitations on Dividend and Other Payment Restrictions Affecting Subsidiaries" covenant);
(5) the net income of any Person, other than the Company or a Restricted Subsidiary, except to the extent of cash dividends or distributions paid to the Company or to a Restricted Subsidiary by such Person;
(6) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued); and
(7) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any net income of the successor corporation prior to such consolidation, merger or transfer of assets.
"Consolidated Non-cash Charges" means, with respect to any Person for any period, the aggregate depreciation, amortization and other non-cash expenses of such Person (including, without limitation, charges related to the impairment of intangibles) and its Restricted Subsidiaries reducing Consolidated Net Income of such Person for such period, determined on a consolidated basis in accordance with GAAP (including deferred rent but excluding any such charge which requires an accrual of or a reserve for cash charges for any future period).
"Covenant Defeasance" has the meaning set forth under "-- Legal Defeasance and Covenant Defeasance."
"Credit Agreement" means the Credit Agreement dated as of April 16, 2003 by and among TSI, the lenders from time to time party thereto in their capacities as lenders thereunder and Deutsche Bank Trust Company Americas, as agent, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder or adding the Company or Subsidiaries of the Company or TSI as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in currency values.
"Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default.
"Designation" has the meaning set forth under "-- Certain Covenants -- Limitation on Designations of Unrestricted Subsidiaries."
"Designation Amount" has the meaning set forth under "-- Certain Covenants -- Limitation on Designations of Unrestricted Subsidiaries."
"Disqualified Capital Stock" means that portion of any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof on or prior to the final maturity date of the Notes.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary incorporated or otherwise organized or existing under the laws of the United States or any state thereof.
"Equity Offering" has the meaning set forth under "-- Redemption -- Optional Redemption Upon Equity Offerings."
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto.
"Existing TSI Indenture" means the indenture dated as of April 16, 2003 among TSI, the guarantors named therein and The Bank of New York, as trustee, as amended or modified from time to time.
"Existing TSI Notes" means the 9 5/8% Senior Notes due 2011 of TSI issued under the Existing TSI Indenture.
"fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be evidenced by a Board Resolution of the Board of Directors of the Company.
"Farallon" means Farallon Partners, L.L.C. and its Affiliates.
"Foreign Restricted Subsidiary" means a Restricted Subsidiary that is not a Domestic Restricted Subsidiary.
"GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of April 16, 2003. All ratios and computations based on GAAP contained in the Indenture shall be computed in conformity with GAAP applied on a consistent basis, except that calculations made for purposes of determining compliance with the terms of the covenants and with other provisions of the Indenture shall be made without giving effect to (i) the deduction or amortization of any premiums, fees and expenses incurred in connection with any financings or any other permitted incurrence of Indebtedness and (ii) depreciation, amortization or other expenses recorded as a
result of the application of purchase accounting in accordance with Accounting Principles Board Opinion Nos. 16 and 17 and FASB Nos. 141 and 142.
"Guarantee" means each guarantee of the Company's obligations under the Indenture and the Notes by the Guarantors.
"Guarantor" means: each of the Company's Restricted Subsidiaries that in the future executes a supplemental indenture in which such Restricted Subsidiary agrees to be bound by the terms of the Indenture as a Guarantor; provided that any Person constituting a Guarantor as described above shall cease to constitute a Guarantor when its respective Guarantee is released in accordance with the terms of the Indenture.
"incur" has the meaning set forth under "-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness."
"Indebtedness" means with respect to any Person, without duplication:
(1) all Obligations of such Person for borrowed money;
(2) all Obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;
(3) all Capitalized Lease Obligations of such Person;
(4) all Obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all Obligations under any title retention agreement (but excluding trade accounts payable and other accrued liabilities arising in the ordinary course of business);
(5) all Obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction;
(6) guarantees and other contingent obligations in respect of Indebtedness referred to in clauses (1) through (5) above and clause (8) below;
(7) all Obligations of any other Person of the type referred to in clauses (1) through (6) which are secured by any Lien on any property or asset of such Person, the amount of such Obligation being deemed to be the lesser of the fair market value of such property or asset or the amount of the Obligation so secured;
(8) all Obligations under currency agreements and interest swap agreements of such Person; and
(9) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price.
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock that does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be determined reasonably and in good
faith by the Board of Directors of the Company. The amount of Indebtedness of
any Person at any date shall be the outstanding balance on such date of all
unconditional Obligations as described above, and the maximum liability upon the
occurrence of the contingency giving rise to the Obligation, on any contingent
Obligations at such date; provided, however, that the amount outstanding at any
time of any Indebtedness incurred with original issue discount is the face
amount of such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at such time as determined in
conformity with GAAP.
"Independent Financial Advisor" means a firm:
(1) that does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Company; and
(2) that, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged.
"Initial Purchaser" means Deutsche Bank Securities Inc.
"Interest Swap Obligations" means the obligations of any Person pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other Person. "Investment" shall exclude extensions of trade credit by the Company and its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of the Company or such Restricted Subsidiary, as the case may be. If the Company or any Restricted Subsidiary sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary such that, after giving effect to any such sale or disposition, it ceases to be a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Common Stock of such Restricted Subsidiary not sold or disposed of.
"Issue Date" means February 4, 2004.
"Legal Defeasance" has the meaning set forth under "-- Legal Defeasance and Covenant Defeasance."
"Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest).
"Moody's" means Moody's Investors Service, Inc.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (other than the portion of any such deferred payment constituting interest) received by the Company or any of its Restricted Subsidiaries from such Asset Sale net of:
(1) reasonable out-of-pocket expenses and fees relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions) ;
(2) taxes paid or payable after taking into account any reduction in consolidated tax liability due to available tax credits or deductions and any tax sharing arrangements;
(3) repayment of Indebtedness that is secured by the assets sold in the relevant Asset Sale or other Indebtedness that is required to be repaid in connection with such Asset Sale; and
(4) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale.
"Obligations" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness.
"Permitted Holder" means any of BRS Group, Farallon and their respective Affiliates.
"Permitted Indebtedness" means, without duplication, each of the following:
(1) Indebtedness under (i) the Notes issued under the Indenture in an aggregate principal amount not to exceed $213.0 million and any Guarantees thereof and (ii) the Existing TSI Notes and the guarantees thereof (including any guarantees thereof by the Company);
(2) Indebtedness incurred pursuant to the Credit Agreement in an aggregate principal amount at any time outstanding not to exceed $50.0 million incurred under this clause (2), less the amount of all required principal payments actually made by the Company in respect of the loans thereunder that were incurred under this clause (2) in accordance with the provisions set forth under "-- Certain Covenants -- Limitation on Asset Sales" (which, in the case of revolving loans, are accompanied by a corresponding permanent commitment reduction);
(3) other Indebtedness (including Capitalized Lease Obligations) of the Company and its Restricted Subsidiaries outstanding on the Issue Date;
(4) Purchase Money Indebtedness and Capitalized Lease Obligations of the Company and its Restricted Subsidiaries in an aggregate amount for all Indebtedness incurred pursuant to this clause (4) not to exceed $20.0 million outstanding at any one time;
(5) Interest Swap Obligations covering Indebtedness of the Company or any of its Restricted Subsidiaries; provided, however, that such Interest Swap Obligations are entered into to protect the Company and its Restricted Subsidiaries from fluctuations in interest rates on Indebtedness incurred in accordance with the Indenture to the extent the notional principal amount of such Interest Swap Obligation does not exceed, at the time of incurrence thereof, the principal amount of the Indebtedness to which such Interest Swap Obligation relates;
(6) Indebtedness under Currency Agreements; provided, that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder;
(7) Indebtedness of a Restricted Subsidiary to the Company or to another Restricted Subsidiary for so long as such Indebtedness is held by the Company, a Restricted Subsidiary or the holders of a Lien permitted under the Indenture, in each case subject to no Lien held by a Person other than the Company, a Restricted Subsidiary or the holders of a Lien permitted under the Indenture; provided, that if as of any date any Person other than the Company, a Restricted Subsidiary or the holders of a Lien permitted under the Indenture owns or holds any such Indebtedness or holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness pursuant to this subclause (7);
(8) Indebtedness of the Company to a Restricted Subsidiary for so long as such Indebtedness is held by a Restricted Subsidiary or the holders of a Lien permitted under the Indenture, in each case subject to no Lien other than a Lien permitted under the Indenture; provided that:
(a) any Indebtedness of the Company to any Restricted Subsidiary that is not a Guarantor is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under the Indenture and the Notes and
(b) if as of any date any Person other than a Restricted Subsidiary or the holders of a Lien permitted under the Indenture owns or holds any such Indebtedness or any Person holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the Company under this clause (8);
(9) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within four Business Days of incurrence;
(10) Indebtedness of the Company or any of its Restricted Subsidiaries represented by letters of credit for the account of the Company or such Restricted Subsidiary, as the case may be, in order to provide security for workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in the ordinary course of business;
(11) Refinancing Indebtedness;
(12) Indebtedness represented by guarantees by the Company or its Restricted Subsidiaries of Indebtedness otherwise permitted to be incurred under the Indenture; provided that, in the case of a guarantee by a Restricted Subsidiary, such Restricted Subsidiary complies with the covenant described under "Certain Covenants -- Limitation on Issuances of Guarantees by Restricted Subsidiaries" to the extent applicable;
(13) Indebtedness of the Company or any of its Restricted Subsidiaries in respect of bid, payment and performance bonds, bankers' acceptances, workers' compensation claims, surety or appeal bonds, payment obligations in connection with self-insurance or similar obligations, and bank overdrafts (and letters of credit in respect thereof) in the ordinary course of business;
(14) Indebtedness of the Company or any Restricted Subsidiary consisting of guarantees, indemnities or obligations in respect of purchase price adjustments in connection with the acquisition or disposition of assets; and
(15) additional Indebtedness of the Company and its Restricted Subsidiaries in an aggregate principal amount not to exceed $10.0 million at any one time outstanding (which amount may, but need not, be incurred in whole or in part under the Credit Agreement).
For purposes of determining any particular amount of Indebtedness under
"Limitation on Incurrence of Additional Indebtedness" covenant, guarantees,
Liens or letter of credit obligations supporting Indebtedness otherwise included
in the determination of such particular amount shall not be included. For
purposes of determining compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant, in the event that an item of Indebtedness
meets the criteria of more than one of the categories of Permitted Indebtedness
described in clauses (1) through (15) above or is permitted to be incurred
pursuant to the Consolidated Fixed Charge Coverage Ratio provisions of such
covenant, the Company shall, in its sole discretion, classify (or later
reclassify) such item of Indebtedness in any manner that complies with such
covenant. Accrual of interest, accretion or amortization of original issue
discount, the
payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, the payment of dividends on Disqualified Capital Stock in the form of additional shares of the same class of Disqualified Capital Stock and change in the amount outstanding due solely to the result of fluctuations in the exchange rates of currencies will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Capital Stock for purposes of the "Limitations on Incurrence of Additional Indebtedness" covenant.
"Permitted Investments" means:
(1) Investments by the Company or any Restricted Subsidiary in any Person that is or will become immediately after such Investment a Restricted Subsidiary or that will merge or consolidate into the Company or a Restricted Subsidiary;
(2) Investments in the Company by any Restricted Subsidiary; provided that any Indebtedness incurred by the Company evidencing such Investment by a Restricted Subsidiary that is not a Guarantor is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under the Notes and the Indenture;
(3) Investments in cash and Cash Equivalents;
(4) loans and advances to directors, employees and officers of the Company and its Restricted Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of $5.0 million at any one time outstanding;
(5) Currency Agreements and Interest Swap Obligations entered into in the ordinary course of the Company's or a Restricted Subsidiary's businesses and otherwise in compliance with the Indenture;
(6) other Investments, including Investments in Unrestricted Subsidiaries, not to exceed $10.0 million at any one time outstanding;
(7) Investments in securities of trade creditors or members received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or members or in good faith settlement of delinquent obligations of such trade creditors or members;
(8) Investments represented by guarantees that are otherwise permitted under the Indenture;
(9) Investments the payment for which is Qualified Capital Stock of the Company;
(10) Investments made by the Company or its Restricted Subsidiaries as a result of consideration received in connection with an Asset Sale made in compliance with the covenant described under "-- Certain Covenants -- Limitation on Asset Sales," and
(11) the acquisition by the Company of obligations of one or more officers, directors or employees of the Company or any of its Subsidiaries in connection with such officers', directors' or employees' acquisition of shares of capital stock of the Company so long as no cash is paid by the Company or any of its Subsidiaries to such officers, directors or employees in connection with the acquisition of any such obligations.
"Permitted Liens" means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges or claims either
(a) not delinquent or
(b) contested in good faith by appropriate proceedings and as to which the Company or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP;
(2) statutory and contractual Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof;
(3) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money);
(4) judgment Liens not giving rise to an Event of Default;
(5) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or of any of its Restricted Subsidiaries;
(6) any interest or title of a lessor under any Capitalized Lease Obligation; provided that such Liens do not extend to any property or asset which is not leased property subject to such Capitalized Lease Obligation;
(7) purchase money Liens to finance property or assets of the Company or any Restricted Subsidiary acquired after the Issue Date; provided, however, that
(a) the related purchase money Indebtedness shall not exceed the cost of such property or assets and shall not be secured by property or assets of the Company or any Restricted Subsidiary other than the property and assets so acquired and
(b) the Lien securing such Indebtedness shall be created within 90 days of such acquisition;
(8) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;
(9) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof;
(10) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and setoff;
(11) Liens securing Interest Swap Obligations which Interest Swap Obligations relate to Indebtedness that is otherwise permitted under the Indenture;
(12) Liens securing Indebtedness under Currency Agreements;
(13) Liens securing Acquired Indebtedness incurred in accordance with the covenant described under "-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness"; provided that
(a) such Liens secured such Acquired Indebtedness at the time of and prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary and were not granted in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary and
(b) such Liens do not extend to or cover any property or assets of the Company or of any of its Restricted Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company or a Restricted Subsidiary and are no more favorable to the lienholders than those securing the Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness by us or a Restricted Subsidiary;
(14) Liens on assets of a Restricted Subsidiary that is not a Guarantor to secure Indebtedness and other obligations of such Restricted Subsidiary that are otherwise permitted under the Indenture;
(15) leases, subleases, licenses and sublicenses granted to others that do not materially interfere with the ordinary course of business of the Company and its Restricted Subsidiaries;
(16) banker's Liens, rights of setoff and similar Liens with respect to cash and Cash Equivalents on deposit in one or more bank accounts in the ordinary course of business;
(17) Liens arising from filing Uniform Commercial Code financing statements regarding leases;
(18) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; and
(19) additional Liens not to exceed $10.0 million at any one time.
"Person" means an individual, partnership, corporation, limited liability company, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation.
"Purchase Money Indebtedness" means Indebtedness of the Company or its Restricted Subsidiaries incurred for the purpose of financing all or any part of the purchase price or the cost of installation, construction or improvement of any property.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock.
"Refinance" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of Indebtedness incurred in accordance with the covenant
described under "-- Certain Covenants -- Limitation on Incurrence of Additional
Indebtedness" (other than pursuant to clause (2), (4), (5), (6), (7), (8), (9),
(10), (12), (13), (14) or (15) of the definition of Permitted Indebtedness), in
each case that does not:
(1) result in an increase in the aggregate principal amount of Indebtedness of such Person as of the date of such proposed Refinancing (plus the amount of any premium required to be paid under the terms of the instrument governing such Indebtedness and plus the amount of reasonable expenses incurred by the Company or any Restricted Subsidiary in connection with such Refinancing); or
(2) create Indebtedness with
(a) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced or
(b) a final maturity earlier than the final maturity of the Indebtedness being Refinanced; provided that
(x) if such Indebtedness being Refinanced is Indebtedness solely of the Company, then such Refinancing Indebtedness shall be Indebtedness solely of the Company, and
(y) if such Indebtedness being Refinanced is subordinate or junior to the Notes, then such Refinancing Indebtedness shall be subordinate to the Notes at least to the same extent and in the same manner as the Indebtedness being Refinanced.
"Registration Rights Agreement" means the Registration Rights Agreement dated as of February 4, 2004 among the Company and the Initial Purchaser.
"Replacement Assets" means assets of a kind used or usable in the business of the Company and its Restricted Subsidiaries as conducted on the date of the relevant Asset Sale.
"Restricted Subsidiary" means any Subsidiary of the Company that has not been designated by the Board of Directors of the Company, by a Board Resolution of the Company delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in compliance with the covenant described under "-- Certain Covenants -- Limitation on Designations of Unrestricted Subsidiaries." Any such Designation may be revoked by a Board Resolution of the Company delivered to the Trustee, subject to the provisions of such covenant.
"Revocation" has the meaning set forth under "-- Certain Covenants -- Limitation on Designations of Unrestricted Subsidiaries."
"S&P" means Standard and Poor's Ratings Service.
"Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Company or a Restricted Subsidiary of any property, whether owned by the Company or any Restricted Subsidiary at the Issue Date or later acquired, which has been or is to be sold or transferred by the Company or by such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such Property.
"Significant Subsidiary" will have the meaning set forth in Rule 1.02(w) of Regulation S-X under the Securities Act.
"Subordinated Indebtedness" means Indebtedness of the Company that is by its express terms subordinated or junior in right of payment to the Notes.
"Subsidiary", with respect to any Person, means:
(1) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person; or
(2) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person.
"Surviving Entity" has the meaning set forth under "-- Certain Covenants -- Merger, Consolidation and Sale of Assets."
"Transactions" means the manner in which the proceeds received by the
Company from the sale of the Notes on the Issue Date will be used, including the
payment of dividends to the Company's shareholders and the repurchase of TSI's
preferred stock.
"TSI" means Town Sports International, Inc.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as such pursuant to and in compliance with the covenant described under "-- Certain Covenants -- Limitation on Designations of Unrestricted Subsidiaries." Any such designation may be revoked by a Board Resolution of the Company delivered to the Trustee, subject to the provisions of such covenant.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing:
(1) the then outstanding aggregate principal amount of such Indebtedness into
(2) the sum of the total of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by
(b) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of which all the outstanding voting securities (other than in the case of a foreign Restricted Subsidiary, directors' qualifying shares or an immaterial amount of shares required to be owned by other Persons pursuant to applicable law) are owned by the Company or another Wholly Owned Restricted Subsidiary.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion (including the opinion of counsel described below) is based upon current provisions of the Internal Revenue Code of 1986, as amended, applicable Treasury regulations, judicial authority and administrative rulings and practice. There can be no assurance that the Internal Revenue Service (the "IRS") will not take a contrary view, and no ruling from the IRS has been or will be sought. Legislative, judicial or administrative changes or interpretations may be forthcoming that could alter or modify the statements and conditions set forth herein. Any such changes or interpretations may or may not be retroactive and could affect the tax consequences to holders. Certain holders (including insurance companies, tax-exempt organizations, financial institutions, broker-dealers, foreign corporations and persons who are not citizens or residents of the United States) may be subject to special rules not discussed below. We recommend that each holder consult such holder's own tax advisor as to the particular tax consequences of exchanging such holder's Old Notes for New Notes, including the applicability and effect of any state, local or foreign tax laws.
LEGAL MATTERS
Certain legal matters in connection with the offering of the Notes will be passed upon for us by Kirkland & Ellis LLP, New York, New York.
EXPERTS
The financial statements of Town Sports International, Inc. as of December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003 included in this Prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
TSI, Inc. is subject to the periodic reporting and other informational requirements of the Exchange Act, as amended. Under the terms of the indenture, we agree that, whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, we will furnish to the trustee and the holders of Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K, if we were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes our financial condition and results of operations and our consolidated subsidiaries and, with respect to the annual information only, a report thereon by our certified independent accountants and (ii) all current reports that would be required to be filed with the SEC on Form 8-K if we were required to file such reports. In addition, whether or not required by the rules and regulations of the SEC, we will file a copy of all such information and reports with the SEC for public availability (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. Information filed with the SEC may be read and copied by the public at the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. In addition, we have agreed that, for so long as any Notes remain outstanding, we will furnish to the holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Consolidated Annual Financial Statements:
Report of Independent Auditors............................ F-2
Consolidated balance sheets at December 31, 2002 and
2003................................................... F-3
Consolidated statements of operations for the years ended
December 31, 2001, 2002 and 2003....................... F-4
Consolidated statements of stockholders' deficit for the
years ended December 31, 2001, 2002 and 2003........... F-5
Consolidated statements of cash flows for the years ended
December 31, 2001, 2002 and 2003....................... F-6
Notes to consolidated financial statements................ F-7
|
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of Town Sports International, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' deficit and cash flows present fairly, in all material respects, the financial position of TOWN SPORTS INTERNATIONAL, INC. and SUBSIDIARIES (the "Company") at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Notes 2m and 4 to the financial statements, the Company changed its method of accounting for goodwill and other intangibles effective January 1, 2002.
/s/ PRICEWATERHOUSECOOPERS LLP February 17, 2004, except as to Note 18, which is dated March 17, 2004. |
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2002 AND 2003
2002 2003
-------- --------
ASSETS
Current assets
Cash and cash equivalents................................. $ 5,551 $ 40,802
Accounts receivable (less allowance for doubtful accounts
of $120 and $822 in 2002 and 2003, respectively)........ 1,333 1,469
Inventory................................................. 1,132 750
Prepaid corporate income taxes............................ 3,012 4,062
Prepaid expenses and other current assets................. 4,430 5,322
-------- --------
TOTAL CURRENT ASSETS.................................... 15,458 52,405
Fixed assets, net........................................... 210,823 223,599
Goodwill.................................................... 45,531 45,864
Intangible assets, net...................................... 1,675 630
Deferred tax assets, net.................................... 20,254 16,771
Deferred membership costs................................... 14,408 13,038
Other assets................................................ 6,101 9,892
-------- --------
TOTAL ASSETS............................................ $314,250 $362,199
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities
Current portion of long-term debt and capital lease
obligations............................................. $ 5,178 $ 3,486
Accounts payable.......................................... 5,328 5,379
Accrued expenses.......................................... 21,634 26,006
Deferred revenue.......................................... 26,510 26,621
-------- --------
TOTAL CURRENT LIABILITIES............................... 58,650 61,492
Long-term debt and capital lease obligations................ 155,765 258,391
Deferred lease liabilities.................................. 23,644 25,856
Deferred revenue............................................ 3,435 3,002
Other liabilities........................................... 7,530 7,862
-------- --------
TOTAL LIABILITIES....................................... 249,024 356,603
-------- --------
Commitments and contingencies (Note 15)
Redeemable preferred stock
Redeemable senior preferred stock, $1.00 par value;
liquidation value $64,512; authorized 100,000 shares;
40,000 and 0 shares issued and outstanding at December
31, 2002 and December 31, 2003, respectively............ 62,125 --
Series A redeemable preferred stock, $1.00 par value; at
liquidation value; authorized 200,000 shares; 153,637
shares issued and outstanding at December 31, 2002 and
2003.................................................... 34,841 39,890
-------- --------
96,966 39,890
-------- --------
Stockholders' deficit
Series B preferred stock, $1.00 par value; at liquidation
value; 3,822 and 109,540 shares issued and outstanding
at December 31, 2002 and 2003, respectively............. 303 9,961
Class A voting common stock, $.001 par value; issued and
outstanding 1,176,043 shares at December 31, 2002 and
2003, respectively...................................... 1 1
Paid-in capital........................................... (32,149) (45,627)
Unearned compensation..................................... (278) (172)
Accumulated other comprehensive income (currency
translation adjustment)................................. 293 596
Retained earnings......................................... 90 947
-------- --------
TOTAL STOCKHOLDERS' DEFICIT............................. (31,740) (34,294)
-------- --------
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT.................................. $314,250 $362,199
======== ========
|
See notes to consolidated financial statements.
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
2001 2002 2003
-------- -------- --------
Revenues
Club operations...................................... $278,200 $314,995 $336,140
Fees and other....................................... 3,433 4,432 6,401
-------- -------- --------
281,633 319,427 342,541
-------- -------- --------
Operating expenses
Payroll and related.................................. 112,766 129,105 130,585
Club operating....................................... 88,941 99,113 111,069
General and administrative........................... 18,785 21,368 21,995
Depreciation and amortization........................ 32,185 31,748 34,927
-------- -------- --------
252,677 281,334 298,576
-------- -------- --------
OPERATING INCOME.................................. 28,956 38,093 43,965
Loss on extinguishment of debt......................... -- -- 7,773
Interest expense....................................... 14,918 16,559 23,670
Interest income........................................ (391) (138) (444)
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION
FOR CORPORATE INCOME TAXES...................... 14,429 21,672 12,966
Provision for corporate income taxes................... 6,853 9,709 5,537
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS................. 7,576 11,963 7,429
Loss on discontinued operations (including loss on club
closure of $996 in 2002), net of income tax benefits
of $364 and $551 for 2001 and 2002, respectively..... (530) (767) --
Cumulative effect of a change in accounting principle,
net of income tax benefit of $612.................... -- (689) --
-------- -------- --------
NET INCOME........................................ 7,046 10,507 7,429
Accreted dividends on preferred stock.................. (10,201) (11,543) (10,984)
-------- -------- --------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS...... $ (3,155) $ (1,036) $ (3,555)
======== ======== ========
|
See notes to consolidated financial statements.
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
PREFERRED STOCK COMMON STOCK
SERIES B CLASS A FOREIGN ACCUMULATED
($1.00 PAR) ($.001 PAR) CURRENCY (DEFICIT)/
---------------- ------------------ PAID-IN UNEARNED TRANSLATION RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION ADJUSTMENT EARNINGS
------- ------ --------- ------ -------- ------------ ----------- -----------
BALANCE AT JANUARY 1, 2001......... 3,822 $ 232 1,005,698 $1 $(13,117) $(156) $ 12 $(17,463)
Common stock issued in connection
with subordinated credit
facility.......................... 23,000
Compensation expenses incurred in
connection with Series B Preferred
stock options..................... 993
Amortization of unearned
compensation...................... 156
Accretion of Series B preferred
stock dividend ($8.63 per
share)............................ 33 (33)
Accretion of Series A redeemable
preferred stock dividend ($25.07
per share)........................ (3,852)
Accretion of redeemable senior
preferred stock dividend ($157.90
per share plus accretion of
liquidation value)................ (6,658)
Deferred compensation recorded in
connection with the issuance of
stock options..................... 422 (422)
Other comprehensive income, net of
taxes:
Net income........................ 7,046
Foreign currency translation
adjustment...................... 9
Total comprehensive income......
------- ------ --------- -- -------- ----- ---- --------
BALANCE AT DECEMBER 31, 2001....... 3,822 265 1,028,698 1 (22,245) (422) 21 (10,417)
Common stock issued in connection
with warrant exercises............ 147,345 1
Vesting of restricted common stock
issued in connection with
subordinated credit facility...... 917
Compensation expense incurred in
connection with Series B Preferred
stock options..................... 1,137
Amortization of unearned
compensation...................... 70
Accretion of Series B preferred
stock dividend ($10.20 per
share)............................ 38 (38)
Accretion of Series A redeemable
preferred stock dividend ($28.71
per share)........................ (4,409)
Accretion of redeemable senior
preferred stock dividend ($177.40
per share plus accretion to
liquidation value)................ (7,438)
Forfeiture of unvested options..... (74) 74
Other comprehensive income, net of
taxes:
Net income........................ 10,507
Foreign currency translation
adjustment...................... 272
Total comprehensive income......
------- ------ --------- -- -------- ----- ---- --------
BALANCE AT DECEMBER 31, 2002....... 3,822 303 1,176,043 1 (32,149) (278) 293 90
Series B preferred stock issued in
connection with the exercise of
stock options..................... 106,267 8,618 (8,618)
Repurchase of stock................ (549) (43) (540)
Compensation expense incurred in
connection with Series B Preferred
stock options..................... 177
Amortization of unearned
compensation...................... 21
Accretion of Series B preferred
stock dividend ($9.84 per
share)............................ 1,083 (305) (778)
Accretion of Series A redeemable
preferred stock dividend ($32.86
per share)........................ (1,219) (3,830)
Accretion of redeemable senior
preferred stock dividend ($121.30
per share plus accretion to
liquidation value)................ (2,888) (1,964)
Forfeiture of unvested options..... (85) 85
Other comprehensive income, net of
taxes:
Net income........................ 7,429
Foreign currency translation
adjustment...................... 303
Total comprehensive income......
------- ------ --------- -- -------- ----- ---- --------
BALANCE AT DECEMBER 31, 2003....... 109,540 $9,961 1,176,043 $1 $(45,627) $(172) $596 $ 947
======= ====== ========= == ======== ===== ==== ========
TOTAL
STOCKHOLDERS'
DEFICIT
-------------
BALANCE AT JANUARY 1, 2001......... $(30,491)
Common stock issued in connection
with subordinated credit
facility..........................
Compensation expenses incurred in
connection with Series B Preferred
stock options..................... 993
Amortization of unearned
compensation...................... 156
Accretion of Series B preferred
stock dividend ($8.63 per
share)............................ --
Accretion of Series A redeemable
preferred stock dividend ($25.07
per share)........................ (3,852)
Accretion of redeemable senior
preferred stock dividend ($157.90
per share plus accretion of
liquidation value)................ (6,658)
Deferred compensation recorded in
connection with the issuance of
stock options..................... --
Other comprehensive income, net of
taxes:
Net income........................ 7,046
Foreign currency translation
adjustment...................... 9
--------
Total comprehensive income...... 7,055
--------
BALANCE AT DECEMBER 31, 2001....... (32,797)
Common stock issued in connection
with warrant exercises............ 1
Vesting of restricted common stock
issued in connection with
subordinated credit facility...... 917
Compensation expense incurred in
connection with Series B Preferred
stock options..................... 1,137
Amortization of unearned
compensation...................... 70
Accretion of Series B preferred
stock dividend ($10.20 per
share)............................ --
Accretion of Series A redeemable
preferred stock dividend ($28.71
per share)........................ (4,409)
Accretion of redeemable senior
preferred stock dividend ($177.40
per share plus accretion to
liquidation value)................ (7,438)
Forfeiture of unvested options..... --
Other comprehensive income, net of
taxes:
Net income........................ 10,507
Foreign currency translation
adjustment...................... 272
--------
Total comprehensive income...... 10,779
--------
BALANCE AT DECEMBER 31, 2002....... (31,740)
Series B preferred stock issued in
connection with the exercise of
stock options..................... --
Repurchase of stock................ (583)
Compensation expense incurred in
connection with Series B Preferred
stock options..................... 177
Amortization of unearned
compensation...................... 21
Accretion of Series B preferred
stock dividend ($9.84 per
share)............................ --
Accretion of Series A redeemable
preferred stock dividend ($32.86
per share)........................ (5,049)
Accretion of redeemable senior
preferred stock dividend ($121.30
per share plus accretion to
liquidation value)................ (4,852)
Forfeiture of unvested options..... --
Other comprehensive income, net of
taxes:
Net income........................ 7,429
Foreign currency translation
adjustment...................... 303
--------
Total comprehensive income...... 7,732
--------
BALANCE AT DECEMBER 31, 2003....... $(34,294)
========
|
See notes to consolidated financial statements.
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
2001 2002 2003
-------- -------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................. $ 7,046 $ 10,507 $ 7,429
-------- -------- ---------
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization............................ 32,667 32,025 34,927
Amortization of debt issuance costs...................... 1,882 1,928 1,627
Noncash rental expense, net of noncash rental income..... 4,224 1,670 1,650
Compensation expense incurred in connection with stock
options................................................ 1,149 1,207 198
Net change in certain working capital components......... 3,475 2,413 (227)
Decrease (increase) in deferred tax asset................ (4,526) (1,162) 3,483
Decrease (increase) in deferred membership costs......... (1,162) 340 1,370
Loss on extinguishment of debt........................... -- -- 7,773
Goodwill impairment write-off............................ -- 1,301 --
Club closure costs....................................... -- 996 --
Other.................................................... (407) (420) 23
-------- -------- ---------
Total adjustments...................................... 37,302 40,298 50,824
-------- -------- ---------
Net cash provided by operating activities.............. 44,348 50,805 58,253
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net of effect of acquired
businesses............................................... (57,811) (41,393) (43,397)
Proceeds from sale of equipment............................ -- -- 176
Acquisition of businesses, net of cash acquired............ (1,272) (2,322) (130)
Landlord contributions..................................... 725 3,533 617
-------- -------- ---------
Net cash used in investing activities.................. (58,358) (40,182) (42,734)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from 9 5/8% Senior Note Offering.................. -- -- 255,000
Repayment of 9 3/4% Senior Notes........................... -- -- (125,000)
Premium paid on extinguishment of debt and other costs..... -- -- (4,064)
Redemption of redeemable senior preferred stock............ -- -- (66,977)
Transaction costs related to 9 5/8% Senior Notes........... -- -- (9,578)
Net line of credit (repayments) borrowings................. 13,745 (8,245) (14,500)
Net subordinated credit (repayments) borrowings............ 5,762 2,810 (9,000)
Repurchase of Series B preferred stock..................... -- -- (583)
Repayments of other borrowings............................. (3,404) (5,095) (5,566)
-------- -------- ---------
Net cash provided by (used in) financing activities.... 16,103 (10,530) 19,732
-------- -------- ---------
Net increase in cash and cash equivalents.............. 2,093 93 35,251
CASH AND CASH EQUIVALENTS
Beginning of period........................................ 3,365 5,458 5,551
-------- -------- ---------
End of period.............................................. $ 5,458 $ 5,551 $ 40,802
======== ======== =========
SUMMARY OF THE CHANGE IN CERTAIN WORKING CAPITAL
COMPONENTS,NET OF EFFECTS OF ACQUIRED BUSINESSES
Increase in accounts receivable............................ $ (304) $ (443) $ (136)
Decrease (increase) in inventory........................... (433) 194 382
Increase in prepaid expenses and other current assets...... (514) (527) (137)
Increase in accounts payable and accrued expenses.......... 1,745 3,751 1,036
(Increase) decrease in prepaid corporate income taxes...... 1,828 (3,012) (1,050)
(Decrease) increase in deferred revenue.................... 1,153 2,450 (322)
-------- -------- ---------
Net change in certain working capital components....... $ 3,475 $ 2,413 $ (227)
======== ======== =========
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See notes to consolidated financial statements.
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2002 AND 2003
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
1. NATURE OF BUSINESS
Town Sports International, Inc. and Subsidiaries (the "Company") owns and operates 127 fitness clubs ("clubs") and partly owns and operates two additional clubs as of December 31, 2003. The Company operates in a single segment. The Company operates 86 clubs in the New York metropolitan market, 19 clubs in the Boston market, 15 clubs in the Washington, D.C. market, six in the Philadelphia market and three clubs in Switzerland. The Company's geographic concentration in the New York metropolitan market may expose the Company to adverse developments related to competition, demographic changes, real estate costs, acts of terrorism and economic down turns. The Company's Swiss operations are immaterial to the Company's consolidated financial position, results of operations, and cash flows.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of Town Sports International, Inc. ("TSI") and all wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Certain reclassifications were made to the reported amounts at December 31, 2001 and 2002 to conform to the presentation at December 31, 2003.
b. REVENUE RECOGNITION
The Company receives a one-time non-refundable initiation fee and monthly dues from its members. The Company's members have the option to join on a month-to-month basis or to commit to a one or two year membership. Month-to-month members can cancel their membership at any time with 30 days notice. Initiation fees and related direct expenses, primarily salaries and sales commissions payable to membership consultants, are deferred and recognized, on a straight-line basis, in operations over an estimated membership life of twenty four (24) months. The amount of costs deferred do not exceed the related deferred revenue for the periods presented. Dues that are received in advance are recognized on a pro-rata basis over the periods in which services are to be provided. Revenues from ancillary services are recognized as services are performed. Management fees earned for services rendered are recognized at the time the related services are performed.
The Company recognizes revenue from merchandise sales upon delivery to the member.
In connection with advance receipts of fees or dues, the Company is required to maintain surety bonds totaling $3,342 pursuant to various state consumer protection laws.
c. INVENTORY
Inventory consists of athletic equipment, supplies, headsets for the club entertainment system and clothing for sale to members. Inventories are valued at the lower of cost or market by the first-in, first-out method.
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
d. FIXED ASSETS
Fixed assets are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the assets, which are thirty years for building and improvements, five years for club equipment, furniture, fixtures and computer equipment, and three years for computer software. Leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining period of the lease. Expenditures for maintenance and repairs are charged to operations as incurred. The cost and related accumulated depreciation or amortization of assets retired or sold are removed from the respective accounts and any gain or loss is recognized in operations. The costs related to developing web applications, developing HTML web pages and installing developed applications on the web servers are capitalized and classified as computer software. Web site hosting fees and maintenance costs are expensed as incurred.
e. ADVERTISING AND CLUB PREOPENING COSTS
Advertising costs and club preopening costs are charged to operations during the period in which they are incurred except for production costs related to television and radio advertisements, which are expensed when the related commercials are first aired. Total advertising costs incurred by the Company during the years ended December 31, 2001, 2002 and 2003 totaled $9,327, $8,888 and $9,783, respectively, and are included in club operations.
f. USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
The most significant assumptions and estimates relate to the allocation and fair value ascribed to assets acquired in connection with the acquisition of clubs under the purchase method of accounting, the useful lives, recoverability and impairment of fixed and intangible assets, deferred income tax valuation, valuation of and expense incurred in connection with stock options and warrants, legal contingencies and the estimated membership life.
g. CORPORATE INCOME TAXES
Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined on the basis of the difference between the financial statement and tax basis of assets and liabilities ("temporary differences") at enacted tax rates in effect for the years in which the temporary differences are expected to reverse. A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized.
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
h. STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information:
2001 2002 2003
------- ------- -------
Cash paid
Interest (net of amounts capitalized)............ $13,887 $15,035 $24,004
Income taxes..................................... 10,087 13,187 3,104
Noncash investing and financing activities
Acquisition of fixed assets included in accounts
payable and accrued expenses.................. 7,538 3,901 7,287
Acquisition of equipment and software financed by
lessors....................................... 2,853 2,575 --
See Notes 6, 9, 10 and 11 for additional noncash
investing and financing activities
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i. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments which have original maturities of three months or less when acquired to be cash equivalents. The carrying amounts reported in the balance sheets for cash and cash equivalents approximate fair value. The Company owns and operates a captive insurance company in the State of New York. Under the insurance laws of the State of New York, this captive insurance company is required to maintain a cash balance of at least $250. At December 31, 2003, $252 of cash related to this wholly owned subsidiary was included within cash and cash equivalents.
j. DEFERRED LEASE LIABILITIES AND NONCASH RENTAL EXPENSE
The Company recognizes rental expense for leases with scheduled rent increases on the straight-line basis over the life of the lease.
k. FOREIGN CURRENCY
At December 31, 2003, the Company owns three Swiss clubs, which use the local currency as their functional currency. Assets and liabilities are translated into U.S. dollars at year-end exchange rates, while income and expense items are translated into U.S. dollars at the average exchange rate for the period. For all periods presented foreign exchange transaction gains and losses were not material. Adjustments resulting from the translation of foreign functional currency financial statements into U.S. dollars are included in the currency translation adjustment in stockholders' deficit. The difference between the Company's net income and comprehensive income is the effect of foreign exchange translation adjustments, which was immaterial for 2001, and was $272 and $303 for 2002 and 2003, respectively.
l. INVESTMENTS IN AFFILIATED COMPANIES
The Company has investments in Capitol Hill Squash Club Associates ("CHSCA") and Kalorama Sports Management Associates ("KSMA") (collectively referred to as the "Affiliates"). The Company has a limited partnership interest in CHSCA, which provides the Company with approximately 20% of the CHSCA profits, as defined. The Company has a co-general partnership and limited partnership interests in KSMA, which entitles it to receive approximately 45% of the KSMA profits, as defined. The Affiliates have operations, which are
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
similar, and related to, those of the Company. The Company accounts for these Affiliates in accordance with the equity method. The assets, liabilities, equity and operating results of the Affiliates and the Company's pro rata share of the Affiliates' net assets and operating results were not material for all periods presented.
m. INTANGIBLE ASSETS, GOODWILL AND DEBT ISSUANCE COSTS
Intangible assets consist of membership lists, a beneficial lease and covenants-not-to-compete. These assets are stated at cost and are being amortized by the straight-line method over their estimated lives. Membership lists are amortized over 24 months and covenants-not-to-compete are amortized over the contractual life, generally five years. The beneficial lease is being amortized over the remaining life of the underlying club lease.
In accordance with the Statement on Financial Accounting Standards ("SFAS") No. 142 ("SFAS 142"), Goodwill and Other Intangible Assets, goodwill has not been amortized subsequent to December 31, 2001. For the year ended December 31, 2001, goodwill was amortized by the straight-line method over the remaining lives of the underlying club leases, five to fifteen years. See Note 4 for further discussion on Goodwill and Intangible Assets.
Debt issuance costs are classified within other assets and are being amortized as additional interest expense over the life of the underlying debt, five to eight years, using the interest method. Amortization of debt issue costs was $1,882, $1,928 and $1,627 for December 31, 2001, 2002 and 2003, respectively.
n. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets, such as fixed assets and intangible assets are reviewed for impairment when events or circumstances indicate that their carrying value may not be recoverable. Estimated undiscounted expected future cash flows are used to determine if an asset is impaired, in which case the asset's carrying value would be reduced to fair value.
Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets," which replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of." SFAS No. 144 provides updated guidance concerning the recognition and measurement of an impairment loss for certain types of long-lived assets, expands the scope of discontinued operation to include a component of an entity and eliminates the exemption to consolidation when control over a subsidiary is likely to be temporary. In 2002, the Company discontinued operations at two wholly-owned clubs. As a result of the adoption of SFAS No. 144 the Company has accounted for these two clubs as discontinued operations. See Note 17 for further discussion on Discontinued Operations.
o. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of credit risk are cash and cash equivalents. Such amounts are held, primarily, in a single commercial bank. The Company holds no collateral for these financial instruments.
p. STOCK-BASED EMPLOYEE COMPENSATION
For financial reporting purposes, the Company accounts for stock-based compensation in accordance with the intrinsic value method ("APB No. 25"). In accordance with this method, no compensation expense is recognized in the accompanying financial statements in connection
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with the awarding of stock option grants to employees provided that, as of the grant date, all terms associated with the award are fixed and the fair value of the Company's stock is not greater than the amount an employee must pay to acquire the stock as defined; however, to the extent that stock options are granted to employees with variable terms or if the fair value of the Company's stock as of the measurement date is greater than the amount an employee must pay to acquire the stock, then the Company will recognize compensation expense. The fair value of warrants granted to nonemployees for financing were recorded as deferred financing costs and amortized into interest expense using the interest method. See Note 10 for further discussion on stock options and warrants.
The following table illustrates the effect on net loss attributed to common stockholders if the Company had applied the fair value recognition provisions of Financial Accounting Standards Board issued Statement No. 123, ("SFAS 123") Accounting for Stock-Based Compensation, to stock-based employee compensation.
2001 2002 2003
------- ------- -------
Net loss attributed to common stockholders, as
reported......................................... $(3,155) $(1,036) $(3,555)
Add
Stock-based employee compensation expense
included in reported net loss attributed to
common stockholders, net of related tax
effects....................................... 84 38 12
Deduct
Total stock-based employee compensation expense
determined under fair value based method for
all stock option awards, net of related tax
effects....................................... (229) (142) (167)
------- ------- -------
Pro forma net loss attributed to common
stockholders..................................... $(3,300) $(1,140) $(3,710)
======= ======= =======
|
Since option grants vest over several years and additional grants are expected in the future, the pro forma results noted above are not likely to be representative of the effects on future years of the application of the fair value based method.
For the purposes of the above pro forma information, the fair value of each option granted was estimated on the date of grant using the Black-Scholes option pricing model and the following assumptions:
WEIGHTED
RISK-FREE AVERAGE EXPECTED FAIR VALUE
INTEREST EXPECTED EXPECTED DIVIDEND AT DATE
CLASS A COMMON RATE LIFE VOLATILITY YIELD OF GRANT
-------------- --------- -------- ---------- -------- ----------
1999 Grants.................... 5.7% 5 years 60% -- $ 30.10
2000 Grants.................... 6.6 5 69 -- 47.11
2001 Grants.................... 4.6 5 72 -- 111.89
2003 Grants.................... 3.8 6 55 -- 14.50
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q. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liability and Equity (FAS 150), which establishes
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. FAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. As of December 31, 2003 the Company does not have financial instruments within the scope of this pronouncement.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. Interpretation No. 46 requires a variable interest entity, or VIE, to be consolidated by a company if that company is subject to a majority of the risk of loss from the VIE's activities or is entitled to receive a majority of the entity's residual return or both. Interpretation No. 46 also provides criteria for determining whether an entity is a VIE subject to consolidation. Interpretation No. 46 also sets forth certain disclosures regarding interests in VIE that are deemed significant, even if consolidation is not required. In December 2003, a modification to Interpretation No. 46 was issued (Interpretation No. 46R) which delayed the effective date until no later than fiscal periods ending after March 31, 2004 and provided additional technical clarifications to implementation issues. The Company does not currently have any variable interest entities as defined in Interpretation No. 46R. The Company does not expect that the adoption of this statement will have a material impact on the consolidated financial statements.
r. SERIES A REDEEMABLE PREFERRED STOCK
As described in Note 9, the Company has issued 153,637 shares of Series A Redeemable Preferred Stock ("Series A"). The Company has reclassified its 2001 financial statements to account for a redemption feature included in the Series A stock in accordance with the guidance in EITF Topic No. D-98: Classification and Measurement of Redeemable Securities ("EITF Topic No. D-98"). EITF Topic No. D-98 provided additional guidance on the appropriate classification of redeemable preferred stock upon the occurrence of an event that is not solely within the control of an issuer. EITF Topic No. D-98 requires retroactive application in the first fiscal quarter ending after December 15, 2001 by reclassifying the financial statements of prior periods. The carrying value of the Series A stock, which was previously presented as a component of stockholders' deficit, has been reclassified as redeemable preferred stock outside of stockholders' deficit. The reclassification of the 2001 financial statements for the Series A stock had no effect on the Company's net income, net loss attributable to common stockholders cash flows from operations, or total assets. The following sets forth the overall effect of the reclassification on the Company's stockholders' deficit at December 31, 2001:
Stockholders' deficit prior to reclassification............. $ (2,365)
Reclassification of Series A stock.......................... (30,432)
--------
Stockholders' deficit after the reclassification............ $(32,797)
========
|
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. FIXED ASSETS
Fixed assets as of December 31, 2002 and 2003, are shown at cost, less accumulated depreciation and amortization, and are summarized below:
2002 2003
-------- --------
Leasehold improvements..................................... $211,480 $234,560
Club equipment............................................. 50,937 58,376
Furniture, fixtures and computer equipment................. 33,779 34,703
Computer software.......................................... 4,503 7,838
Building and improvements.................................. 4,995 4,995
Land....................................................... 986 986
Construction in progress................................... 8,631 13,836
-------- --------
315,311 355,294
Less: Accumulated depreciation and amortization.......... 104,488 131,695
-------- --------
$210,823 $223,599
======== ========
|
Depreciation and leasehold amortization expense for the years ended December 31, 2001, 2002 and 2003, was $25,780, $30,645 and $33,987, respectively.
4. GOODWILL AND INTANGIBLE ASSETS
Effective January 1, 2002 we implemented SFAS 142. There were no changes to the estimated useful lives of amortizable intangible assets due to the SFAS 142 implementation. In connection with the SFAS 142 transitional impairment test the Company recorded a $1,301 write-off of goodwill. A deferred tax benefit of $612 was recorded as a result of this goodwill write-off, resulting in a net cumulative effect of change in accounting principle of $689, in the first quarter of 2002. The write-off of goodwill related to four, remote underperforming clubs. The impairment test was performed with discounted estimated future cash flows as the criteria for determining fair market value. Goodwill has been allocated to reporting units that closely reflect the regions served by our four trade names; New York Sports Club, Boston Sports Club, Washington Sports Club and Philadelphia Sports Club, with certain more remote clubs that do not benefit from a regional cluster being considered single reporting units.
A reconciliation of reported net income for the year ended December 31, 2001 to net income adjusted for the impact of SFAS 142 over that same period is as follows:
2001
-------
Net income as reported...................................... $ 7,046
Goodwill amortization....................................... 4,436
Deferred tax benefit........................................ (1,344)
-------
Net income as adjusted.................................... $10,138
=======
|
In addition, the Company is required to conduct an annual review of goodwill for potential impairment. Goodwill impairment testing requires a comparison between the carrying value and fair value of reportable goodwill. If the carrying value exceeds the fair value, goodwill is considered impaired. The amount of the impairment loss is measured as the difference between the carrying value and the implied fair value of goodwill, which is determined using discounted
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
cash flows. In 2003, the Company did not have to record a charge to earnings for an impairment of goodwill as a result of its annual review conducted during the first quarter.
The change in the carrying amount of goodwill from December 31, 2002 through December 31, 2003 is as follows:
BALANCE AT DECEMBER 31, 2002................................ $45,531
Changes due to
Currency.................................................. 203
Acquisitions.............................................. 130
-------
BALANCE AT DECEMBER 31, 2003................................ $45,864
=======
|
A summary of our acquired amortizable intangible assets as of December 31, 2002 and 2003 is as follows:
DECEMBER 31, 2002
-------------------------------------
GROSS
CARRYING ACCUMULATED NET
AMOUNT AMORTIZATION INTANGIBLES
-------- ------------ -----------
ACQUIRED INTANGIBLE ASSETS
Membership lists................................ $11,054 $ (9,605) $1,449
Covenants-not-to-compete........................ 876 (711) 165
Beneficial lease................................ 223 (162) 61
------- -------- ------
$12,153 $(10,478) $1,675
======= ======== ======
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DECEMBER 31, 2003
-------------------------------------
GROSS
CARRYING ACCUMULATED NET
AMOUNT AMORTIZATION INTANGIBLES
-------- ------------ -----------
ACQUIRED INTANGIBLE ASSETS
Membership lists................................ $10,205 $ (9,630) $575
Covenants-not-to-compete........................ 876 (871) 5
Beneficial lease................................ 223 (173) 50
------- -------- ----
$11,304 $(10,674) $630
======= ======== ====
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The amortization expense of the above acquired intangible assets for each of the five years ending December 31, 2008 will be as follows:
AMORTIZATION
EXPENSE
------------
YEAR ENDING DECEMBER 31,
2004........................................................ $591
2005........................................................ 11
2006........................................................ 11
2007........................................................ 11
2008........................................................ 6
----
$630
====
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TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amortization expense of intangible assets for the years ended December 31, 2001, 2002 and 2003, was $6,403, $1,103 and $940, respectively.
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
DECEMBER 31,
-----------------
2002 2003
------- -------
Accrued payroll............................................. $ 7,817 $ 6,086
Accrued interest............................................ 2,731 5,157
Accrued construction in progress and equipment.............. 2,650 5,300
Accrued occupancy costs..................................... 3,514 4,002
Accrued other............................................... 4,922 5,461
------- -------
$21,634 $26,006
======= =======
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6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following:
DECEMBER 31,
-------------------
2002 2003
-------- --------
Senior Notes 9 5/8%........................................ $ -- $255,000
Series B 9 3/4% Senior Notes, due 2004..................... 125,000 --
Line of credit borrowings.................................. 14,500 --
Subordinated credit borrowings............................. 9,000 --
Notes payable for acquired businesses...................... 6,230 4,358
Capital lease obligations.................................. 6,213 2,519
-------- --------
160,943 261,877
Less: Current portion due within one year.................. 5,178 3,486
-------- --------
Long-term portion........................................ $155,765 $258,391
======== ========
|
The aggregate long-term debt and capital lease obligations maturing during the next five years and thereafter is as follows:
AMOUNT DUE
----------
YEAR ENDING DECEMBER 31,
2004........................................................ $ 3,486
2005........................................................ 1,056
2006........................................................ 619
2007........................................................ 632
2008........................................................ 217
Thereafter.................................................. 255,867
--------
$261,877
========
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In October 1997, the Company issued $85,000 of Series B 9 3/4% Senior Notes due October 2004. The net proceeds from the Senior Notes totaled approximately $81,700. The
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
transaction fees of approximately $3,300, were accounted for as deferred financing costs. In June 1999, the Company issued $40,000 of Senior Notes at a price of 98.75%, providing the Company with $39,500 of proceeds before expenses relating to the issuance. The Senior Notes bear interest at an annual rate of 9 3/4%, payable semi-annually. The Senior Notes are redeemable at the option of the Company on or after October 15, 2001. For redemption prior to October 15, 2004, the Company would be required to pay a premium as defined. The $85,000 and $40,000 issuances are collectively referred to as the "Senior Notes." The Senior Notes were redeemed on April 16, 2003. See the April 16, 2003 Refinancing Transactions discussed below.
Prior to the April 16, 2003 refinancing transactions, the Company had a $25,000 line of credit with its principal bank for direct borrowings and letters of credit. The line of credit carried interest at the Company's option based upon the Eurodollar borrowing rate plus 2.50% or the bank's prime rate plus 1.50%, as defined and the Company was required to pay a commitment commission of 0.375% per annum based upon the daily unutilized amount. There were $10,500 of Eurodollar and $4,000 of prime rate based borrowings outstanding against this line as of December 31, 2002. The interest rates charged on the Eurodollar borrowings and prime rate based borrowings outstanding at December 31, 2002 were 4.0% and 6.25%, respectively. In connection with the April 16, 2003 refinancing transactions, this line of credit was terminated.
In November 2000, the Company entered into a Subordinated Credit Agreement (the "Subordinated Agreement") with an affiliate of a stockholder of the Company. This Subordinated Agreement provided for up to $20,000 of principal borrowings and would have expired December 31, 2004. Interest on principal borrowings accrued at 12.75% per annum; 9.75% of which was payable on a monthly basis and the remaining 3% was accruable and payable, at the option of the Company, through maturity. The Company was charged a fee of 0.083% per month based on the portion of the facility not utilized. There were $9,000 of Subordinated credit borrowings outstanding as of December 31, 2002. In connection with the April 16, 2003 refinancing transactions, this Subordinated Credit Agreement was terminated.
April 16, 2003 Refinancing Transaction
On April 16, 2003 the Company successfully completed a refinancing of its
debt. This refinancing included an offering of $255,000 of 9 5/8% Senior Notes
("Notes") that will mature April 15, 2011, and the entering into of a new
$50,000 senior secured revolving credit facility (the "Senior Credit Facility")
that will expire April 15, 2008. The transaction fees of approximately $9,600
have been accounted for as deferred financing costs. The Notes accrue interest
at 9 5/8% per annum and interest is payable semiannually on April 15 and October
15. In connection with this refinancing, the Company wrote-off $3,709 of
deferred financing costs related to extinguished debt, paid a call premium of
$3,048 and incurred $1,016 of interest on the 9 3/4% Notes representing the
interest incurred during the 30 day redemption notification period.
The Senior Credit Facility contains various covenants including limits on capital expenditures, the maintenance of a consolidated interest coverage ratio of not less than 2.25:1.00 during 2003, and a maximum permitted total leverage ratio of 4.00:1.00 during 2003. Loans under the Senior Credit Facility will, at our option, bear interest at either the bank's prime rate plus 3.0% or the Eurodollar rate plus 4.0%, as defined. There were no borrowings outstanding at December 31, 2003 and outstanding letters of credit issued totaled $1,749. The Company is
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
required to pay a commitment fee of 0.75% per annum on the daily unutilized amount. The unutilized portion of the Senior Credit Facility as of December 31, 2003 was $48,251.
Notes payable were incurred upon the acquisition of various clubs and are subject to the Company's right of offset for possible post acquisition adjustments arising out of operations of the acquired clubs. These notes are stated at rates of between 5% and 9%, and are non-collateralized. The notes are due on various dates through 2012.
The carrying value of long-term debt, other than the Senior Notes and the Notes, approximates fair market value as of December 31, 2002 and 2003 as the debt is generally short-term in nature. Based on quoted market prices, the Senior Notes have a fair value of approximately $125,000 at December 31, 2002 and the Notes have a fair value of approximately $272,850 at December 31, 2003.
The Company's interest expense and capitalized interest related to funds borrowed to finance club facilities under construction for the years ended December 31, 2001, 2002 and 2003 are as follows:
YEARS ENDED DECEMBER 31,
---------------------------
2001 2002 2003
------- ------- -------
Interest costs expensed............................ $14,918 $16,559 $23,670
Interest costs capitalized......................... 907 354 322
------- ------- -------
$15,825 $16,913 $23,992
======= ======= =======
|
The Company leases equipment under noncancelable capital leases. The initial lease terms range from three to five years, after which the Company has the right to purchase the equipment at amounts defined by the agreements.
As of December 31, 2003, minimum rental payments, under all capital leases, including payments to acquire leased equipment, are as follows:
MINIMUM
YEAR ENDING DECEMBER 31, ANNUAL RENTAL
------------------------ -------------
2004........................................................ $2,337
2005........................................................ 224
------
2,561
Less: Amounts representing interest....................... 42
------
PRESENT VALUE OF MINIMUM CAPITAL LEASE PAYMENTS........ $2,519
======
|
The cost of leased equipment included in club equipment was approximately $12,658 and $12,097 at December 31, 2002 and 2003, respectively; and the related accumulated depreciation was $5,686 and $7,544, respectively.
7. RELATED PARTY TRANSACTIONS
The Company entered into a professional service agreement with Bruckmann, Rosser, Sherrill & Co., Inc. ("BRS"), a stockholder of the Company for strategic and financial advisory services on December 10, 1996. Fees for such services, which are included in General and administrative expenses, are $250 per annum, and are payable while BRS owns 20% or more of the outstanding Common stock of the Company. No amounts were due BRS at December 31, 2002 and 2003.
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's Subordinated Agreement discussed in Note 6 was entered into with an affiliate of a stockholder of the Company in 2000. This agreement was terminated in connection with the April 16, 2003 Refinancing Transaction.
8. LEASES
The Company leases office, warehouse and multi-recreational facilities and certain equipment under noncancelable operating leases. In addition to base rent, the facility leases generally provide for additional rent based on increases in real estate taxes and other costs. Certain leases give the Company the right to acquire the leased facility at defined prices based on fair value and provide for additional rent based upon defined formulas of revenue, cash flow or operating results of the respective facilities. Under the provisions of certain of these leases, the Company is required to maintain irrevocable letters of credit, which total $1,749 as of December 31, 2003.
The leases expire at various times through December 31, 2027, and certain leases may be extended at the Company's option.
Future minimum rental payments under noncancelable operating leases are as follows:
MINIMUM
YEAR ENDING DECEMBER 31, ANNUAL RENTAL
------------------------ -------------
2004........................................................ $ 50,976
2005........................................................ 51,659
2006........................................................ 51,500
2007........................................................ 49,511
2008........................................................ 47,476
Aggregate thereafter........................................ 369,831
--------
$620,953
========
|
Rent expense, including the effect of deferred lease liabilities, for the years ended December 31, 2001, 2002 and 2003 was $42,341, $52,085 and $59,273, respectively. Such amounts include additional rent of $7,119, $8,368 and $10,342, respectively.
The Company, as landlord, leases space to third party tenants under noncancelable operating leases and licenses. In addition to base rent, certain leases provide for additional rent based on increases in real estate taxes, indexation, utilities and defined amounts based on the operating results of the lessee. The leases expire at various times through August 31, 2014. Future minimum rentals receivable under noncancelable leases are as follows:
MINIMUM
YEAR ENDING DECEMBER 31, ANNUAL RENTAL
------------------------ -------------
2004........................................................ $ 2,167
2005........................................................ 2,392
2006........................................................ 2,196
2007........................................................ 1,985
2008........................................................ 1,278
Aggregate thereafter........................................ 5,723
-------
$15,741
=======
|
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rental income, including noncash rental income, for the years ended December 31, 2001, 2002 and 2003 was $1,879, $2,132 and $2,434, respectively. Such amounts include additional rental charges above the base rent of $982, $1,046 and $679, respectively.
9. REDEEMABLE PREFERRED STOCK
Redeemable Senior Preferred Stock
During November 1998, the Company issued 40,000 shares of mandatorily redeemable Senior stock ("Senior") and 143,261 warrants. During 2002 71,630 of these warrants were exercised and in January 2004 the remaining 71,631 warrants were exercised (see Note 18 Subsequent Events). The Senior stock had no voting rights except as required by law. The warrants had an exercise price of $0.01, expire in November 2008 and are exercisable into an equal number of shares of Class A Common Stock. After payment of fees and expenses of approximately $365, the Company received net proceeds of $39,635. Upon issuance, a $3,416 value was ascribed to the warrants. The initial fair value of the Senior stock ($36,219) was being accreted to its liquidation value using the interest method. The Senior stock was redeemable in November 2008. The Company, at its option, could redeem the Senior stock at any time without premium.
The Senior stock had a liquidation value of $1,000 per share plus cumulative unpaid dividends of $26,977 as of April 16, 2003. The Senior stock holders were entitled to a cumulative 12% annual dividend, based on the share price of $1,000. On April 16, 2003, in connection with the refinancing transaction discussed in Note 6, all of the Senior stock was redeemed at a liquidation value of $66,977. During 2003, the Company recorded $4,852 of accretion, which was comprised of stock dividend accretion of $2,465 and the remaining warrant accretion to liquidation value of $2,387.
Series A Redeemable Preferred Stock
During fiscal years 1997 and 1998, the Company issued 152,455 and 1,182 shares, respectively, of Series A redeemable preferred stock. As of December 31, 2002 and 2003, 153,637 shares of Series A stock were outstanding. Series A stock has liquidation preferences over Common Stock in the event of a liquidation, dissolution or winding up of the Company. Series A stock has no conversion features or voting rights except as required by law, and rank "pari passu." Series A stock has a liquidation value of $100 per share plus cumulative unpaid dividends of $24,526 as of December 31, 2003. Series A stockholders are entitled to a cumulative 14% annual dividend based upon the per share price of $100. The Company may, at its sole discretion, pay any dividends by cash or by the issuance of additional Series A shares. The Company may at any time redeem all or any portion of the Series A stock at a price equal to the liquidation value plus cumulative unpaid dividends.
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of transactions related to Series A stock is as follows:
CARRYING
SHARES VALUE
------- --------
Proceeds received in connection with the issuance of Series
A stock................................................... 153,637 $15,364
Accretion of Series A stock dividends....................... -- 11,216
------- -------
January 1, 2001 Series A stock.............................. 153,637 26,580
Accretion to Series A stock dividends....................... -- 3,852
------- -------
December 31, 2001 Series A stock............................ 153,637 30,432
Accretion to Series A stock dividends....................... -- 4,409
------- -------
December 31, 2002 Series A stock............................ 153,637 34,841
Accretion to Series A stock dividends....................... -- 5,049
------- -------
December 31, 2003 Series A stock............................ 153,637 $39,890
======= =======
|
In the event of a change in control as defined, each holder of Series A stock then outstanding may require the Corporation, and the Corporation shall be obligated, to redeem all or any portion of the Series A stock owned by such holder.
In February 2004, the Company redeemed all of the Series A stock at a liquidation value of $40,516. See Note 18, Subsequent Events.
10. STOCKHOLDERS' DEFICIT
A. CAPITALIZATION
The Company's certificate of incorporation, as amended, provides for the issuance of up to 3,500,000 shares of capital stock, consisting of 2,500,000 shares of Class A Voting Common Stock ("Class A"), par value $0.001 per share; 500,000 shares of Class B Non-voting Common Stock ("Class B"), par value of $0.001 per share, (Class A and Class B are collectively referred to herein as "Common Stock"); and 200,000 shares of Series B Preferred Stock ("Series B") par value $1.00 per share. This also includes the redeemable preferred stock discussed in Note 9, 100,000 shares Senior stock, par value $1.00 per share and 200,000 shares of Series A stock, par value $1.00 per share.
All stockholders have preemptive rights to purchase a pro-rata share of any future sales of securities, as defined.
Common Stock
Class A stock and Class B stock each have identical terms with the exception that Class A stock is entitled to one vote per share, while Class B stock has no voting rights, except as required by law. In addition, Class B stock is convertible into an equal number of Class A shares, at the option of the holder of the majority of the Class B stock. To date, the Company has not issued Class B stock.
Series B Preferred Stock
During December 1996, the Company issued 3,857 shares of Series B preferred stock, 3,822 shares of which were outstanding as of December 31, 2002. During 2003, the Company issued an additional 106,267 shares and repurchased 549 shares of previously issued Series B
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
preferred stock which were retired. The executives sold all of the Series B stock issued in connection with the 106,267 shares to an affiliate of a stockholder of the Company. Series B stock has liquidation preferences over Common Stock in the event of a liquidation, dissolution or winding up of the Company. Series B stock has no voting rights except as required by law, and rank "pari passu." Upon consummation of an IPO, at the option of the holder, each Series B stock is convertible into Class A Common Stock at prices, at which the Class A Common Stock is sold in such IPO. The Company may at any time redeem all or any portion of the Series B stock at a price equal to the liquidation value plus cumulative unpaid dividends. Series B stock has a liquidation value of $35 per share plus cumulative unpaid dividends of $6,127 as of December 31, 2003. Series B stockholders are entitled to a cumulative 14% annual dividend based upon the per share price of $35. The Company may, at its sole discretion, pay any dividends by cash or by the issuance of additional Series B shares.
In the event of a change in control, as defined, each holder of Series B stock then outstanding may require the Corporation, and the Corporation shall be obligated, to redeem all or any portion of the Series B stock owned by such holder. The Series B preferred stockholders do not control a majority of the votes of the board of directors through direct representation or other rights.
In February 2004, the Company redeemed all of the Series B stock at a liquidation value of $10,118. See Note 18, Subsequent Events.
B. STOCK OPTIONS
Class A Common Stock Options
During the year ended May 31, 1997, the Company adopted the Town Sports International Inc. Common Stock Option Plan (the "Plan"). The provisions of the Plan, as amended and restated, provide for the Company's Board of Directors to grant to executives and key employees options to acquire 162,754 shares of Class A stock.
Grants vest in full at various dates between December 2007 and 2012. The vesting of these grants will be accelerated in the event that certain defined events occur including the achievement of annual equity values or the sale of the Company. The term of each of these grants is ten or eleven years.
In accordance with APB No. 25, Accounting for Stock Issued to Employees, the Company recorded unearned compensation in connection with the 1998 Grants and the 2001 Grants. Such amount is included within stockholders' deficit and represented the difference between the estimated fair value of the Class A stock on the date of amendment or grant, respectively, and the exercise price. Unearned compensation will be amortized as compensation expense over the vesting period. During the years ended December 31, 2001, 2002 and 2003, amortization of unearned compensation totaled $156, $70 and $21, respectively.
As of December 31, 2003, there were 30,227 shares reserved for future option awards.
As of December 31, 2001, 2002 and 2003, a total of 76,474, 75,819 and 80,294 Class A Common stock options were exercisable, respectively.
Series B Preferred Stock Options
During the year ended May 31, 1997, the Company granted 164,783 options
("Series B Options") to certain employees which entitle the holders to purchase
an equal number of shares of Series B stock at an exercise price of $10.00 per
share. Series B Options were fully
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
vested on the date of grant and expire on December 31, 2021. The terms of the Series B Options also contained provisions whereby the exercise price would be reduced, or in certain cases, the option holder would receive cash in accordance with a formula as defined. The aggregate value of, either a reduction in exercise price, or the distribution of cash is deemed compensatory and, accordingly, is recorded as a compensation expense. For the years ended December 31, 2001, 2002 and 2003 compensation expense recognized in connection with Series B Options totaled $993, $1,137 and $177, respectively. All Series B Preferred stock options were exercisable upon grant. There are no shares of Series B Preferred Stock reserved for future option grants.
In January 2003, an executive officer of the Company exercised 9,530 Series B Options, and in turn these newly issues shares were repurchased by the Company for $540 and were retired. In February 2003, several executives of the Company exercised and converted the remaining 148,775 Series B Options in to 106,267 shares of Series B preferred stock. The difference between the 148,775 options exercised and the 106,267 shares issued is due to the remittance of these shares to the Company to cover the purchase price of the stock. The remitted shares were subsequently retired by the Company.
The following table summarizes the stock option activity for the years ended December 31, 2001, 2002 and 2003:
WEIGHTED WEIGHTED
AVERAGE AVERAGE
CLASS A EXERCISE SERIES B EXERCISE
COMMON PRICE PREFERRED PRICE
------- -------- --------- --------
Balance at January 1, 2001........... 92,682 $ 23.88 158,306 $10.00
Granted.............................. 7,400 $100.00(i) --
Exercised............................ (788) $ 32.53 --
Forfeited............................ (512) $ 25.76 --
------- ---------
Balance at December 31, 2001......... 98,782 $ 29.32 158,306 $10.00
Exercised............................ (3,100) $ 22.93 --
Forfeited............................ (2,200) $ 84.57 --
------- ---------
Balance at December 31, 2002......... 93,482 $ 28.23 158,306 $10.00
Granted.............................. 46,400 $144.00(ii) --
Exercised............................ (1,740) $ 36.14 (158,306) $10.00
Forfeited............................ (7,610) $ 24.48 --
------- ---------
Balance at December 31, 2003......... 130,532 $ 69.49 --
======= =========
|
(i) Option exercise price of these options was less than the estimated fair value on the grant date.
(ii) Option exercise price was greater than market price on the grant date.
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option information as of December 31, 2003:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
OUTSTANDING LIFE PRICE EXERCISABLE PRICE
----------- ----------- --------- ----------- ---------
Class A Common
1997 Grants......... 45,586 36 months $ 1.00 45,586 $ 1.00
1998 Grants......... 7,800 52 months $ 17.50 7,800 $ 17.50
1999 Grants......... 9,700 60 months $ 53.00 7,760 $ 53.00
2000 Grants......... 16,446 72 months $ 75.00 9,868 $ 75.00
2001 Grants......... 4,600 101 months $100.00 -- $100.00
2003 Grants......... 46,400 108 months $144.00 9,280 $144.00
----------- -----------
Total Grants.......... 130,532 80,294
=========== ===========
|
11. ASSET ACQUISITIONS
During the period from January 1, 2001 through December 31, 2002, the Company completed the acquisition of six fitness clubs. There were no club acquisitions during the year ended December 31, 2003. None of the individual acquisitions were material to the financial position, results of operations or cash flows of the Company. The table below summarizes the aggregate purchase price and the purchase price allocation to assets acquired:
YEARS ENDED
DECEMBER 31,
---------------
2001 2002
------ ------
Number of clubs acquired.................................... 2 4
====== ======
Purchase prices payable in cash at closing.................. $1,272 $2,322
Issuance and assumption of notes payable.................... 250 4,725
------ ------
TOTAL PURCHASE PRICES.................................. $1,522 $7,047
====== ======
Allocation of purchase prices
Goodwill.................................................. $1,316 $4,479
Fixed assets.............................................. 235 1,955
Membership lists.......................................... 181 1,432
Other net liabilities acquired............................ (172) (108)
Deferred revenue.......................................... (38) (711)
------ ------
TOTAL ALLOCATION OF PURCHASE PRICES.................... $1,522 $7,047
====== ======
|
For financial reporting purposes, these acquisitions have been accounted for under the purchase method and, accordingly, the purchase prices have been assigned to the assets and liabilities acquired on the basis of their respective fair values on the date of acquisition. The excess of purchase prices over the net tangible assets acquired has been allocated to membership lists acquired and goodwill. The results of operations of the clubs have been included in the Company's consolidated financial statements from the respective dates of acquisition. Certain acquisitions have continuing consideration based on future earnings, which
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
will be capitalized as part of the purchase price when incurred. The impact of these acquisitions on the consolidated financial statements of the Company was not material.
12. REVENUE FROM CLUB OPERATIONS
Revenues from club operations for the years ended December 31, 2001, 2002 and 2003 are summarized below:
YEARS ENDED DECEMBER 31,
------------------------------
2001 2002 2003
-------- -------- --------
Membership dues................................ $227,073 $257,917 $273,608
Initiation fees................................ 13,287 14,361 13,891
Other club revenues............................ 37,840 42,717 48,641
-------- -------- --------
$278,200 $314,995 $336,140
======== ======== ========
|
13. CORPORATE INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31, 2001, 2002 and 2003 consisted of the following:
YEAR ENDED DECEMBER 31, 2001
-----------------------------
STATE AND
FEDERAL LOCAL TOTAL
------- --------- -------
Current............................................ $ 7,964 $ 3,415 $11,379
Deferred........................................... (3,357) (1,169) (4,526)
------- ------- -------
$ 4,607 $ 2,246 $ 6,853
======= ======= =======
|
YEAR ENDED DECEMBER 31, 2002
-----------------------------
STATE AND
FEDERAL LOCAL TOTAL
------- --------- -------
Current............................................ $ 6,483 $ 4,388 $10,871
Deferred........................................... (536) (626) (1,162)
------- ------- -------
$ 5,947 $ 3,762 $ 9,709
======= ======= =======
|
YEAR ENDED DECEMBER 31, 2003
-----------------------------
STATE AND
FEDERAL LOCAL TOTAL
------- --------- -------
Current............................................ $ 463 $ 1,591 $ 2,054
Deferred........................................... 3,017 466 3,483
------- ------- -------
$ 3,480 $ 2,057 $ 5,537
======= ======= =======
|
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred tax asset as of, December 31, 2002 and 2003 are summarized below:
DECEMBER 31,
-----------------
2002 2003
------- -------
Deferred tax assets
Deferred lease liabilities................................ $ 9,821 $ 9,998
Deferred revenue.......................................... 5,954 5,156
Fixed assets and intangible assets........................ 5,032 4,054
Compensation expense incurred in connection with stock
options................................................ 4,855 1,489
State net operating loss carry-forwards................... 1,151 1,431
Other..................................................... (1) 517
------- -------
26,812 22,645
------- -------
Deferred tax liabilities
Deferred costs............................................ (6,174) (5,490)
------- -------
(6,174) (5,490)
------- -------
NET DEFERRED TAX ASSETS, PRIOR TO VALUATION
ALLOWANCE............................................ 20,638 17,155
Valuation allowance......................................... (384) (384)
------- -------
NET DEFERRED TAX ASSETS................................ $20,254 $16,771
======= =======
|
As of December 31, 2003, the Company has state net operating loss ("NOL") carry-forwards of approximately $15,970. Such amounts expire between December 31, 2004 and December 31, 2021. The Company's $384 valuation allowance has been maintained principally for NOL carryforwards, which are subject to limitations principally due to acquisitions.
Foreign income and the effect of foreign income taxes was immaterial.
The differences between the U.S. federal statutory income tax rate and the Company's effective tax rate were as follows for the years ended December 31, 2003, 2002 and 2001:
YEARS ENDED DECEMBER 31,
-------------------------
2001 2002 2003
----- ----- -----
Federal statutory tax rate................................. 35% 35% 35%
State and local income taxes, net of federal tax benefit
and change of valuation allowance........................ 8 9 8
Change in state effective income tax rate.................. 1 -- --
Non-deductible goodwill and other permanent differences.... 3 1 --
-- -- --
47% 45% 43%
== == ==
|
14. SEPTEMBER 11, 2001 EVENTS
The terrorist attacks of September 11, 2001 ("the September 11 events"), resulted in a tremendous loss of life and property. Secondarily, those events interrupted the operations at four clubs located in downtown Manhattan. Three of the affected four clubs were back in operation by October 2001, while the fourth club reopened in September 2002.
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company carries business interruption insurance to mitigate certain lost revenue and profits experienced with the September 11 events. In this regard in the third quarter of 2001 a $175 insurance receivable was recorded representing an estimate of costs incurred in September 2001. Such costs included rent, payroll benefits, and other club operating costs incurred during period of closure. In 2002, we collected this $175 receivable and received additional on-account payments of $1,025. In 2003 the Company received $2,800 from its insurer and the Company entered into a final settlement agreement. These on-account and final payments were classified with fees and other revenue when received.
15. CONTINGENCIES
On February 13, 2003, an individual filed suit against the Company in the Supreme Court, New York County, alleging that on January 14, 2003, he sustained an injury at one of our club locations resulting in serious bodily injury. He filed an amended complaint on September 17, 2003 seeking two billion dollars in damages for personal injuries. His cause of action seeking punitive damages, in the amount of two hundred and fifty million dollars, was dismissed on January 26, 2004. The Company has in force fifty-one million dollars of insurance coverage to cover claims of this nature. The Company intends to vigorously contest this lawsuit and presently anticipates that these matters will be covered by insurance.
The Company is a party to various lawsuits arising in the normal course of business. Management believes that the ultimate outcome of these matters will not have a material effect on the Company's consolidated financial position, results of operations or cash flows.
16. EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) defined contribution plan and is subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). The Plan provides for the Company to make discretionary contributions. The Plan was amended, effective January 1, 2001, to provide for an employer matching contribution in an amount equal to 25% of the participant's contribution with a limit of five hundred dollars per individual, per annum. Employer matching contributions totaling $200 and $195 were made in February 2003 and 2004, respectively, for the Plan years ended December 31, 2002 and 2003, respectively.
17. DISCONTINUED OPERATIONS
In the fourth quarter of 2002, the Company closed or sold two remote underperforming, wholly-owned clubs. In connection with the closure of one of the clubs the Company recorded club closure costs of $996 related to the write-off of fixed assets. The Company has accounted for these two clubs as discontinued operations and, accordingly, the results of their operations have been classified as discontinued in the consolidated statement of operations and prior periods have been reclassified in accordance with SFAS No. 144.
Revenues and pre-tax losses for these discontinued clubs were $1,659 and $894 in 2001 and $1,606 and $322 in 2002, respectively.
18. SUBSEQUENT EVENTS
On January 26, 2004 warrants to purchase 71,631 shares of Class A common stock were exercised.
On February 4, 2004 the Company and affiliates and Town Sports
International Holdings ("TSI Holdings"), a newly formed company, entered into a
Restructuring Agreement. In
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
connection with this Restructuring, the holders of the Company's Series A Preferred Stock, Series B Preferred Stock and Class A Common stock contributed their shares of the Company to TSI Holdings for an equal amount of newly issued shares of the same form in TSI Holdings. Immediately following this exchange TSI Holdings contributed to the Company the certificates representing all of the Company shares contributed in the aforementioned exchange and in return the Company issued 1,000 shares of common stock to TSI Holdings, and cancelled on its books and records the certificate representing Company shares contributed to it by TSI Holdings.
On February 4, 2004 TSI Holdings, successfully completed an offering of 11.0% Senior Discount Notes ("the Discount Notes") that will mature in February 2014. TSI Holdings received a total of $124,807 in connection with this issuance. Fees and expenses related to this transaction totaled approximately $4,375. No cash interest is required to be paid prior to February 2009. The accreted value of each Discount Note will increase from the date of issuance until February 1, 2009, at a rate of 11.0% per annum compounded semi-annually such that on February 1, 2009 the accreted value will equal $213,000, the principal value due at maturity. Subsequent to February 1, 2009 cash interest on the Discount Notes will accrue and be payable semi-annually in arrears February 1 and August 1 of each year, commencing August 1, 2009. The Discount Notes are structurally subordinated and effectively rank junior to all indebtedness of the Company.
On February 6, 2004 all of TSI Holdings' outstanding Series A stock and Series B stock were redeemed for a total of $50,634.
On March 12, 2004 65,296 vested common stock options of TSI Holdings were exercised.
On March 15, 2004 the Board of Directors of TSI Holdings approved a common stock dividend of $52.50 per share to all shareholders of record on March 15, 2004. This dividend was paid on March 17, 2004.
19. GUARANTORS
The Company and all of its domestic subsidiaries have unconditionally guaranteed the $255,000 9 5/8% Senior Notes discussed in Note 6. However, the Company's foreign subsidiaries have not provided guarantees for these Notes.
Each guarantor is a wholly owned subsidiary of the Company and the guarantees are full and unconditional and joint and severable. The following schedules set forth condensed consolidating financial information as required by Rule 3-10f of Securities and Exchange Commission Regulation S-X at December 31, 2002 and 2003 and for each of the three years ending December 31, 2003. The financial information illustrates the composition of the combined guarantors.
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
(ALL FIGURES IN THOUSANDS OF DOLLARS)
DECEMBER 31, 2002
NON-
SUBSIDIARY GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------ ------------
ASSETS
Current assets
Cash and cash equivalents........... $ 1,575 $ 3,635 $ 341 $ -- $ 5,551
Accounts receivable, net............ 1,840 1,173 99 (1,779) 1,333
Inventory........................... -- 1,106 26 -- 1,132
Prepaid corporate income taxes...... 3,012 -- -- -- 3,012
Intercompany receivable (payable)... (18,996) 20,469 (1,473) -- --
Prepaid expenses and other current
assets............................ 5,837 2,093 -- (3,500) 4,430
-------- -------- ------- --------- --------
Total current assets.............. (6,732) 28,476 (1,007) (5,279) 15,458
Investment in subsidiaries............ 206,413 -- -- (206,413) --
Fixed assets, net..................... 11,273 198,050 1,500 -- 210,823
Goodwill, net......................... -- 44,927 604 -- 45,531
Intangible assets, net................ -- 1,569 106 -- 1,675
Deferred tax assets, net.............. 20,866 (490) (122) -- 20,254
Deferred membership costs............. -- 14,408 -- -- 14,408
Other assets.......................... 5,038 1,063 -- -- 6,101
-------- -------- ------- --------- --------
Total assets...................... $236,858 $288,003 $ 1,081 $(211,692) $314,250
======== ======== ======= ========= ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities
Current portion of long-term debt
and capital lease obligations..... $ 5,178 $ -- $ -- $ -- $ 5,178
Accounts payable.................... 214 5,114 -- -- 5,328
Accrued expenses.................... 9,470 13,398 545 (1,779) 21,634
Deferred revenue.................... -- 26,510 -- -- 26,510
-------- -------- ------- --------- --------
Total current liabilities......... 14,862 45,022 545 (1,779) 58,650
Long-term debt and capital lease
obligations......................... 155,765 3,500 -- (3,500) 155,765
Deferred lease liabilities............ 625 23,019 -- -- 23,644
Deferred revenue...................... 7 3,345 83 -- 3,435
Other liabilities..................... 373 7,157 -- -- 7,530
-------- -------- ------- --------- --------
Total liabilities................. 171,632 82,043 628 (5,279) 249,024
-------- -------- ------- --------- --------
Redeemable preferred stock
Redeemable senior preferred stock... 62,125 -- -- -- 62,125
Series A preferred stock............ 34,841 -- -- -- 34,841
-------- -------- ------- --------- --------
96,966 -- -- -- 96,966
-------- -------- ------- --------- --------
Stockholders' deficit
Series B preferred stock............ 303 -- -- -- 303
Common stockholders' deficit........ (32,336) 205,960 160 (206,120) (32,336)
Accumulated other comprehensive
income............................ 293 -- 293 (293) 293
-------- -------- ------- --------- --------
Total stockholders' deficit....... (31,740) 205,960 453 (206,413) (31,740)
-------- -------- ------- --------- --------
Total liabilities, redeemable
preferred stock and
stockholders' deficit........... $236,858 $288,003 $ 1,081 $(211,692) $314,250
======== ======== ======= ========= ========
|
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
(ALL FIGURES IN THOUSANDS OF DOLLARS)
DECEMBER 31, 2003
NON-
SUBSIDIARY GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------ ------------
ASSETS
Current assets
Cash and cash equivalents........ $ 420 $ 39,006 $1,376 $ -- $ 40,802
Accounts receivable, net......... 2,230 1,235 133 (2,129) 1,469
Inventory........................ 0 720 30 -- 750
Prepaid corporate income taxes... 4,062 -- -- -- 4,062
Intercompany receivable
(payable)...................... 7,068 (5,451) (1,617) -- --
Prepaid expenses and other
current assets................. 6,493 2,329 -- (3,500) 5,322
-------- -------- ------ --------- --------
Total current assets........... 20,273 37,839 (78) (5,629) 52,405
Investment in subsidiaries......... 238,166 -- -- (238,166) --
Fixed assets, net.................. 11,671 210,477 1,451 -- 223,599
Goodwill, net...................... -- 45,058 806 -- 45,864
Intangible assets, net............. -- 630 -- -- 630
Deferred tax assets, net........... 17,399 (491) (137) -- 16,771
Deferred membership costs.......... -- 13,038 -- -- 13,038
Other assets....................... 9,005 887 -- -- 9,892
-------- -------- ------ --------- --------
Total assets................... $296,514 $307,438 $2,042 $(243,795) $362,199
======== ======== ====== ========= ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities
Current portion of long-term debt
and capital lease
obligations.................... $ 3,486 $ -- $ -- $ -- 3,486
Accounts payable................. 220 5,159 -- -- 5,379
Accrued expenses................. 11,416 16,091 628 (2,129) 26,006
Deferred revenue................. -- 26,621 -- -- 26,621
-------- -------- ------ --------- --------
Total current liabilities...... 15,122 47,871 628 (2,129) 61,492
Long-term debt and capital lease
obligations...................... 274,947 (13,056) -- (3,500) 258,391
Deferred lease liabilities......... 563 25,293 -- -- 25,856
Deferred revenue................... (64) 2,973 93 -- 3,002
Other liabilities.................. 351 7,511 -- -- 7,862
-------- -------- ------ --------- --------
Total liabilities.............. 290,919 70,592 721 (5,629) 356,603
-------- -------- ------ --------- --------
Redeemable preferred stock
Series A preferred stock......... 39,890 -- -- -- 39,890
-------- -------- ------ --------- --------
39,890 -- -- -- 39,890
-------- -------- ------ --------- --------
Stockholders' deficit
Series B preferred stock......... 9,961 -- -- -- 9,961
Common stockholders' deficit..... (44,851) 236,845 725 (237,570) (44,851)
Accumulated other comprehensive
income......................... 596 -- 596 (596) 596
-------- -------- ------ --------- --------
Total stockholders' deficit.... (34,294) 236,845 1,321 (238,166) (34,294)
-------- -------- ------ --------- --------
Total liabilities, redeemable
preferred stock and
stockholders' deficit........ $296,515 $307,437 $2,042 $(243,795) $362,199
======== ======== ====== ========= ========
|
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(ALL FIGURES IN THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31, 2001
NON-
SUBSIDIARY GUARANTORS
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------ ------------
REVENUES
Club operations........... $ 113 $275,482 $2,605 $ -- $278,200
Fees and other............ 1,272 6,012 -- (3,851) 3,433
-------- -------- ------ -------- --------
1,385 281,494 2,605 (3,851) 281,633
-------- -------- ------ -------- --------
OPERATING EXPENSES
Payroll and related....... 20,083 91,537 1,146 -- 112,766
Club operating............ 447 91,089 705 (3,300) 88,941
General and
administrative......... 390 18,658 288 (551) 18,785
Depreciation and
amortization........... 2,636 29,021 528 -- 32,185
-------- -------- ------ -------- --------
23,556 230,305 2,667 (3,851) 252,677
-------- -------- ------ -------- --------
Operating income.......... (22,171) 51,189 (62) -- 28,956
Interest expense............ 14,904 352 12 (350) 14,918
Interest income............. (722) (19) -- 350 (391)
-------- -------- ------ -------- --------
Income from continuing
operations before
provision for corporate
income taxes........... (36,353) 50,856 (74) -- 14,429
Provision for corporate
income taxes.............. (17,268) 24,108 13 -- 6,853
-------- -------- ------ -------- --------
Income from continuing
operations before
equity earnings........ (19,085) 26,748 (87) -- 7,576
Equity earnings from
subsidiaries.............. 26,131 -- -- (26,131) --
Loss on discontinued
operations, net of income
tax benefit of $551....... -- (530) -- -- (530)
-------- -------- ------ -------- --------
Net income................ $ 7,046 $ 26,218 $ (87) $(26,131) $ 7,046
======== ======== ====== ======== ========
|
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(ALL FIGURES IN THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31, 2002
NON-
SUBSIDIARY GUARANTORS
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------ ------------
REVENUES
Club operations........... $ 241 $310,926 $3,828 $ -- $314,995
Fees and other............ 2,187 6,290 -- (4,045) 4,432
-------- -------- ------ -------- --------
2,428 317,216 3,828 (4,045) 319,427
-------- -------- ------ -------- --------
OPERATING EXPENSES
Payroll and related....... 22,184 105,390 1,531 -- 129,105
Club operating............ 564 101,088 945 (3,484) 99,113
General and
administrative......... 437 21,149 343 (561) 21,368
Depreciation and
amortization........... 2,857 28,509 382 -- 31,748
-------- -------- ------ -------- --------
26,042 256,136 3,201 (4,045) 281,334
-------- -------- ------ -------- --------
Operating income.......... (23,614) 61,080 627 -- 38,093
Interest expense............ 16,548 351 10 (350) 16,559
Interest income............. (488) -- (444) 350 (138)
-------- -------- ------ -------- --------
Income from continuing
operations before
provision for corporate
income taxes........... (39,674) 60,729 617 -- 21,672
Provision for corporate
income taxes.............. (17,766) 27,296 179 -- 9,709
-------- -------- ------ -------- --------
Income from continuing
operations before
equity earnings........ (21,908) 33,433 438 -- 11,963
Equity earnings from
subsidiaries.............. 33,104 -- -- (33,104) --
Loss on discontinued
operations, net of income
tax benefit of $551....... -- (767) -- -- (767)
Cumulative effect of a
change in accounting
principle, net of income
tax benefit of $812....... (689) (689) -- 689 (689)
-------- -------- ------ -------- --------
Net income................ $ 10,507 $ 31,977 $ 438 $(32,415) $ 10,507
======== ======== ====== ======== ========
|
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(ALL FIGURES IN THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31, 2003
NON-
SUBSIDIARY GUARANTORS
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------ ------------
REVENUES
Club operations........... $ 427 $331,102 $4,611 $ -- $336,140
Fees and other............ 3,990 6,586 -- (4,175) 6,401
-------- -------- ------ -------- --------
4,417 337,688 4,611 (4,175) 342,541
-------- -------- ------ -------- --------
OPERATING EXPENSES
Payroll and related....... 21,439 107,364 1,782 -- 130,585
Club operating............ 772 112,800 1,112 (3,615) 111,069
General and
administrative......... (123) 22,291 387 (560) 21,995
Depreciation and
amortization........... 3,890 30,661 376 -- 34,927
-------- -------- ------ -------- --------
25,978 273,116 3,657 (4,175) 298,576
-------- -------- ------ -------- --------
Operating income.......... (21,561) 64,572 954 -- 43,965
Loss on extinguishment of
debt...................... 7,773 -- -- -- 7,773
Interest expense............ 23,891 130 (1) (350) 23,670
Interest income............. (794) -- -- 350 (444)
-------- -------- ------ -------- --------
Income from continuing
operations before
provision for corporate
income taxes........... (52,431) 64,442 955 -- 12,966
Provision for corporate
income taxes.............. (24,100) 29,401 236 -- 5,537
-------- -------- ------ -------- --------
Income from continuing
operations before
equity earnings........ (28,331) 35,041 719 -- 7,429
Equity earnings from
subsidiaries.............. 35,760 -- -- (35,760) --
-------- -------- ------ -------- --------
Net income................ $ 7,429 $ 35,041 $ 719 $(35,760) $ 7,429
======== ======== ====== ======== ========
|
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2001
(ALL FIGURES IN THOUSANDS OF DOLLARS)
NON-
SUBSIDIARY GUARANTORS
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 7,046 $ 26,218 $ (87) $(26,131) $ 7,046
-------- -------- ----- -------- --------
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization........... 2,636 29,503 528 32,667
Compensation expense in connection with
stock options......................... 1,149 -- -- 1,149
Noncash rental expenses, net of noncash
rental income......................... 56 4,168 -- -- 4,224
Amortization of debt issuance costs..... 1,882 -- -- -- 1,882
Changes in operating assets and
liabilities........................... (6,317) 4,005 99 -- (2,213)
Other................................... (26,775) 229 8 26,131 (407)
-------- -------- ----- -------- --------
Total adjustments..................... (27,369) 37,905 635 26,131 37,302
-------- -------- ----- -------- --------
Net cash provided by operating
activities.......................... (20,323) 64,123 548 -- 44,348
-------- -------- ----- -------- --------
NET CASH USED IN INVESTING ACTIVITIES..... (3,893) (53,751) (714) -- (58,358)
-------- -------- ----- -------- --------
NET CASH USED IN FINANCING ACTIVITIES..... 24,349 (8,491) 245 -- 16,103
-------- -------- ----- -------- --------
Net decrease in cash and cash
equivalents......................... 133 1,881 79 -- 2,093
CASH AND CASH EQUIVALENTS
Beginning of period....................... 57 3,311 (3) -- 3,365
-------- -------- ----- -------- --------
End of period............................. $ 190 $ 5,192 $ 76 $ -- $ 5,458
======== ======== ===== ======== ========
|
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2002
(ALL FIGURES IN THOUSANDS OF DOLLARS)
NON-
SUBSIDIARY GUARANTORS
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 10,507 $ 31,977 $ 438 $(32,415) $ 10,507
-------- -------- ------ -------- --------
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization........... 2,857 28,786 382 -- 32,025
Goodwill impairment write-off and club
closure costs......................... -- 2,297 -- -- 2,297
Compensation expense in connection with
stock options......................... 1,207 -- -- -- 1,207
Noncash rental expenses, net of noncash
rental income......................... (78) 1,748 -- -- 1,670
Amortization of debt issuance costs..... 1,928 -- -- -- 1,928
Changes in operating assets and
liabilities........................... (3,483) 4,768 306 -- 1,591
Other................................... (32,061) (742) (32) 32,415 (420)
-------- -------- ------ -------- --------
Total adjustments..................... (29,630) 36,857 656 32,415 40,298
-------- -------- ------ -------- --------
Net cash provided by operating
activities.......................... (19,123) 68,834 1,094 -- 50,805
-------- -------- ------ -------- --------
NET CASH USED IN INVESTING ACTIVITIES..... (3,128) (36,805) (249) -- (40,182)
-------- -------- ------ -------- --------
NET CASH USED IN FINANCING ACTIVITIES..... 23,636 (33,586) (580) -- (10,530)
-------- -------- ------ -------- --------
Net change in cash and cash
equivalents......................... 1,385 (1,557) 265 -- 93
CASH AND CASH EQUIVALENTS
Beginning of period....................... 190 5,192 76 -- 5,458
-------- -------- ------ -------- --------
End of period............................. $ 1,575 $ 3,635 $ 341 $ -- $ 5,551
======== ======== ====== ======== ========
|
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2003
(ALL FIGURES IN THOUSANDS OF DOLLARS)
NON-
SUBSIDIARY GUARANTORS
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 7,429 $ 35,041 $ 719 $(35,760) $ 7,429
-------- -------- ------ -------- --------
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization........... 3,890 30,661 376 -- 34,927
Compensation expense in connection with
stock options......................... 198 -- -- -- 198
Noncash rental expenses, net of noncash
rental income......................... (84) 1,734 -- -- 1,650
Loss on extinguishment of debt.......... 7,773 -- -- -- 7,773
Amortization of debt issuance costs..... 1,627 -- -- -- 1,627
Changes in operating assets and
liabilities........................... 4,011 549 66 -- 4,626
Other................................... (36,277) 485 55 35,760 23
-------- -------- ------ -------- --------
Total adjustments..................... (18,862) 33,429 497 35,760 50,824
-------- -------- ------ -------- --------
Net cash provided by operating
activities.......................... (11,433) 68,470 1,216 -- 58,253
-------- -------- ------ -------- --------
Net cash used in investing activities..... (4,288) (38,120) (326) -- (42,734)
-------- -------- ------ -------- --------
Net cash used in financing activities..... 14,566 5,021 145 -- 19,732
-------- -------- ------ -------- --------
Net change in cash and cash
equivalents......................... (1,155) 35,371 1,035 -- 35,251
CASH AND CASH EQUIVALENTS
Beginning of period....................... 1,575 3,635 341 -- 5,551
-------- -------- ------ -------- --------
End of period............................. $ 420 $ 39,006 $1,376 $ -- $ 40,802
======== ======== ====== ======== ========
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$213,000,000
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
EXCHANGE OFFER FOR
11% SENIOR DISCOUNT NOTES DUE 2014
We have not authorized any dealer, salesperson or other person to give any information or represent anything to you other than the information contained in this prospectus. You may not rely on unauthorized information or representations.
This prospectus does not offer to sell or ask for offers to buy any of the securities in any jurisdiction where it is unlawful, where the person making the offer is not qualified to do so, or to any person who can not legally be offered the securities.
The information in this prospectus is current only as of the date on its cover, and may change after that date. For any time after the cover date of this prospectus, we do not represent that our affairs are the same as described or that the information in this prospectus is correct, nor do we imply those things by delivering this prospectus or selling securities to you.
Until , 2004, all dealers that effect transactions in these securities, whether or not participating in the exchange offer may be required to deliver a prospectus. This is in addition to the dealers' obligations to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Town Sports International Holdings, Inc. is a corporation organized under the laws of the State of Delaware. Article V of Town Sports International Holdings, Inc.'s By-Laws provides that:
Section 1. Nature of Indemnity. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or a person of whom he is the legal representative, is or was a director or officer, of the corporation or is or was serving at the request of the corporation as a director, officer, employee, fiduciary, or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee, fiduciary or agent or in any other capacity while serving as a director, officer, employee, fiduciary or agent, shall be indemnified and held harmless by the corporation to the fullest extent which it is empowered to do so by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment) against all expense, liability and loss (including attorneys' fees actually and reasonably incurred by such person in connection with such proceeding and such indemnification shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in Section 2 hereof, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding initiated by such person only if such proceeding was authorized by the board of directors of the corporation. The right to indemnification conferred in this Article V shall be a contract right and, subject to Sections 2 and 5 hereof, shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition. The corporation may, by action of its board of directors, provide indemnification to employees and agents of the corporation with the same scope and effect as the foregoing indemnification of directors and officers.
Section 2. Procedure for Indemnification of Directors and Officers. Any indemnification of a director or officer of the corporation under Section 1 of this Article V or advance of expenses under Section 5 of this Article V shall be made promptly, and in any event within 30 days, upon the written request of the director or officer. If a determination by the corporation that the director or officer is entitled to indemnification pursuant to this Article V is required, and the corporation fails to respond within sixty days to a written request for indemnity, the corporation shall be deemed to have approved the request. If the corporation denies a written request for indemnification or advancing of expenses, in whole or in part, or if payment in full pursuant to such request is not made within 30 days, the right to indemnification or advances as granted by this Article V shall be enforceable by the director or officer in any court of competent jurisdiction. Such person's costs and expenses incurred in connection with successfully establishing his or her right to indemnification, in whole or in part, in any such action shall also be indemnified by the corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law of the State of Delaware for the corporation to indemnify the claimant for the amount claimed, but the burden of such defense shall be on the corporation. Neither the failure of the corporation (including its board of directors, independent legal counsel, or its
II-1
stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the corporation (including its board of directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.
Section 3. Nonexclusivity of Article V. The rights to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article V shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the corporation's certificate of incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise.
Section 4. Insurance. The corporation may purchase and maintain insurance on its own behalf and on behalf of any person who is or was a director, officer, employee, fiduciary, or agent of the corporation or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, whether or not the corporation would have the power to indemnify such person against such liability under this Article V.
Section 5. Expenses. Expenses incurred by any person described in Section 1 of this Article V in defending a proceeding shall be paid by the corporation in advance of such proceeding's final disposition unless otherwise determined by the board of directors in the specific case upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate.
Section 6. Employees and Agents. Persons who are not covered by the foregoing provisions of this Article V and who are or were employees or agents of the corporation, or who are or were serving at the request of the corporation as employees or agents of another corporation, partnership, joint venture, trust or other enterprise, may be indemnified to the extent authorized at any time or from time to time by the board of directors.
Section 7. Contract Rights. The provisions of this Article V shall be deemed to be a contract right between the corporation and each director or officer who serves in any such capacity at any time while this Article V and the relevant provisions of the General Corporation Law of the State of Delaware or other applicable law are in effect, and any repeal or modification of this Article V or any such law shall not affect any rights or obligations then existing with respect to any state of facts or proceeding then existing.
Section 8. Merger or Consolidation. For purposes of this Article V, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Article V with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued.
II-2
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
See Exhibit Index.
(b) Financial Statement Schedules.
All schedules have been omitted because they are not applicable or because the required information is shown in the financial statements or notes thereto.
ITEM 22. UNDERTAKINGS.
The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement;
(2) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(3) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which individually or in the aggregate, represent a fundamental change in the information in the registration statement;
(4) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
(5) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof;
(6) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering;
(7) Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 20 or otherwise, the registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(8) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
(9) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York on March , 2004.
TOWN SPORTS INTERNATIONAL HOLDINGS,
INC.
By: /s/ RICHARD PYLE
------------------------------------
Richard Pyle
CHIEF FINANCIAL OFFICER
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitute and appoint Richard Pyle his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities (including his or her capacity as a director and/or officer of Town Sports International Holdings, Inc.), to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 has been signed by the following persons in the capacities indicated on March , 2004.
SIGNATURE CAPACITY
--------- --------
/s/ MARK SMITH Chairman of the Board of Directors and
----------------------------------------------------- Director
Mark Smith
/s/ ROBERT GIARDINA Chief Executive Officer
----------------------------------------------------- (Principal Executive Officer)
Robert Giardina
/s/ RICHARD PYLE Chief Financial Officer
----------------------------------------------------- (Principal Financial and Accounting Officer)
Richard Pyle
/s/ KEITH ALESSI Director
-----------------------------------------------------
Keith Alessi
/s/ BRUCE BRUCKMAN Director
-----------------------------------------------------
Bruce Bruckman
/s/ J. RICE EDMONDS Director
-----------------------------------------------------
J. Rice Edmonds
/s/ JASON FISH Director
-----------------------------------------------------
Jason Fish
/s/ PAUL ARNOLD Director
-----------------------------------------------------
Paul Arnold
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II-4
EXHIBIT INDEX
1.1 Purchase Agreement dated as of January 28, 2004 by and among Town Sports
International Holdings, Inc. and Deutsche Bank Securities Inc.
3.1 Certificate of Incorporation of Town Sports International Holdings, Inc.
3.2 Amended Certificate of Incorporation of Town Sports International
Holdings, Inc.
3.3 By-laws of Town Sports International Holdings, Inc.
4.1 Indenture dated as of February 4, 2004 by and among Town Sports
International Holdings, Inc. and The Bank of New York.
4.2 Form of Note (included in Exhibit 4.1).
4.3 Registration Rights Agreement, dated as of February 4, 2004, by and
between Town Sports International Holdings, Inc. and Deutsche Bank
Securities Inc.
5.1 Opinion of Kirkland & Ellis LLP.
8.1 Opinion of Kirkland & Ellis LLP regarding federal tax consequences.
10.1 Credit Agreement dated as of April 16, 2003 by and among Town Sports
International, Inc., the financial institutions referred to therein and
Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit
10.1 to Form S-4 of Town Sports International, Inc. (File No. 333-82607)).
10.2 First Amendment, dated as of January 27, 2004, to Credit Agreement by and
among Town Sports International, Inc., the financial institutions referred
to therein and Deutsche Bank Trust Company Americas.
10.3 Restructuring Agreement, dated as of February 4, 2004, by and among Town
Sports International, Inc., Town Sports International Holdings, Inc.
Bruckman, Rosser, Sherril & Co., L.P. the individuals and entities listed
on the BRS Co-Investor Signature Pages thereto, Farallon Capital Partners,
L.P., Farralon Capital Institutional Partners, L.P., RR Capital Partners,
L.P., and Farallon Capital Institutional Partners II, L.P., Canterbury
Detroit Partners, L.P., Canterbury Mezzanine Capital, L.P., Rosewood
Capital, L.P., Rosewood Capital IV, L.P., Rosewood Capital IV Associates,
L.P., CapitalSource Holdings LLC, Keith Alessi, Paul Arnold, and certain
stockholders of the Company listed on the Executive Signature Pages
thereto.
10.4 Stockholders Agreement, dated as of February 4, 2004, by and among Town
Sports International Holdings, Inc., Town Sports International, Inc.,
Bruckman, Rosser, Sherril & Co., L.P. the individuals and entities listed
on the BRS Co-Investor Signature Pages thereto, Farallon Capital Partners,
L.P., Farralon Capital Institutional Partners, L.P., RR Capital Partners,
L.P., and Farallon Capital Institutional Partners II, L.P., Canterbury
Detroit Partners, L.P., Canterbury Mezzanine Capital, L.P., Rosewood
Capital, L.P., Rosewood Capital IV, L.P., Rosewood Capital IV Associates,
L.P., CapitalSource Holdings LLC, Keith Alessi, Paul Arnold, and certain
stockholders of the Company listed on the Executive Signature Pages
thereto.
10.5 Registration Rights Agreement, dated as of February 4, 2004, by and among
Town Sports International Holdings, Inc., Town Sports International, Inc.,
Bruckman, Rosser, Sherril & Co., L.P. the individuals and entities listed
on the BRS Co-Investor Signature Pages thereto, Farallon Capital Partners,
L.P., Farralon Capital Institutional Partners, L.P., RR Capital Partners,
L.P., and Farallon Capital Institutional Partners II, L.P., Canterbury
|
Detroit Partners, L.P., Canterbury Mezzanine Capital, L.P., Rosewood Capital, L.P., Rosewood Capital IV, L.P., Rosewood Capital IV Associates, L.P., CapitalSource Holdings LLC, Keith Alessi, Paul Arnold, and certain stockholders of the Company listed on the Executive Signature Pages thereto.
10.6 Tax Sharing Agreement, dated as of February 4, 2004, by and among Town
Sports International Holdings, Inc., Town Sports International, Inc., and
the other signatories thereto.
10.7 The 2004 Common Stock Option Plan of Town Sports International Holdings,
Inc.
10.8 Pledge Agreement, dated as of February 4, 2004, between Town Sports
International Holdings, Inc. and Deutsche Bank Trust Company Americas, as
collateral agent, for the benefit of the Secured Creditors (as defined
therein).
10.9 Security Agreement, dated as of February 4, 2004, made by Town Sports
International Holdings, Inc., in favor of Deutsche Bank Trust Company
Americas, as collateral agent, for the benefit of the Secured Creditors
(as defined therein).
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10.10 Holdco Guaranty, dated as of February 4, 2004, made by Town Sports International Holdings, Inc.
12.1 Statement regarding computation of ratio of earnings to fixed charges. 21.1 Subsidiaries of the Registrant. 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Kirkland & Ellis LLP (included in Exhibit 5.1 and 8.1). 25.1 Statement of Eligibility of Trustee on Form T-1. |
EXHIBIT 1.1
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
$213,000,000
11% SENIOR DISCOUNT NOTES DUE 2014
PURCHASE AGREEMENT
January 28, 2004
DEUTSCHE BANK SECURITIES INC.
60 Wall Street
New York, New York 10005
Ladies and Gentlemen:
Town Sports International Holdings, Inc., a Delaware corporation (the "Company"), hereby confirms its agreement with you (the "Initial Purchaser"), as set forth below.
1. THE SECURITIES. Subject to the terms and conditions herein contained, the Company proposes to issue and sell to the Initial Purchaser $213,000,000 aggregate principal amount at maturity of its 11% Senior Discount Notes due 2014 (the "Notes"). The Notes are to be issued under an indenture (the "Indenture") to be dated as of February 4, 2004 by and between the Company and The Bank of New York, as Trustee (the "Trustee").
The Notes will be offered and sold to the Initial Purchaser without being registered under the Securities Act of 1933, as amended (the "Act"), in reliance on exemptions therefrom.
In connection with the sale of the Notes, the Company has prepared a preliminary offering memorandum dated January 23, 2004 (the "Preliminary Memorandum") and a final offering memorandum dated January 28, 2004 (the "Final Memorandum"; the Preliminary Memorandum and the Final Memorandum each herein being referred to as a "Memorandum") setting forth or including a description of the terms of the Notes, the terms of the offering of the Notes, a description of the Company and any material developments relating to the Company occurring after the date of the most recent historical financial statements included therein.
The Initial Purchaser and its direct and indirect transferees of the Notes will be entitled to the benefits of the Registration Rights Agreement, substantially in the form attached hereto as Exhibit A (the "Registration Rights Agreement"), pursuant to which the Company has agreed, among other things, to file a registration statement with the Securities and Exchange Commission (the "Commission") registering the Notes or the Exchange Notes (as defined in the Registration Rights Agreement) under the Act.
2. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to and agrees with the Initial Purchaser that:
(a) Neither the Preliminary Memorandum as of the date
thereof nor the Final Memorandum nor any amendment or supplement
thereto as of the date thereof and at all times subsequent thereto up
to the Closing Date (as defined in Section 3 below) contained or
contains any untrue statement of a material fact or omitted or omits to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this
Section 2(a) do not apply to statements or omissions made in reliance
upon and in conformity with information relating to the Initial
Purchaser furnished to the Company in writing by the Initial Purchaser
for use in the Preliminary Memorandum, the Final Memorandum or any
amendment or supplement thereto.
(b) As of the Closing Date, the Company will have the authorized, issued and outstanding capitalization set forth in the Final Memorandum; all of the subsidiaries of the Company are listed in Schedule 1 attached hereto (each, a "Subsidiary" and collectively, the "Subsidiaries"); all of the outstanding shares of capital stock of the Company and the Subsidiaries have been, and as of the Closing Date will be, duly authorized and validly issued, are fully paid and nonassessable and were not issued in violation of any preemptive or similar rights; all of the outstanding shares of capital stock of the Company and of each of the Subsidiaries will be free and clear of all liens, encumbrances, equities and claims or restrictions on transferability (other than those imposed by the Act, the securities or "Blue Sky" laws of certain jurisdictions and the senior secured revolving credit facility, dated as of April 16, 2003 and as amended from time to time) or voting; except as set forth in the Final Memorandum, there are no (i) options, warrants or other rights to purchase, (ii) agreements or other obligations to issue or (iii) other rights to convert any obligation into, or exchange any securities for, shares of capital stock of or ownership interests in the Company or any of the Subsidiaries outstanding. Except for the Subsidiaries or as disclosed in the Final Memorandum, the Company does not own, directly or indirectly, any shares of capital stock or any other equity or long-term debt securities or have any equity interest in any firm, partnership, joint venture or other entity.
(c) Each of the Company and the Subsidiaries is duly incorporated or otherwise organized, validly existing and in good standing under the laws of its respective jurisdiction of organization and has all requisite corporate or limited liability company power and authority to own its properties and conduct its business as now conducted and as described in the Final Memorandum; each of the Company and the Subsidiaries is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions where the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified would not, individually or in the aggregate, have a material adverse effect on the general affairs, management, business, condition (financial or otherwise), prospects or results of
operations of the Company and the Subsidiaries, taken as a whole (any such event, a "Material Adverse Effect").
(d) The Company has all requisite corporate power and authority to execute, deliver and perform its obligations under the Notes, the Exchange Notes (as defined in the Registration Rights Agreement) and the Private Exchange Notes (as defined in the Registration Rights Agreement). The Notes, when issued, will be in the form contemplated by the Indenture. The Notes, the Exchange Notes and the Private Exchange Notes, have each been duly and validly authorized by the Company and, when duly executed by the Company and authenticated by the Trustee in accordance with the provisions of the Indenture and delivered to and paid for by the Initial Purchaser in accordance with the terms of this Agreement (or issued in accordance with the Registration Rights Agreement, in the case of the Exchange Notes and the Private Exchange Notes), will constitute valid and legally binding obligations of the Company, entitled to the benefits of the Indenture, and enforceable against the Company in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought.
(e) The Company has all requisite corporate power and authority to execute, deliver and perform its obligations under the Indenture. The Indenture meets the requirements for qualification under the Trust Indenture Act of 1939, as amended (the "TIA"). The Indenture has been duly and validly authorized by the Company and, when executed and delivered by the Company (assuming the due authorization, execution and delivery by the Trustee), will constitute a valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought.
(f) The Company has all requisite corporate power and authority to execute, deliver and perform its obligations under the Registration Rights Agreement. The Registration Rights Agreement has been duly and validly authorized by the Company and, when executed and delivered by the Company (assuming the due authorization, execution and delivery by the Initial Purchaser), will constitute a valid and legally binding agreement of the Company enforceable against the Company in accordance with its terms, except that (A) the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought and (B) any rights to indemnity or contribution thereunder may be limited by federal and state securities laws and public policy considerations.
(g) The Company has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. This Agreement and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by the Company. This Agreement has been duly executed and delivered by the Company.
(h) No consent, approval, authorization or order of any
court or governmental agency or body, or third party is required for
the issuance and sale by the Company of the Notes to the Initial
Purchaser or the consummation by the Company of the other transactions
contemplated hereby, except such as have been obtained and such as may
be required under state securities or "Blue Sky" laws in connection
with the purchase and resale of the Notes by the Initial Purchaser and
except with respect to the registration of the Exchange Notes and the
Private Exchange Notes (if applicable) and the qualification of the
Indenture under the TIA. Neither the Company nor any of the
Subsidiaries is (i) in violation of its certificate of incorporation or
bylaws (or similar organizational document), (ii) in breach or
violation of any statute, judgment, decree, order, rule or regulation
applicable to any of them or any of their respective properties or
assets, except for any such breach or violation which would not,
individually or in the aggregate, have a Material Adverse Effect, or
(iii) in breach of or default under (nor has any event occurred that,
with notice or passage of time or both, would constitute a default
under) or in violation of any of the terms or provisions of any
indenture, mortgage, deed of trust, loan agreement, note, lease,
license, franchise agreement, permit, certificate, contract or other
agreement or instrument to which any of them is a party or to which any
of them or their respective properties or assets is subject
(collectively, "Contracts"), except for any such breach, default,
violation or event that would not, individually or in the aggregate,
have a Material Adverse Effect.
(i) The execution, delivery and performance by the Company of this Agreement, the Indenture and the Registration Rights Agreement and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and sale of the Notes to the Initial Purchaser) will not conflict with or constitute or result in a breach of or a default under (or an event which with notice or passage of time or both would constitute a default under) or violation of any of (i) the terms or provisions of any Contract, except for any such conflict, breach, violation, default or event which would not, individually or in the aggregate, have a Material Adverse Effect, (ii) the certificate of incorporation or bylaws (or similar organizational document) of the Company or any of the Subsidiaries or (iii) (assuming compliance with all applicable state securities or "Blue Sky" laws and assuming the accuracy of the representations and warranties of the Initial Purchaser in Section 8 hereof) any statute, judgment, decree, order, rule or regulation applicable to the Company or any of the Subsidiaries or any of their respective properties or assets, except for any such conflict, breach or violation which would not, individually or in the aggregate, have a Material Adverse Effect.
(j) The audited consolidated financial statements of the Company included in the Final Memorandum present fairly in all material respects the financial position, results of operations and cash flows of the Company and the Subsidiaries at the dates and for the periods to which they relate and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, except as otherwise stated therein. The summary and selected financial and statistical data in the Final Memorandum present fairly in all material respects the information shown therein and have been prepared and compiled on a basis consistent with the audited financial statements included therein, except as otherwise stated therein. PricewaterhouseCoopers, LLP (the "Independent Accountants") is an independent public accounting firm within the meaning of the Act and the rules and regulations promulgated thereunder.
(k) The pro forma financial information included in the Final Memorandum (i) comply as to form in all material respects with the applicable requirements of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (ii) have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and (iii) have been properly computed on the bases described therein; the assumptions used in the preparation of the pro forma financial data included in the Final Memorandum are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein.
(l) Except as described in the Final Memorandum, there is not pending or, to the knowledge of the Company, threatened any action, suit, proceeding, inquiry or investigation to which the Company or any of the Subsidiaries is a party, or to which the property or assets of the Company or any of the Subsidiaries are subject, before or brought by any court, arbitrator or governmental agency or body that, if determined adversely to the Company or any of the Subsidiaries, would, individually or in the aggregate, have a Material Adverse Effect or which seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the issuance or sale of the Notes to be sold hereunder or the consummation of the other transactions described in the Final Memorandum.
(m) Each of the Company and the Subsidiaries possesses all licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all declarations and filings with, all federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals, presently required or necessary to own or lease, as the case may be, and to operate its respective properties and to carry on its respective businesses as now or proposed to be conducted as set forth in the Final Memorandum ("Permits"), except where the failure to obtain such Permits would not, individually or in the aggregate, have a Material Adverse Effect; each of the Company and the Subsidiaries has fulfilled and performed all of its obligations with respect to such Permits and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit;
and none of the Company or the Subsidiaries has received any notice of any proceeding relating to revocation or modification of any such Permit, except as described in the Final Memorandum and except where such revocation or modification would not, individually or in the aggregate, have a Material Adverse Effect.
(n) Since the date of the most recent financial statements appearing in the Final Memorandum, and except as described therein, (i) none of the Company or the Subsidiaries has incurred any liabilities or obligations, direct or contingent, or entered into or agreed to enter into any transactions or contracts (written or oral) not in the ordinary course of business, which liabilities, obligations, transactions or contracts would, individually or in the aggregate, be material to the general affairs, management, business, condition (financial or otherwise), prospects or results of operations of the Company and its Subsidiaries, taken as a whole, (ii) none of the Company or the Subsidiaries has purchased any of its outstanding capital stock, nor declared, paid or otherwise made any dividend or distribution of any kind on its capital stock (other than with respect to any of such Subsidiaries, the purchase of, or dividend or distribution on, capital stock owned by the Company) and (iii) there shall not have been any change in the capital stock or long-term indebtedness of the Company or the Subsidiaries.
(o) Each of the Company and the Subsidiaries has filed all necessary federal, state and foreign income and franchise tax returns, except where the failure to so file such returns would not, individually or in the aggregate, have a Material Adverse Effect, and has paid all taxes shown as due thereon; and other than tax deficiencies which the Company or any Subsidiary is contesting in good faith and for which the Company or such Subsidiary has provided adequate reserves, there is no tax deficiency that has been asserted against the Company or any of the Subsidiaries that would have, individually or in the aggregate, a Material Adverse Effect.
(p) The statistical and market-related data included in the Final Memorandum are based on or derived from sources which the Company and the Subsidiaries believe to be reliable and accurate.
(q) None of the Company, the Subsidiaries or any agent acting on their behalf has taken or will take any action that might cause this Agreement or the sale of the Notes to violate Regulation T, U or X of the Board of Governors of the Federal Reserve System, in each case as in effect, or as the same may hereafter be in effect, on the Closing Date.
(r) Each of the Company and the Subsidiaries has good and marketable title to all real property and good title to all personal property described in the Final Memorandum as being owned by it and good and marketable title to a leasehold estate in the real and personal property described in the Final Memorandum as being leased by it free and clear of all liens, charges, encumbrances or restrictions, except as described in the Final Memorandum or to the extent the failure to have such title or the existence of such liens, charges, encumbrances or restrictions would not, individually
or in the aggregate, have a Material Adverse Effect. All leases, contracts and agreements to which the Company or any of the Subsidiaries is a party or by which any of them is bound are valid and enforceable against the Company or such Subsidiary, and are valid and enforceable against the other party or parties thereto and are in full force and effect with only such exceptions as would not, individually or in the aggregate, have a Material Adverse Effect. The Company and the Subsidiaries own or possess adequate licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights and know-how necessary to conduct the businesses now or proposed to be operated by them as described in the Final Memorandum, and none of the Company or the Subsidiaries has received any notice of infringement of or conflict with (or knows of any such infringement of or conflict with) asserted rights of others with respect to any patents, trademarks, service marks, trade names, copyrights or know-how that, if such assertion of infringement or conflict were sustained, would have a Material Adverse Effect.
(s) There are no legal or governmental proceedings involving or affecting the Company or any Subsidiary or any of their respective properties or assets that would be required to be described in a prospectus pursuant to the Act that are not described in the Final Memorandum, nor are there any material contracts or other documents that would be required to be described in a prospectus pursuant to the Act that are not described in the Final Memorandum.
(t) Except as would not, individually or in the aggregate, have a Material Adverse Effect, (A) each of the Company and the Subsidiaries is in compliance with and not subject to liability under applicable Environmental Laws (as defined below), (B) each of the Company and the Subsidiaries has made all filings and provided all notices required under any applicable Environmental Law, and has and is in compliance with all Permits required under any applicable Environmental Laws and each of them is in full force and effect, (C) there is no civil, criminal or administrative action, suit, demand, claim, hearing, notice of violation, investigation, proceeding, notice or demand letter or request for information pending or, to the knowledge of the Company or any of the Subsidiaries, threatened against the Company or any of the Subsidiaries under any Environmental Law, (D) no lien, charge, encumbrance or restriction has been recorded under any Environmental Law with respect to any assets, facility or property owned, operated, leased or controlled by the Company or any of the Subsidiaries, (E) none of the Company or the Subsidiaries has received notice that it has been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA") or any comparable state law, (F) no property or facility of the Company or any of the Subsidiaries is (i) listed or proposed for listing on the National Priorities List under CERCLA or is (ii) listed in the Comprehensive Environmental Response, Compensation, Liability Information System List promulgated pursuant to CERCLA, or on any comparable list maintained by any state or local governmental authority.
For purposes of this Agreement, "Environmental Laws" means the common law and all applicable federal, state and local laws or regulations, codes, orders,
decrees, judgments or injunctions issued, promulgated, approved or entered thereunder, relating to pollution or protection of public or employee health and safety or the environment, including, without limitation, laws relating to (i) emissions, discharges, releases or threatened releases of hazardous materials into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), (ii) the manufacture, processing, distribution, use, generation, treatment, storage, disposal, transport or handling of hazardous materials, and (iii) underground and above ground storage tanks and related piping, and emissions, discharges, releases or threatened releases therefrom.
(u) There is no strike, labor dispute, slowdown or work stoppage with the employees of the Company or any of the Subsidiaries that is pending or, to the knowledge of the Company or any of the Subsidiaries, threatened.
(v) Each of the Company and the Subsidiaries carries insurance in such amounts and covering such risks as is adequate for the conduct of its business and the value of its properties.
(w) None of the Company or the Subsidiaries has any liability for any prohibited transaction or funding deficiency or any complete or partial withdrawal liability with respect to any pension, profit sharing or other plan which is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), to which the Company or any of the Subsidiaries makes or ever has made a contribution and in which any employee of the Company or of any Subsidiary is or has ever been a participant. With respect to such plans, the Company and each Subsidiary is in compliance in all material respects with all applicable provisions of ERISA.
(x) Each of the Company and the Subsidiaries (i) makes and keeps accurate books and records and (ii) maintains internal accounting controls which provide reasonable assurance that (A) transactions are executed in accordance with management's authorization, (B) transactions are recorded as necessary to permit preparation of its financial statements and to maintain accountability for its assets, (C) access to its assets is permitted only in accordance with management's authorization and (D) the reported accountability for its assets is compared with existing assets at reasonable intervals.
(y) None of the Company or the Subsidiaries will be an "investment company" or "promoter" or "principal underwriter" for an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended, and the rules and regulations thereunder.
(z) The Notes, the Indenture and the Registration Rights Agreement will conform in all material respects to the descriptions thereof in the Final Memorandum.
(aa) No holder of securities of the Company or any Subsidiary will be entitled to have such securities registered under the registration statements required to be
filed by the Company pursuant to the Registration Rights Agreement other than as expressly permitted thereby.
(bb) None of the Company or the Subsidiaries (each on a consolidated basis) is, nor will any of the Company or the Subsidiaries (each on a consolidated basis) be, after giving effect to the execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, (a) left with unreasonably small capital with which to carry on its business as it is proposed to be conducted, (b) unable to pay its debts (contingent or otherwise) as they mature or (c) otherwise insolvent.
(cc) None of the Company, the Subsidiaries or any of their respective Affiliates (as defined in Rule 501(b) of Regulation D under the Act) has directly, or through any agent, (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any "security" (as defined in the Act) which is or could be integrated with the sale of the Notes in a manner that would require the registration under the Act of the Notes or (ii) engaged in any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) in connection with the offering of the Notes or in any manner involving a public offering within the meaning of Section 4(2) of the Act. Assuming the accuracy of the representations and warranties of the Initial Purchaser in Section 8 hereof, it is not necessary in connection with the offer, sale and delivery of the Notes to the Initial Purchaser in the manner contemplated by this Agreement to register any of the Notes under the Act or to qualify the Indenture under the TIA.
(dd) No securities of the Company or any Subsidiary are of
the same class (within the meaning of Rule 144A under the Act) as the
Notes and listed on a national securities exchange registered under
Section 6 of the Exchange Act, or quoted in a U.S. automated
inter-dealer quotation system.
(ee) None of the Company or the Subsidiaries has taken, nor will any of them take, directly or indirectly, any action designed to, or that might be reasonably expected to, cause or result in stabilization or manipulation of the price of the Notes.
(ff) None of the Company, the Subsidiaries, any of their respective Affiliates or any person acting on its or their behalf (other than the Initial Purchaser) has engaged in any directed selling efforts (as that term is defined in Regulation S under the Act ("Regulation S")) with respect to the Notes; the Company, the Subsidiaries and their respective Affiliates and any person acting on its or their behalf (other than the Initial Purchaser) have complied with the offering restrictions requirement of Regulation S.
Any certificate signed by any officer of the Company or any Subsidiary and delivered to the Initial Purchaser or to counsel for the Initial Purchaser shall be deemed a joint and several representation and warranty by the Company and each of the Subsidiaries to the Initial Purchaser as to the matters covered thereby.
3. PURCHASE, SALE AND DELIVERY OF THE NOTES. On the basis of the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the Initial Purchaser, and the Initial Purchaser agrees to purchase all of the Notes from the Company at 57.13% of their principal amount at maturity. One or more certificates in definitive form for the Notes that the Initial Purchaser has agreed to purchase hereunder, and in such denomination or denominations and registered in such name or names as the Initial Purchaser requests upon notice to the Company at least 36 hours prior to the Closing Date, shall be delivered by or on behalf of the Company to the Initial Purchaser, against payment by or on behalf of the Initial Purchaser of the purchase price therefor by wire transfer (same day funds), net of the overnight cost of such funds, to such account or accounts as the Company shall specify prior to the Closing Date, or by such means as the parties hereto shall agree prior to the Closing Date. Such delivery of and payment for the Notes shall be made at the offices of Cahill Gordon & Reindel LLP, 80 Pine Street, New York, New York at 10:00 A.M., New York time, on February 4, 2004, or at such other place, time or date as the Initial Purchaser, on the one hand, and the Company, on the other hand, may agree upon, such time and date of delivery against payment being herein referred to as the "Closing Date." The Company will make such certificate or certificates for the Notes available for checking and packaging by the Initial Purchaser at its offices in New York, New York, or at such other place as the Initial Purchaser may designate, at least 24 hours prior to the Closing Date.
4. OFFERING BY THE INITIAL PURCHASER. The Initial Purchaser proposes to make an offering of the Notes at the price and upon the terms set forth in the Final Memorandum, as soon as practicable after this Agreement is entered into and as in the judgment of the Initial Purchaser is advisable.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees with the Initial Purchaser that:
(a) The Company will not amend or supplement the Final Memorandum or any amendment or supplement thereto of which the Initial Purchaser shall not previously have been advised and furnished a copy for a reasonable period of time prior to the proposed amendment or supplement and as to which the Initial Purchaser shall not have given its consent. The Company will promptly, upon the reasonable request of the Initial Purchaser or counsel for the Initial Purchaser, make any amendments or supplements to the Preliminary Memorandum or the Final Memorandum that may be necessary or advisable in connection with the resale of the Notes by the Initial Purchaser.
(b) The Company will cooperate with the Initial Purchaser in arranging for the qualification of the Notes for offering and sale under the securities or "Blue Sky" laws of which jurisdictions as the Initial Purchaser may designate and will continue such qualifications in effect for as long as may be necessary to complete the resale of the Notes; provided, however, that in connection therewith, none of the Company shall be required to qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction or subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not then so subject.
(c) If, at any time prior to the completion of the distribution by the Initial Purchaser of the Notes or the Private Exchange Notes (if applicable), any event occurs or information becomes known as a result of which the Final Memorandum as then amended or supplemented would include any untrue statement of a material fact, or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if for any other reason it is necessary at any time to amend or supplement the Final Memorandum to comply with applicable law, the Company will promptly notify the Initial Purchaser thereof and will prepare, at the expense of the Company, an amendment or supplement to the Final Memorandum that corrects such statement or omission or effects such compliance.
(d) The Company will, without charge, provide to the Initial Purchaser and to counsel for the Initial Purchaser as many copies of the Preliminary Memorandum and the Final Memorandum or any amendment or supplement thereto as the Initial Purchaser may reasonably request.
(e) The Company will apply the net proceeds from the sale of the Notes as set forth under "Use of Proceeds" in the Final Memorandum.
(f) For so long as any of the Notes remain outstanding, the Company will furnish to the Initial Purchaser copies of all reports and other communications (financial or otherwise) furnished by the Company to the Trustee or to the holders of the Notes and, as soon as available, copies of any reports or financial statements furnished to or filed by the Company with the Commission or any national securities exchange on which any class of securities of the Company may be listed.
(g) Prior to the Closing Date, the Company will furnish to the Initial Purchaser, as soon as they have been prepared, a copy of any unaudited interim financial statements of the Company and the Subsidiaries for any period subsequent to the period covered by the most recent financial statements appearing in the Final Memorandum.
(h) None of the Company or any of the Subsidiaries or any of their respective Affiliates will sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any "security" (as defined in the Act) which could be integrated with the sale of the Notes in a manner that would require the registration under the Act of the Notes.
(i) The Company will not, and will not permit its Subsidiaries to, engage in any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) in connection with the offering of the Notes or in any manner involving a public offering within the meaning of Section 4(2) of the Act.
(j) For so long as any of the Notes remain outstanding, the Company will make available at its expense, upon request, to any holder of such Notes and any prospective purchasers thereof the information specified in Rule 144A(d)(4) under the Act, unless the Company is then subject to Section 13 or 15(d) of the Exchange Act.
(k) The Company will use its best efforts to (i) permit the Notes to be designated PORTAL securities in accordance with the rules and regulations adopted by the NASD relating to trading in the Private Offerings, Resales and Trading through Automated Linkages market (the "PORTAL Market") and (ii) permit the Notes to be eligible for clearance and settlement through The Depository Trust Company.
(l) In connection with Notes offered and sold in an off shore transaction (as defined in Regulation S) the Company will not register any transfer of such Notes not made in accordance with the provisions of Regulation S and will not, except in accordance with the provisions of Regulation S, if applicable, issue any such Notes in the form of definitive securities.
6. EXPENSES. The Company agrees to pay all costs and expenses incident to the performance of its obligations under this Agreement, whether or not the transactions contemplated herein are consummated or this Agreement is terminated pursuant to Section 11 hereof, including all costs and expenses incident to (i) the printing, word processing or other production of documents with respect to the transactions contemplated hereby, including any costs of printing the Preliminary Memorandum and the Final Memorandum and any amendment or supplement thereto, and any "Blue Sky" memoranda, (ii) all arrangements relating to the delivery to the Initial Purchaser of copies of the foregoing documents, (iii) the fees and disbursements of the counsel, the accountants and any other experts or advisors retained by the Company, (iv) preparation (including printing), issuance and delivery to the Initial Purchaser of the Notes, (v) the qualification of the Notes under state securities and "Blue Sky" laws, including filing fees and fees and disbursements of counsel for the Initial Purchaser relating thereto, (vi) expenses in connection with any meetings with prospective investors in the Notes, (vii) fees and expenses of the Trustee including fees and expenses of counsel, (viii) all expenses and listing fees incurred in connection with the application for quotation of the Notes on the PORTAL Market and (ix) any fees charged by investment rating agencies for the rating of the Notes. If the sale of the Notes provided for herein is not consummated because any condition to the obligations of the Initial Purchaser set forth in Section 7 hereof is not satisfied, because this Agreement is terminated or because of any failure, refusal or inability on the part of the Company to perform all obligations and satisfy all conditions on its part to be performed or satisfied hereunder (other than solely by reason of a default by the Initial Purchaser of its obligations hereunder after all conditions hereunder have been satisfied in accordance herewith), the Company agrees to promptly reimburse the Initial Purchaser upon demand for all out-of-pocket expenses (including fees, disbursements and charges of Cahill Gordon & Reindel LLP, counsel for the Initial Purchaser) that shall have been incurred by the Initial Purchaser in connection with the proposed purchase and sale of the Notes.
7. CONDITIONS OF THE INITIAL PURCHASER'S OBLIGATIONS. The obligation of the Initial Purchaser to purchase and pay for the Notes shall, in its sole discretion, be subject to the satisfaction or waiver of the following conditions on or prior to the Closing Date:
(a) On the Closing Date, the Initial Purchaser shall have received the opinion, in form and substance satisfactory to counsel for the Initial Purchaser, dated as of the Closing Date and addressed to the Initial Purchaser, of Kirkland & Ellis LLP, counsel for the Company, substantially in the form of Exhibit A hereto. In rendering such opinion, Kirkland & Ellis LLP shall have received and may rely upon such certificates and other documents and information as it may reasonably request to pass on such matters.
(b) On the Closing Date, the Initial Purchaser shall have received the opinion, in form and substance satisfactory to the Initial Purchaser, dated as of the Closing Date and addressed to the Initial Purchaser, of Cahill Gordon & Reindel LLP, counsel for the Initial Purchaser, with respect to certain legal matters relating to this Agreement and such other related matters as the Initial Purchaser may reasonably require. In rendering such opinion, Cahill Gordon & Reindel LLP shall have received and may rely upon such certificates and other documents and information as it may reasonably request to pass upon such matters.
(c) The Initial Purchaser shall have received from the Independent Accountants a comfort letter or letters dated the date hereof and the Closing Date, in form and substance satisfactory to counsel for the Initial Purchaser.
(d) The representations and warranties of the Company contained in this Agreement shall be true and correct on and as of the date hereof and on and as of the Closing Date as if made on and as of the Closing Date; the statements of the Company's officers made pursuant to any certificate delivered in accordance with the provisions hereof shall be true and correct on and as of the date made and on and as of the Closing Date; the Company shall have performed all covenants and agreements and satisfied all conditions on their part to be performed or satisfied hereunder at or prior to the Closing Date; and, except as described in the Final Memorandum (exclusive of any amendment or supplement thereto after the date hereof), subsequent to the date of the most recent financial statements in such Final Memorandum, there shall have been no event or development, and no information shall have become known, that, individually or in the aggregate, has or would be reasonably likely to have a Material Adverse Effect.
(e) The sale of the Notes hereunder shall not be enjoined (temporarily or permanently) on the Closing Date.
(f) Other than as disclosed in the Final Memorandum, subsequent to the date of the most recent financial statements in the Final Memorandum (exclusive of any amendment or supplement thereto after the date hereof), none of the Company or any of the Subsidiaries shall have sustained any loss or interference with respect to its
business or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any strike, labor dispute, slow down or work stoppage or from any legal or governmental proceeding, order or decree, which loss or interference, individually or in the aggregate, has or would be reasonably likely to have a Material Adverse Effect.
(g) The Initial Purchaser shall have received a certificate of the Company, dated the Closing Date, signed on behalf of the Company by its Chairman of the Board, President or any Senior Vice President and the Chief Financial Officer, to the effect that:
(i) The representations and warranties of the Company contained in this Agreement are true and correct on and as of the date hereof and on and as of the Closing Date, and the Company has performed all covenants and agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date;
(ii) At the Closing Date, since the date hereof or since the date of the most recent financial statements in the Final Memorandum, except as disclosed in the Final Memorandum (exclusive of any amendment or supplement thereto after the date hereof), no event or development has occurred, and no information has become known, that, individually or in the aggregate, has had or would be reasonably likely to have a Material Adverse Effect; and
(iii) The sale of the Notes hereunder has not been enjoined (temporarily or permanently).
(h) On the Closing Date, the Initial Purchaser shall have received the Registration Rights Agreement executed by the Company and such agreement shall be in full force and effect at all times from and after the Closing Date.
(i) The Company shall have delivered to counsel for the Initial Purchaser executed copies of the amendment to the senior secured revolving credit facility, dated as of the Closing Date, on the terms described in the Final Memorandum, by and among Town Sports International, Inc., Deutsche Bank Trust Company Americas and the other lenders listed therein (the "Credit Facility Amendment"), which Credit Facility Amendment shall be in full force and effect as of the Closing Date, and shall have taken all other actions necessary to consummate the "other refinancing transactions" (as defined in the Final Memorandum).
On or before the Closing Date, the Initial Purchaser and counsel for the Initial Purchaser shall have received such further documents, opinions, certificates, letters and schedules or instruments relating to the business, corporate, legal and financial affairs of the Company and the Subsidiaries as they shall have heretofore reasonably requested from the Company.
All such documents, opinions, certificates, letters, schedules or instruments delivered pursuant to this Agreement will comply with the provisions hereof only if they are reasonably satisfactory in all material respects to the Initial Purchaser and counsel for the Initial Purchaser. The Company shall furnish to the Initial Purchaser such conformed copies of such documents, opinions, certificates, letters, schedules and instruments in such quantities as the Initial Purchaser shall reasonably request.
8. OFFERING OF NOTES; RESTRICTIONS ON TRANSFER. (a) The
Initial Purchaser represents and warrants that it is a qualified institutional
buyer as defined in Rule 144A promulgated under the Act (a "QIB"). The Initial
Purchaser agrees with the Company that (i) it has not and will not solicit
offers for, or offer or sell, the Notes by any form of general solicitation or
general advertising (as those terms are used in Regulation D under the Act) or
in any manner involving a public offering within the meaning of Section 4(2) of
the Act; and (ii) it has and will solicit offers for the Notes only from, and
will offer the Notes only to (A) in the case of offers inside the United States,
(x) persons whom the Initial Purchaser reasonably believes to be QIBs or, if any
such person is buying for one or more institutional accounts for which such
person is acting as fiduciary or agent, only when such person has represented to
the Initial Purchaser that each such account is a QIB, to whom notice has been
given that such sale or delivery is being made in reliance on Rule 144A, and, in
each case, in transactions under Rule 144A or (y) a limited number of other
institutional investors reasonably believed by the Initial Purchaser to be
Accredited Investors that, prior to their purchase of the Notes, deliver to the
Initial Purchaser a letter containing the representations and agreements set
forth in Annex A to the Final Memorandum and (B) in the case of offers outside
the United States, to persons other than U.S. persons ("foreign purchasers,"
which term shall include dealers or other professional fiduciaries in the United
States acting on a discretionary basis for foreign beneficial owners (other than
an estate or trust)); provided, however, that, in the case of this clause (B),
in purchasing such Notes such persons are deemed to have represented and agreed
as provided under the caption "Transfer Restrictions" contained in the Final
Memorandum (or, if the Final Memorandum is not in existence, in the most recent
Memorandum).
(b) The Initial Purchaser represents and warrants with respect to offers and sales outside the United States that (i) it has and will comply with all applicable laws and regulations in each jurisdiction in which it acquires, offers, sells or delivers Notes or has in its possession or distributes any Memorandum or any such other material, in all cases at its own expense; (ii) the Notes have not been and will not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S under the Act or pursuant to an exemption from the registration requirements of the Act; (iii) it has offered the Notes and will offer and sell the Notes (A) as part of its distribution at any time and (B) otherwise until 40 days after the later of the commencement of the offering and the Closing Date, only in accordance with Rule 903 of Regulation S and, accordingly, neither it nor any persons acting on its behalf have engaged or will engage in any directed selling efforts (within the meaning of Regulation S) with respect to the Notes, and any such persons have complied and will comply with the offering restrictions requirement of Regulation S; and (iv) it agrees that, at or prior to confirmation of sales of the Notes, it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration
that purchases Notes from it during the restricted period a confirmation or notice to substantially the following effect:
"The Notes covered hereby have not been registered under the United States Securities Act of 1933 (the "Securities Act") and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of the distribution of the Notes at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the closing date of the offering, except in either case in accordance with Regulation S (or Rule 144A if available) under the Securities Act. Terms used above have the meaning given to them in Regulation S."
Terms used in this Section 8 and not defined in this Agreement have the meanings given to them in Regulation S.
9. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify and hold harmless the Initial Purchaser, and each person, if any, who controls the Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any losses, claims, damages or liabilities to which the Initial Purchaser or such controlling person may become subject under the Act, the Exchange Act or otherwise, insofar as any such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material fact contained in any Memorandum or any amendment or supplement thereto or any application or other document, or any amendment or supplement thereto, executed by the Company or based upon the written information furnished by or on behalf of the Company filed in any jurisdiction in order to qualify the Notes under the securities or "Blue Sky" laws thereof or filed with any securities association or securities exchange (each an "Application"); or
(ii) the omission or alleged omission to state, in any Memorandum or any amendment or supplement thereto or any Application, a material fact required to be stated therein or necessary to make the statements therein not misleading,
and will reimburse, as incurred, the Initial Purchaser and each such controlling person for any legal or other expenses incurred by the Initial Purchaser or such controlling person in connection with investigating, defending against or appearing as a third-party witness in connection with any such loss, claim, damage, liability or action; provided, however, the Company will not be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in any Memorandum or any amendment or supplement thereto or any Application in reliance upon and in conformity with written information concerning the Initial Purchaser furnished to the Company by the Initial Purchaser for use therein. This indemnity agreement will be in addition to any liability that the Company may otherwise have to the indemnified parties. The Company shall not be liable under this Section 9 for any settlement of
any claim or action effected without its prior written consent, which shall not be unreasonably withheld.
(b) The Initial Purchaser agrees to indemnify and hold harmless the Company, its directors, its officers and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act against any losses, claims, damages or liabilities to which the Company or any such director, officer or controlling person may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any Memorandum or any amendment or supplement thereto or any Application, or (ii) the omission or the alleged omission to state therein a material fact required to be stated in any Memorandum or any amendment or supplement thereto or any Application, or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information concerning the Initial Purchaser, furnished to the Company by the Initial Purchaser for use therein; and subject to the limitation set forth immediately preceding this clause, will reimburse, as incurred, any legal or other expenses incurred by the Company or any such director, officer or controlling person in connection with investigating or defending against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability that the Initial Purchaser may otherwise have to the indemnified parties. The Initial Purchaser shall not be liable under this Section 9 for any settlement of any claim or action effected without its consent, which shall not be unreasonably withheld. The Company shall not, without the prior written consent of the Initial Purchaser, effect any settlement or compromise of any pending or threatened proceeding in respect of which the Initial Purchaser is or could have been a party, or indemnity could have been sought hereunder by the Initial Purchaser, unless such settlement (A) includes an unconditional written release of the Initial Purchaser, in form and substance reasonably satisfactory to the Initial Purchaser, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of the Initial Purchaser.
(c) Promptly after receipt by an indemnified party under
this Section 9 of notice of the commencement of any action for which such
indemnified party is entitled to indemnification under this Section 9, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 9, notify the indemnifying party of the
commencement thereof in writing; but the omission to so notify the indemnifying
party (i) will not relieve it from any liability under paragraph (a) or (b)
above unless and to the extent such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraphs (a) and
(b) above. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory
to such indemnified party; provided, however, that if (i) the use of counsel
chosen by the indemnifying party to represent the indemnified party would
present such counsel with a conflict of interest, (ii) the defendants in any
such action include both the indemnified party and the indemnifying party and
the indemnified party shall have been advised by counsel that there may be one
or more legal defenses available to it and/or other indemnified parties that are
different from or additional to those available to the indemnifying party, or
(iii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after receipt by the indemnifying party of notice of the
institution of such action, then, in each such case, the indemnifying party
shall not have the right to direct the defense of such action on behalf of such
indemnified party or parties and such indemnified party or parties shall have
the right to select separate counsel to defend such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and approval
by such indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under this
Section 9 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the immediately preceding
sentence (it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (in addition to local counsel) in any one action or separate
but substantially similar actions in the same jurisdiction arising out of the
same general allegations or circumstances, designated by the Initial Purchaser
in the case of paragraph (a) of this Section 9 or the Company in the case of
paragraph (b) of this Section 9, representing the indemnified parties under such
paragraph (a) or paragraph (b), as the case may be, who are parties to such
action or actions) or (ii) the indemnifying party has authorized in writing the
employment of counsel for the indemnified party at the expense of the
indemnifying party. After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable for the costs and
expenses of any settlement of such action effected by such indemnified party
without the prior written consent of the indemnifying party (which consent shall
not be unreasonably withheld), unless such indemnified party waived in writing
its rights under this Section 9, in which case the indemnified party may effect
such a settlement without such consent.
(d) In circumstances in which the indemnity agreement provided for in the preceding paragraphs of this Section 9 is unavailable to, or insufficient to hold harmless, an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof), each indemnifying party, in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect (i) the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the offering of the Notes or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof). The relative benefits received by the Company on the one hand
and the Initial Purchaser on the other shall be deemed to be in the same
proportion as the total proceeds from the offering (before deducting expenses)
received by the Company bear to the total discounts and commissions received by
the Initial Purchaser. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand, or the Initial
Purchaser on the other, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission or
alleged statement or omission, and any other equitable considerations
appropriate in the circumstances. The Company and the Initial Purchaser agree
that it would not be equitable if the amount of such contribution were
determined by pro rata or per capita allocation or by any other method of
allocation that does not take into account the equitable considerations referred
to in the first sentence of this paragraph (d). Notwithstanding any other
provision of this paragraph (d), the Initial Purchaser shall not be obligated to
make contributions hereunder that in the aggregate exceed the total discounts,
commissions and other compensation received by the Initial Purchaser under this
Agreement, less the aggregate amount of any damages that the Initial Purchaser
has otherwise been required to pay by reason of the untrue or alleged untrue
statements or the omissions or alleged omissions to state a material fact, and
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this paragraph (d),
each person, if any, who controls the Initial Purchaser within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act shall have the same
rights to contribution as the Initial Purchaser, and each director of the
Company, each officer of the Company and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, shall have the same rights to contribution as the Company.
10. SURVIVAL CLAUSE. The respective representations, warranties, agreements, covenants, indemnities and other statements of the Company, its officers and the Initial Purchaser set forth in this Agreement or made by or on behalf of them pursuant to this Agreement shall remain in full force and effect, regardless of (i) any investigation made by or on behalf of the Company, any of its officers or directors, the Initial Purchaser or any controlling person referred to in Section 9 hereof and (ii) delivery of and payment for the Notes. The respective agreements, covenants, indemnities and other statements set forth in Sections 6, 9 and 15 hereof shall remain in full force and effect, regardless of any termination or cancellation of this Agreement.
11. TERMINATION. (a) This Agreement may be terminated in the sole discretion of the Initial Purchaser by notice to the Company given prior to the Closing Date in the event that the Company shall have failed, refused or been unable to perform all obligations and satisfy all conditions on its part to be performed or satisfied hereunder at or prior thereto or, if at or prior to the Closing Date:
(i) any of the Company or the Subsidiaries shall have sustained any loss or interference with respect to its businesses or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any strike, labor dispute, slow down or work stoppage or any legal or governmental proceeding,
which loss or interference, in the sole judgment of the Initial Purchaser, has had or has a Material Adverse Effect, or there shall have been, in the sole judgment of the Initial Purchaser, any event or development that, individually or in the aggregate, has or could be reasonably likely to have a Material Adverse Effect (including without limitation a change in control of the Company or the Subsidiaries), except in each case as described in the Final Memorandum (exclusive of any amendment or supplement thereto);
(ii) trading in securities of the Company or in securities generally on the New York Stock Exchange, American Stock Exchange or the NASDAQ National Market shall have been suspended or minimum or maximum prices shall have been established on any such exchange or market;
(iii) a banking moratorium shall have been declared by New York or United States authorities;
(iv) there shall have been (A) an outbreak or escalation of hostilities between the United States and any foreign power, or (B) an outbreak or escalation of any other insurrection or armed conflict involving the United States or any other national or international calamity or emergency, or (C) any material change in the financial markets of the United States which, in the case of (A), (B) or (C) above and in the sole judgment of the Initial Purchaser, makes it impracticable or inadvisable to proceed with the offering or the delivery of the Notes as contemplated by the Final Memorandum; or
(v) any securities of the Company shall have been downgraded or placed on any "watch list" for possible downgrading by any nationally recognized statistical rating organization.
(b) Termination of this Agreement pursuant to this
Section 11 shall be without liability of any party to any other party except as
provided in Section 10 hereof.
12. INFORMATION SUPPLIED BY THE INITIAL PURCHASER. The statements set forth in the last paragraph on the front cover page and in the second and third sentences of the third paragraph under the heading "Private Placement" in the Final Memorandum (to the extent such statements relate to the Initial Purchaser) constitute the only information furnished by the Initial Purchaser to the Company for the purposes of Sections 2(a) and 9 hereof.
13. NOTICES. All communications hereunder shall be in
writing and, if sent to the Initial Purchaser, shall be mailed or delivered to
the Initial Purchaser at 60 Wall Street, New York, New York 10005, Attention:
Corporate Finance Department, with a copy to Cahill Gordon & Reindel LLP, 80
Pine Street, New York, New York 10005, Attention: William M. Hartnett, Esq.; if
sent to the Company, shall be mailed or delivered to the Company at 888 Seventh
Avenue, New York, New York 10106, Attention: Richard Pyle; with a copy to
Kirkland & Ellis LLP, Citigroup Center, 153 East 53rd Street, New York, New York
10022-4675, Attention: Joshua N. Korff, Esq.
All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; and one business day after being timely delivered to a next-day air courier.
14. SUCCESSORS. This Agreement shall inure to the benefit
of and be binding upon the Initial Purchaser, the Company and their respective
successors and legal representatives, and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement, or
any provisions herein contained; this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that (i)
the indemnities of the Company contained in Section 9 of this Agreement shall
also be for the benefit of any person or persons who control the Initial
Purchaser within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act and (ii) the indemnities of the Initial Purchaser contained in
Section 9 of this Agreement shall also be for the benefit of the directors of
the Company, its officers and any person or persons who control the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act.
No purchaser of Notes from the Initial Purchaser will be deemed a successor
because of such purchase.
15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW.
16. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between the Company and the Initial Purchaser.
Very truly yours,
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
By: /s/ A. Alimanestianu
------------------------------------
Name: Alexander Alimanestianu
Title: Chief Development Officer,
Office of President, and
Secretary
|
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written.
DEUTSCHE BANK SECURITIES INC.
By: /s/ Vikrant Sawhney
--------------------------
Name: Vikrant Sawhney
Title: Director
By: /s/ Scott Levy
--------------------------
Name: Scott Levy
Title: Director
|
SCHEDULE 1
Subsidiaries of the Company
Jurisdiction of
Name Ownership Organization
--------------------------------- ---------------------------------------- ---------------
Town Sports International, Inc. Town Sports International Holdings, Inc. New York
TSI Alexandria, LLC TSI Holdings (VA), Inc. Delaware
TSI Allston, Inc. Town Sports International, Inc. Delaware
TSI Andover, Inc. TSI Holdings (MA), Inc. Massachusetts
TSI Ardmore, LLC TSI Holdings (PA), Inc. Delaware
TSI Arthro-Fitness Services, Inc. Town Sports International, Inc. New York
TSI Livingston, Inc. Town Sports International, Inc. New York
TSI Battery Park, Inc. Town Sports International, Inc. New York
TSI Bethesda, LLC TSI Holdings (MD), Inc. Delaware
TSI Broadway, Inc. Town Sports International, Inc. New York
TSI 217 Broadway, Inc. Town Sports International, Inc. New York
TSI Brooklyn Belt, Inc. Town Sports International, Inc. New York
TSI Brunswick, Inc. Town Sports International, Inc. Delaware
TSI Washington, LLC TSI Holdings (NJ), LLC Delaware
TSI Bulfinch, Inc. Town Sports International, Inc. Delaware
TSI Cash Management, Inc. Town Sports International, Inc. New York
TSI Central Square, Inc. Town Sports International, Inc. Delaware
TSI Centreville, LLC TSI Holdings (VA), Inc. Delaware
TSI Cherry Hill, LLC TSI Holdings (NJ), LLC Delaware
TSI Chevy Chase, Inc. TSI Holdings (DC), Inc. Delaware
TSI Clarendon, LLC TSI Holdings (VA), Inc. Delaware
TSI Cobble Hill, Inc. Town Sports International, Inc. New York
TSI Colonia, LLC TSI Holdings (NJ), LLC Delaware
TSI Commack, Inc. Town Sports International, Inc. New York
TSI Connecticut Avenue, Inc. TSI Holdings (DC), Inc. Delaware
TSI Copley, Inc. Town Sports International, Inc. Delaware
TSI Court Street, Inc. Town Sports International, Inc. New York
|
Jurisdiction of
Name Ownership Organization
--------------------------------- ---------------------------------------- ---------------
TSI Croton, Inc. Town Sports International, Inc. New York
TSI Danbury, Inc. Town Sports International, Inc. Delaware
TSI Danvers, Inc. TSI Holdings (MA), Inc. Massachusetts
TSI Downtown Crossing, Inc. Town Sports International, Inc. Delaware
TSI Dupont Circle, Inc. TSI Holdings (DC), Inc. Delaware
TSI Dupont II, Inc. TSI Holdings (DC), Inc. Delaware
TSI East Cambridge, Inc. Town Sports International, Inc. Delaware
TSI East Meadow, Inc. Town Sports International, Inc. New York
TSI East 23, Inc. Town Sports International, Inc. New York
TSI East 31, Inc. Town Sports International, Inc. New York
TSI East 34, Inc. Town Sports International, Inc. New York
TSI East 36, Inc. Town Sports International, Inc. New York
TSI East 41, Inc. Town Sports International, Inc. New York
TSI East 51, Inc. Town Sports International, Inc. New York
TSI East 59, Inc. Town Sports International, Inc. New York
TSI East 76, Inc. Town Sports International, Inc. New York
TSI East 86, LLC Town Sports International, Inc. New York
TSI East 91, Inc. Town Sports International, Inc. New York
TSI F Street, Inc. TSI Holdings (DC), Inc. Delaware
TSI Fairfax, LLC TSI Holdings (VA), Inc. Delaware
TSI Fenway, Inc. Town Sports International, Inc. Delaware
TSI Fifth Avenue, Inc. Town Sports International, Inc. New York
TSI First Avenue, Inc. Town Sports International, Inc. New York
TSI Forest Hills, Inc. Town Sports International, Inc. New York
TSI Fort Lee, LLC TSI Holdings (NJ), LLC Delaware
TSI Framingham, Inc. TSI Holdings (MA), Inc. Massachusetts
TSI Franklin (MA), Inc. TSI Holdings (MA), Inc. Massachusetts
TSI Franklin Park, LLC TSI Holdings (NJ), LLC Delaware
TSI Freehold, LLC TSI Holdings (NJ), LLC Delaware
TSI Gallery Place, Inc. TSI Holdings (DC), Inc. Delaware
TSI Garden City, Inc. Town Sports International, Inc. New York
TSI Germantown, LLC TSI Holdings (MD), Inc. Delaware
TSI Glover, Inc. TSI Holdings (DC), Inc. Delaware
TSI Grand Central, Inc. Town Sports International, Inc. New York
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Jurisdiction of
Name Ownership Organization
--------------------------------- ---------------------------------------- ---------------
TSI Great Neck, Inc. Town Sports International, Inc. New York
TSI Greenwich, Inc. Town Sports International, Inc. Delaware
TSI Herald, Inc. Town Sports International, Inc. New York
TSI Highpoint, LLC TSI Holdings (PA), Inc. Delaware
TSI Hoboken, LLC TSI Holdings (NJ), LLC Delaware
TSI Holdings (CIP), Inc. Town Sports International, Inc. Delaware
TSI Holdings (DC), Inc. Town Sports International, Inc. Delaware
TSI Holdings (IP), LLC TSI Insurance, Inc. Delaware
TSI Holdings (MA), Inc. Town Sports International, Inc. Massachusetts
TSI Holdings (MD), Inc. Town Sports International, Inc. Delaware
TSI Holdings (NJ), LLC Town Sports International, Inc. Delaware
TSI Holdings (PA), Inc. Town Sports International, Inc. Delaware
TSI Holdings (VA), Inc. Town Sports International, Inc. Delaware
TSI Huntington, Inc. Town Sports International, Inc. New York
TSI Insurance, Inc. Town Sports International, Inc. New York
TSI International, Inc. Town Sports International, Inc. Delaware
TSI Irving Place, Inc. Town Sports International, Inc. New York
TSI Jersey City, LLC TSI Holdings (NJ), LLC Delaware
TSI Larchmont, Inc. Town Sports International, Inc. New York
TSI Lexington (MA), Inc. TSI Holdings (MA), Inc. Massachusetts
TSI Lincoln, Inc. Town Sports International, Inc. New York
TSI Long Beach, Inc. Town Sports International, Inc. New York
TSI Lynnfield, Inc. TSI Holdings (MA), Inc. Massachusetts
TSI M Street, Inc. TSI Holdings (DC), Inc. Delaware
TSI Madison, Inc. Town Sports International, Inc. New York
TSI Mahwah, LLC TSI Holdings (NJ), LLC Delaware
TSI Mamaroneck, Inc. Town Sports International, Inc. New York
TSI Market Street, LLC TSI Holdings (PA), Inc. Delaware
TSI Marlboro, LLC TSI Holdings (NJ), LLC Delaware
TSI Matawan, LLC TSI Holdings (NJ), LLC Delaware
TSI K Street TSI Holdings (DC), Inc. Delaware
TSI Montclair, LLC TSI Holdings (NJ), LLC Delaware
TSI Murray Hill, Inc. Town Sports International, Inc. New York
TSI Nanuet, Inc. Town Sports International, Inc. New York
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Jurisdiction of
Name Ownership Organization
--------------------------------- ---------------------------------------- ---------------
TSI Nashua, LLC TSI Holdings (MA), Inc. Delaware
TSI Natick, Inc. Town Sports International, Inc. Delaware
TSI Newark, LLC TSI Holdings (NJ), LLC Delaware
TSI Newbury Street, Inc. Town Sports International, Inc. Delaware
TSI North Bethesda, LLC TSI Holdings (MD), Inc. Delaware
TSI Norwalk, Inc. Town Sports International, Inc. Delaware
TSI Oceanside, Inc. Town Sports International, Inc. New York
TSI Old Bridge, LLC TSI Holdings (NJ), LLC Delaware
TSI Parsippany, LLC TSI Holdings (NJ), LLC Delaware
TSI Plainsboro, LLC TSI Holdings (NJ), LLC Delaware
TSI Princeton, LLC TSI Brunswick, Inc. Delaware
TSI Ramsey, LLC TSI Holdings (NJ), LLC Delaware
TSI Reade Street, Inc. Town Sports International, Inc. New York
TSI Ridgewood, LLC TSI Holdings (NJ), LLC Delaware
TSI Rittenhouse, LLC TSI Holdings (PA), Inc. Delaware
TSI Rodin Place, LLC TSI Holdings (PA), Inc. Delaware
TSI Rye, Inc. Town Sports International, Inc. New York
TSI Scarsdale, Inc. Town Sports International, Inc. New York
TSI Seaport, Inc. Town Sports International, Inc. New York
TSI Sheridan, Inc. Town Sports International, Inc. New York
TSI Silver Spring, LLC TSI Holdings (MD), Inc. Delaware
TSI Society Hill, LLC TSI Holdings (PA), Inc. Delaware
TSI Soho, Inc. Town Sports International, Inc. New York
TSI Somerset, LLC TSI Holdings (NJ), LLC Delaware
TSI South Park Slope, Inc. Town Sports International, Inc. New York
TSI Springfield, LLC TSI Holdings (NJ), LLC Delaware
TSI Stamford Downtown, Inc. Town Sports International, Inc. Delaware
TSI Stamford Post, Inc. Town Sports International, Inc. Delaware
TSI Stamford Rinks, Inc. Town Sports International, Inc. Delaware
TSI Staten Island, Inc. Town Sports International, Inc. New York
TSI Sterling, LLC TSI Holdings (VA), Inc. Delaware
TSI Supplements, Inc. Town Sports International, Inc. Delaware
TSI Syosset, Inc. Town Sports International, Inc. New York
TSI Wall Street, Inc. Town Sports International, Inc. New York
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Jurisdiction of
Name Ownership Organization
--------------------------------- ---------------------------------------- ---------------
TSI Waltham, LLC TSI Holdings (MA), Inc. Delaware
TSI Washington, Inc. TSI Holdings (DC), Inc. Delaware
TSI Water Street, Inc. Town Sports International, Inc. New York
TSI Wellesley, Inc. TSI Holdings (MA), Inc. Massachusetts
TSI West Caldwell, LLC TSI Holdings (NJ), Inc. Delaware
TSI West Newton, Inc. Town Sports International, Inc. Delaware
TSI West Nyack, Inc. Town Sports International, Inc. New York
TSI West Springfield, LLC TSI Holdings (VA), Inc. Delaware
TSI West 14, Inc. Town Sports International, Inc. New York
TSI West 16, Inc. Town Sports International, Inc. New York
TSI West 23, Inc. Town Sports International, Inc. New York
TSI West 38, Inc. Town Sports International, Inc. New York
TSI West 41, Inc. Town Sports International, Inc. New York
TSI West 44, Inc. Town Sports International, Inc. New York
TSI West 48, Inc. Town Sports International, Inc. New York
TSI West 52, Inc. Town Sports International, Inc. New York
TSI West 73, Inc. Town Sports International, Inc. New York
TSI West 76, Inc. Town Sports International, Inc. New York
TSI West 80, Inc. Town Sports International, Inc. New York
TSI West 94, Inc. Town Sports International, Inc. New York
TSI West 125, Inc. Town Sports International, Inc. New York
TSI Westport, Inc. Town Sports International, Inc. Delaware
TSI Westwood, LLC TSI Holdings (NJ), Inc. Delaware
TSI Weymouth, Inc. Town Sports International, Inc. Delaware
TSI White Plains, Inc. Town Sports International, Inc. New York
TSI Whitestone, Inc. Town Sports International, Inc. New York
TSI Woodmere, Inc. Town Sports International, Inc. New York
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EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
ARTICLE ONE
The name of the corporation is Town Sports International Holdings, Inc. (hereinafter called the "Corporation").
ARTICLE TWO
The address of the Corporation's registered office in the state of Delaware is 2711 Centerville Road, Suite 400, Wilmington, DE 19808, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is Corporation Service Company.
ARTICLE THREE
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
ARTICLE FOUR
The total number of shares which the Corporation shall have the authority to issue is One Thousand Shares (1,000), all of which shall be shares of Common Stock, with a par value of One Cent ($0.01) per share.
ARTICLE FIVE
The name and mailing address of the incorporator is as follows:
Name Address
David N. Britsch c/o Kirkland & Ellis
153 E. 53rd Street, 39th Floor
New York, NY 10022
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ARTICLE SIX
The directors shall have the power to adopt, amend or repeal By-Laws, except as may be otherwise be provided in the By-Laws.
ARTICLE SEVEN
The Corporation expressly elects not to be governed by Section 203 of the General Corporation Law of the State of Delaware.
ARTICLE EIGHT
To the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended, a director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director. Any repeal or modification of this ARTICLE EIGHT shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.
ARTICLE NINE
The Corporation reserves the right to amend or repeal any provisions contained in this Certificate of Incorporation from time to time and at any time in the manner now or hereafter prescribed by the laws of the State of Delaware, and all rights conferred upon stockholders and directors are granted subject to such reservation.
* * * *
I, the undersigned, being the sole incorporator hereinbefore named, for the purpose of forming a corporation in pursuance of the General Corporation Law of the State of Delaware, do make and file this Certificate, hereby declaring and certifying that the facts herein stated are true, and accordingly have hereunto set my hand this 20th day of January, 2004.
By: \s\ David N. Britsch
------------------------------------
David N. Britsch, Sole Incorporator
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EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
ARTICLE I
The name of the corporation is Town Sports International Holdings, Inc.
(hereinafter called the "Corporation")
ARTICLE II
The address of the Corporation's registered office in the state of Delaware is 2711 Centerville Road, Suite 400, Wilmington, DE 19808, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is Corporation Service Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
ARTICLE IV
AUTHORIZED CAPITAL STOCK
I. AUTHORIZED SHARES.
The total number of shares of capital stock which the Corporation has authority to issue is 3,500,000 shares, consisting of:
(1) 2,500,000 shares of Class A Common Stock, par value $.001 per share (the "Class A Common");
(2) 500,000 shares of Class B Common Stock, par value $.001 per share (the "Class B Common");
(3) 200,000 shares of Series A Preferred Stock, par value $1.00 per share (the "Series A Preferred Stock"); and
(4) 200,000 shares of Series B Preferred Stock, par value $1.00 per share (the "Series B Preferred Stock").
The Class A Common and the Class B Common are hereafter collectively referred to as the "Common Stock." The Series A Preferred Stock and the Series B Preferred Stock are hereafter collectively referred to as the "Preferred Stock."
In addition to any other consent or approval which may be required pursuant to this Certificate of Incorporation, no amendment or waiver of any provision of this Section I shall be effective without the prior approval of the holders of a majority of the then outstanding Common Stock voting as a single class. For purposes of votes on amendments and waivers to this Section I, each share of Common Stock shall be entitled to one vote.
II. PREFERRED STOCK.
Except as otherwise provided in this Section II or as otherwise required by applicable law, all shares of Preferred Stock (each such share, a "Preferred Share") shall be identical in all respects and shall entitle the holders thereof to the same rights and privileges, subject to the same qualifications, limitations and restrictions.
1. Dividends.
1A. General Obligation. When and as declared by the Corporation's board of directors and to the extent permitted under the General Corporation Law of Delware, the Corporation will pay preferential dividends to the holders of the Preferred Stock as provided in this Section 1. Except as otherwise provided herein, dividends on each share of Series A Preferred Stock (a "Series A Share") will accrue at a rate of 14% per annum and dividends on each share of Series B Preferred Stock (a "Series B Share") will accrue at a rate of 14% per annum of the Liquidation Value of such Preferred Share from and including the date of issuance of such Preferred Share to and including the date on which the Liquidation Value (plus all accrued and unpaid dividends thereon) of such Preferred Share is paid in full. Such dividends will accrue whether or not they have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends. The date on which the Corporation initially issued Series A Preferred Stock, par value $1.00 per share, of Town Sports International, Inc. ("TSI") to each stockholder of the Company holding any Series A Shares will be deemed to be the "date of issuance" for each Series A Share held by such stockholder regardless of the number of times transfer of such Series A Share is made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be issued to evidence such Series A Share. The "date of issuance" for each Series B Share shall be deemed to be December 10, 1996 regardless of the number of times transfer of such Series B Share is made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be issued to evidence such Series B Share.
1B. Preferred Dividend Reference Dates. To the extent that all accrued dividends are not paid on each January 1 and July 1 of each year beginning January 1, 1997 (the "Preferred Dividend Reference Dates"), all dividends which have accrued on each Share outstanding during the six-month period (or other period in the case of the initial Preferred Dividend Reference Date) ending upon each such Preferred Dividend Reference Date will be accumulated and added to the Liquidation Value of such Preferred Share.
1C. Distribution of Partial Dividend Payments. If at any time the Corporation elects to pay dividends in cash and pays less than the total amount of dividends then accrued with respect to the Preferred Stock, such payment will be distributed ratably among the holders
of the Preferred Stock based upon the aggregate accrued but unpaid dividends on the Preferred Shares of such class held by each such holder.
1D. Payment of Stock Dividends. In the sole discretion of
the Corporation, any dividends accruing on the Preferred Shares may be paid, in
lieu of cash dividends, by the issuance of additional Preferred Shares
(including fractional Preferred Shares) having an aggregate Liquidation Value at
the time of such payment equal to the amount of the dividend to be paid (such
Preferred Shares, the "Dividend Shares"); provided, that (i) if the Corporation
pays less than the total amount of dividends then accrued on the Preferred Stock
in the form of Dividend Shares, such payment in Dividend Shares shall be made
pro rata to the holders of Preferred Shares based upon the aggregate accrued but
unpaid dividends on the Preferred Shares held by each such holder and (ii)
Section 3H below shall not apply to any and all Dividend Shares.
2. Liquidation. Upon any liquidation, dissolution or winding up of the Corporation, the holders of the Series A Preferred Stock and Series B Preferred Stock will be entitled on a pari passu basis to be paid, before any distribution or payment is made upon any of the Corporation's equity securities, an amount in cash equal to the aggregate Liquidation Value (plus all accrued and unpaid dividends thereon) of all such Preferred Shares outstanding, and the holders of Series A Preferred Stock and Series B Preferred Stock will not be entitled to any further payment. The Corporation will mail written notice of such liquidation, dissolution or winding up, not less than 10 days prior to the payment date stated therein, to each record holder of Preferred Stock. Neither the consolidation or merger of the Corporation into or with any other corporation or corporations, nor the sale or transfer by the Corporation of all or any part of its assets, nor the reduction of the capital stock of the Corporation, will be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section 2.
3. Redemptions.
3A. Optional Redemptions. The Corporation may at any time redeem all or any portion of Series A Preferred Stock and Series B Preferred Stock then outstanding at a price per Preferred Share equal to the Liquidation Value thereof (plus all accrued and unpaid dividends thereon); provided, that all optional redemptions pursuant to this Section 3A are made pro rata among the holders of Preferred Stock on the basis of the number of Preferred Shares held by each such holder.
3B. Redemption Price. For each Preferred Share which is to be redeemed the Corporation will be obligated on the Redemption Date to pay to the holder thereof (upon surrender by such holder at the Corporation's principal office of the certificate representing such Preferred Share) an amount in immediately available funds equal to the Liquidation Value thereof (plus all accrued and unpaid dividends thereon). If the Corporation's funds which are legally available for redemption of Preferred Shares on any Redemption Date are insufficient to redeem the total number of Preferred Shares to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of Preferred Shares ratably among the holders of the Preferred Shares to be redeemed based upon the aggregate Liquidation Value of such Preferred Shares (plus all accrued and unpaid dividends thereon) held by each such holder and other Preferred Shares not so redeemed shall remain issued and
outstanding until redeemed in accordance with the terms thereof. At any time thereafter when additional funds of the Corporation are legally available for the redemption of Preferred Shares, such funds will immediately be used to redeem the balance of the Preferred Shares which the Corporation has become obligated to redeem on any Redemption Date but which it has not redeemed.
3C. Notice of Redemption. The Corporation will mail written notice of each redemption of Preferred Stock to each record holder not more than 30 nor less than 10 days prior to the date on which such redemption is to be made. Upon mailing any notice of redemption which relates to a redemption at the Corporation's option, the Corporation will become obligated to redeem the total number of Preferred Shares specified in such notice at the time of redemption specified therein. In case fewer than the total number of Preferred Shares represented by any certificate are redeemed, a new certificate representing the number of unredeemed Preferred Shares will be issued to the holder thereof without cost to such holder within three business days after surrender of the certificate representing the redeemed Preferred Shares.
3D. Determination of the Number of Each Holder's Preferred Shares to be Redeemed. Except as otherwise provided herein, the number of Preferred Shares to be redeemed from each holder thereof in redemptions hereunder will be the number of Preferred Shares determined by multiplying the total number of Preferred Shares to be redeemed times a fraction, the numerator of which will be the total number of Preferred Shares then held by such holder and the denominator of which will be the total number of Preferred Shares then outstanding.
3E. Dividends After Redemption Date. No Preferred Share is entitled to any dividends accruing after the date on which the Liquidation Value (plus all accrued and unpaid dividends thereon) of such Preferred Share is paid in full. On such date all rights of the holder of such Preferred Share will cease, and such Preferred Share will not be deemed to be outstanding.
3F. Redeemed or Otherwise Acquired Preferred Shares. Any Preferred Shares which are redeemed or otherwise acquired by the Corporation will be canceled and will not be reissued, sold or transferred.
3G. Other Redemptions or Acquisitions. Neither the Corporation nor any Subsidiary will redeem or otherwise acquire any Preferred Stock, except as expressly authorized herein or pursuant to a purchase offer made pro rata to all holders of the Preferred Stock on the basis of the number of Preferred Shares owned by each such holder.
3H. Special Redemptions. If a Change in Control has occurred, then the Corporation shall give prompt written notice of such Change in Control, describing in reasonable detail the definitive terms and date of consummation thereof to each holder of Preferred Stock, but in any event such notice shall be given not more than 30 days nor less than ten days prior to the occurrence of such Change in Control. Each holder of Preferred Stock then outstanding may require the Corporation to redeem all or any portion of the Preferred Stock owned by such holder at a price per Preferred Share equal to the Liquidation Value thereof (plus all accrued and unpaid dividends thereon) by giving written notice to the Corporation of such election within 30 days of receipt of the Corporation's notice. Upon receipt by the Corporation of such written notice from any holder, subject to the provisions of any loan agreement, indenture or credit agreement
evidencing indebtedness for borrowed money incurred by the Corporation, the Corporation shall be obligated to redeem the aggregate number of Preferred Shares specified therein within five days after receipt of such notice from such holder. The term "Change in Control" means (i) the sale of all or substantially all of the assets reflected on the Corporation's most recent consolidated balance sheet or capital stock of the Corporation, or (ii) the acquisition, through stock purchase, merger or otherwise, by a Person or group of Persons (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) unaffiliated with Bruckmann, Rosser, Sherrill & Co., L.P. (and its Permitted Transferees (as defined in the Stockholders Agreement)) and management employees of the Corporation immediately prior to giving effect such transaction, of capital stock of the Corporation representing, at any date of determination, (x) prior to the consummation of an initial public offering of the Common Stock registered under the Securities Act of 1933, as amended, 51% or more of the common equity interest in the Corporation's capital stock and (y) following the consummation of such an initial public offering of the Common Stock, 33% or more of the common equity interest in the Corporation's capital stock.
3I. Priority of Preferred Stock. So long as any Preferred Stock remains outstanding, neither the Corporation nor any Subsidiary shall declare or pay any cash dividends or make any cash distributions with respect to or redeem, purchase or otherwise acquire for cash, directly or indirectly, any Common Stock, if at the time of or immediately after any such redemption, purchase, acquisition, dividend or distribution the Corporation has failed to pay the full amount of dividends accrued on the Preferred Stock or the Corporation has failed to make any redemption of the Preferred Stock required hereunder; provided, that the Corporation may purchase shares of Common Stock from employees of the Corporation and its Subsidiaries upon termination of employment.
4. Conversion of Series B Preferred Stock.
4A. Optional Conversion. Subject to Section 4B below, upon the consummation of an Initial Public Offering (the "Conversion Event"), each Series B Share shall, at the option of either the holder of such Series B Share or the Company, be converted (and the rights of the holder of the Series B Shares shall cease) into a number of shares of the Corporation's Class A Common equal to the (i) Liquidation Value of such Series B Share as of the date of such Conversion Event (plus all accumulated, accrued and unpaid dividends thereon) divided by (ii) the price at which each share of Class A Common was sold in such Initial Public Offering. The Corporation shall give prompt written notice to each holder of Series B Shares if a Conversion Event has occurred, which notice shall describe in reasonable detail the Conversion Event that has occurred.
4B. Surrender of Certificates. Each conversion of Series B Shares into shares of Class A Common at the option of the holder of such Series B Shares shall be effected by the surrender of the certificate or certificates representing the Series B Shares to be converted at the principal office of the Corporation at any time during normal business hours, together with a written notice by the holder of such Series B Shares stating that such holder desires to convert the Series B Shares, or a stated number of the Series B Shares, represented by such certificate or certificates into shares of Class A Common. Each conversion of Series B Shares at the option of the holder of such Series B Shares shall be deemed to have been effected as of the close of
business on the date on which such certificate or certificates have been surrendered and such notice has been tendered, and at such time the rights of the holder of the converted Series B Shares as such holder shall cease, and the person or persons in whose name or names the certificate or certificates for shares of Class A Common are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the shares of Class A Common represented thereby. Each conversion of Series B Shares into shares of Class A Common at the option of the Company shall be effected by delivery of written notice to the holder of such Series B Shares stating that the Company desires to convert the Series B Shares, or a stated number of Series B Shares, held by the holder of such Series B Shares. Upon receipt of such written notice, the holder of the Series B Shares shall surrender promptly the certificate or certificates representing the Series B Shares to be converted at the principal office of the Corporation at any time during normal business hours. Each conversion of Series B Shares at the option of the Company shall be deemed to have been effected as of the close of business on the date indicated in the written notice of conversion delivered by the Company to the holder of such Series B Shares, and at such time, the rights of the holder of the converted Series B Shares as such holder shall cease, and the person or person in whose name or names the certificate or certificates for shares of Class A Common are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the shares of Class A Common represented thereby.
4C. Issuance of Certificates. Within five Business Days after the surrender of certificates of Series B Shares, the Corporation shall issue and deliver in accordance with the surrendering holder's instructions the certificate or certificates for the Class A Common issuable upon such conversion.
4D. No Charge. The issuance of certificates for Class A Common upon conversion of the Series B Shares will be made without charge to the holders of such Series B Shares of any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of Class A Common.
4E. Reserved Shares. Upon the Conversion Event, the
Corporation shall take all such actions as may be necessary to assure that all
shares of Class A Common issuable pursuant to this Section 4 may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which will be
immediately transmitted by the Corporation upon issuance), including, but not
limited to, amending the Corporation's Certificate of Incorporation to increase
the number of authorized but unissued shares of Class A Common. All shares of
Class A Common which are issuable pursuant to the terms and conditions of this
Section 4 shall, when issued, be duly and validly issued, fully paid, and
nonassessable and free from all taxes, liens and charges.
4F. Closing Books. The Corporation shall not close its books against the transfer of Series B Shares in any manner which would interfere with the timely conversion of any Series B Shares.
5. Voting Rights. The Preferred Shares will not have any voting rights attaching to them, except as required by applicable law.
6. Registration of Transfer. The Corporation will keep at its principal office a register for the registration of Preferred Stock. Upon the surrender of any certificate representing Preferred Stock at such place, the Corporation will, at the request of the record holder of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of Preferred Shares represented by the surrendered certificate. Each such new certificate will be registered in such name and will represent such number of Preferred Shares as is requested by the holder of the surrendered certificate and will be substantially identical in form to the surrendered certificate, and dividends will accrue on the Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such Preferred Stock represented by the surrendered certificate.
7. Replacement. Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder will be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing Preferred Shares, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the holder is an institutional investor its own agreement will be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Corporation will (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of Preferred Shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, and dividends will accrue on the Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate.
8. Definitions. The following definitions apply to this Section II only.
"Liquidation Value" of any Preferred Share of (i) Series A Preferred Stock as of any particular date will be an amount equal to $100.00 per Preferred Share, plus any and all accumulated and unpaid dividends which are added to the Liquidation Value pursuant to Section 1B above and (ii) any Preferred Share of Series B Preferred Stock as of any particular date will be an amount equal to $35.00 per Preferred Share, plus any and all accumulated and unpaid dividends which are added to the Liquidation Value pursuant to Section 1B above.
"Person" means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.
"Redemption Date" as to any Preferred Share means the date specified in the notice of any redemption at the Corporation's option or the applicable date specified herein in the case of any other redemption; provided, that no such date will be a Redemption Date unless the applicable Liquidation Value (plus all accrued and unpaid dividends thereon) is actually paid, or set aside for payment in full on such date, and if not so paid or set aside for payment in full, the Redemption Date will be the date on which such Liquidation Value (plus all accrued and unpaid dividends thereon) is fully paid.
"Stockholders Agreement" means the Stockholders Agreement, dated as of February 4, 2004, by and among the Corporation, TSI and certain stockholders of the Corporation, as the same may be amended, restated, or modified from time to time.
"Subsidiary" means with respect to any Person, any corporation, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled directly or indirectly, by any person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a partnership, association or other business entity if such Person or Persons shall be allocated a majority of partnership, association or other business entity gains or losses or shall be or control the managing director or general partner of such partnership, association or other business entity.
9. Amendment and Waiver. No amendment, modification or waiver will be binding or effective with respect to any provision of Section III without the prior written consent of the holders of at least fifty percent (50%) of the Preferred Shares outstanding at the time such action is taken; provided, that no such amendment, modification or waiver which adversely and prejudicially affects the Series B Preferred shall be effective without the prior written consent of the holders of at least fifty (50%) of the Series B Shares outstanding at the time such action is taken.
10. Notices. Except as otherwise expressly provided, all notices referred to herein will be in writing and will be delivered by registered or certified mail, return receipt requested, postage prepaid and will be deemed to have been given when so mailed (i) to the Corporation, at its principal executive offices and (ii) to any stockholder, at such holder's address as it appears in the stock records of the Corporation (unless otherwise indicated by any such holder).
III. COMMON STOCK.
Except as otherwise provided in this Section III or as otherwise required by applicable law, all shares of Common Stock shall be identical in all respects and shall entitle the holders thereof to the same rights and privileges, subject to the same qualifications, limitations and restrictions.
1. Voting Rights. Except as otherwise provided in this Section III or as otherwise required by applicable law:
(i) the holders of Class A Common shall be entitled to one vote per share on all matters to be voted on by the Stockholders of the Corporation; and
(ii) the holders of Class B Common will not have any voting rights.
2. Dividends. As and when dividends are declared or paid thereon, whether in cash, property or securities of the Corporation, the holders of Common Stock shall be entitled to
participate in such dividends ratably on a per share basis; provided, that (i) if dividends are declared which are payable in shares of Common Stock, dividends shall be declared which are payable at the same rate on all classes of Common Stock and (ii) dividends payable in shares of Class A Common shall be payable to holders of Class A Common, and dividends payable in shares of Class B Common shall be payable to holders of Class B Common.
3. Liquidation. Subject to the provisions of the Preferred Stock, the holders of the Common Stock shall be entitled to participate ratably on a per share basis in all distributions to the holders of Common Stock in any liquidation, dissolution or winding up of the Corporation.
4. Conversion of Common Stock.
4A. Right to Convert. Subject to Section 4B below, the holder or holders of a majority of the outstanding shares of Class B Common shall be entitled at any time to convert all or any portion of the shares of Class B Common into the same number of shares of Class A Common. Any such conversion of Class B Common into Class A Common will be effected among the holders of the Class B Common on a pro rata basis based upon the number of shares of Class B Common then outstanding.
4B. Surrender of Certificates. Each conversion of shares of Class B Common into shares of Class A Common shall be effected by the surrender of the certificate or certificates representing the shares to be converted at the principal office of the Corporation at any time during normal business hours, together with a written notice by the holder of shares of such Class B Common stating that such holder desires to convert the shares, or a stated number of the shares, of such Class B Common represented by such certificate or certificates into shares of Class A Common. Each conversion of Class B Common shall be deemed to have been effected as of the close of business on the date on which such certificate or certificates have been surrendered and such notice has been received, and at such time the rights of the holder of the converted Class B Common as such holder shall cease, and the person or persons in whose name or names the certificate or certificates for shares of Class A Common are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the shares of Class A Common represented thereby.
4C. Issuance of Certificates. Promptly after the surrender of certificates of Class B Common and the receipt of written notice, the Corporation shall issue and deliver in accordance with the surrendering holder's instructions the certificate or certificates for the Class A Common issuable upon such conversion.
4D. No Charge. The issuance of certificates for Class A Common upon conversion of Class B Common will be made without charge to the holders of such shares of any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of Class A Common.
4E. Reserve Shares. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Class A Common, solely for the purpose of issuance upon the conversion of the Class B Common, such number of shares of Class A Common issuable upon conversion of all outstanding shares of Class B Common. All shares of
Common Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall take all such actions as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance which will be immediately transmitted by the Corporation upon issuance).
4F. Closing Books. The Corporation shall not close its books against the transfer of shares of Common Stock in any manner which would interfere with the timely conversion of any shares of Common Stock.
5. Stock Splits. If the Corporation in any manner subdivides or combines the outstanding shares of one class of Common Stock, the outstanding shares of each other class of Common Stock shall be proportionately subdivided or combined in a similar manner.
6. Registration of Transfer. The Corporation shall keep at its principal office (or such other place as the Corporation reasonably designates) a register for the registration of shares of Common Stock. Upon the surrender of any certificate representing shares of any class of Common Stock at such place, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of shares of such class represented by the surrendered certificate and the Corporation shall forthwith cancel such surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of shares of such Class as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate. The issuance of new certificates shall be made without charge to the holders of the surrendered certificates for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such issuance.
7. Replacement. Upon receipt of evidence reasonably satisfactory to the Corporation (provided that an affidavit of the registered holder will be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing one or more shares of any class of Common Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the holder is a financial institution or other institutional investor its own agreement will be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate.
8. Notices. All notices referred to herein shall be in writing, and shall be delivered by registered or certified mail, return receipt requested, postage prepaid, and shall be deemed to have been given when so mailed (i) to the Corporation at its principal executive offices and (ii) to any stockholder at such holder's address as it appears in the stock records of the Corporation (unless otherwise specified in a written notice to the Corporation by such holder).
9. Action by Written Consent. Any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken and bearing the dates of signature of the stockholders who signed the consent or consents, shall be signed by the holders of outstanding stock having not less than a majority of the shares entitled to vote, or, if greater, not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
10. Amendment and Waiver. No amendment or waiver of any provision of this Section III shall be effective without the prior consent of the holders of a majority of the then outstanding shares of Common Stock voting as a single class. For purposes of votes on amendments and waivers to this Section III, each share of Common Stock shall be entitled to one vote. No amendment directly to any terms or provisions of any class of Common Stock that adversely affects such class of Common Stock vis-a-vis any other class of Common Stock shall be effective without the prior consent of the holders of a majority of the then outstanding shares of such class of Common Stock (it being understood that the issuance of preferred stock shall not be deemed to adversely affect the Common Stock).
ARTICLE V
The directors shall have the power to adopt, amend or repeal By-Laws, except as may be otherwise provided in the By-Laws.
ARTICLE VI
The Corporation expressly elects not to be governed by Section 203 of the General Corporation Law of the State of Delaware.
ARTICLE VII
No director shall be personally liable to the corporation or any shareholder for monetary damages for breach of fiduciary duty as a director, except for any matter in respect of which such director shall be liable (a) under Section 174 of Title 8 of the Delaware Code (relating to the Delaware General Corporation Law) or any amendment thereto or successor provision thereto or (b) by reason that he or she (i) has breached his or her duty of loyalty to the corporation or its shareholders, (ii) has not acted in good faith or, in failing to act, has not acted in good faith, (iii) has acted in a manner involving intentional misconduct or a knowing violation of law or, in failing to act, has acted in a manner involving intentional misconduct or a knowing violation of law or (iv) has derived an improper personal benefit. Neither the amendment nor repeal of this Article SEVENTH, nor the adoption of any provision of this certificate of incorporation of or the bylaws of the corporation inconsistent with this Article SEVENTH, shall eliminate or reduce the effect of this Article SEVENTH in respect of any matter occurring, or any cause of action, suit or claim that but for this Article SEVENTH would accrue or arise, prior to such amendment or repeal or such adoption of such inconsistent provision.
ARTICLE VIII
The Corporation reserves the right to amend or repeal any provisions contained in this Certificate of Incorporation from time to time and at any time in the manner now or hereafter prescribed by the laws of the State of Delaware, and all rights conferred upon stockholders and directors are granted subject to such reservation.
* * * *
EXHIBIT 3.3
BY-LAWS
OF
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
A DELAWARE CORPORATION
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation in the State of Delaware shall be located at 2711 Centerville Road, Suite 400, in the City of Wilmington. The name of the corporation's registered agent at such address shall be Corporation Service Company. The registered office and/or registered agent of the corporation may be changed from time to time by action of the board of directors.
Section 2. Other Offices. The corporation may also have offices at such other places, both within and without the State of Delaware, as the board of directors may from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place and Time of Meetings. An annual meeting of the stockholders shall be held each year for the purpose of electing directors and conducting such other proper business as may come before the meeting. The date, time and place of the annual meeting may be determined by resolution of the board of directors or as set by the president of the corporation.
Section 2. Special Meetings. Special meetings of stockholders may be called for any purpose (including, without limitation, the filling of board vacancies and newly created directorships), and may be held at such time and place, within or without the State of Delaware, as shall be stated in a notice of meeting or in a duly executed waiver of notice thereof. Such meetings may be called at any time by two or more members of the board of directors or the president and shall be called by the president upon the written request of holders of shares entitled to cast not less than fifty percent (50%) of the outstanding shares of the corporation's voting common stock.
Section 3. Place of Meetings. The board of directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or for any special meeting called by the board of directors. If no designation is made, or if a special
meeting be otherwise called, the place of meeting shall be the principal executive office of the corporation.
Section 4. Notice. Whenever stockholders are required or permitted to take action at a meeting, written or printed notice stating the place, date, time, and, in the case of special meetings, the purpose or purposes, of such meeting, shall be given to each stockholder entitled to vote at such meeting not less than 10 nor more than 60 days before the date of the meeting. All such notices shall be delivered, either personally or by mail, by or at the direction of the board of directors, the president or the secretary, and if mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the stockholder at his, her or its address as the same appears on the records of the corporation. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.
Section 5. Stockholders List. The officer having charge of the stock ledger of the corporation shall make, at least 10 days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. Except as otherwise provided by applicable law or by
the corporation's certificate of incorporation, a majority of the outstanding
shares of the corporation entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of stockholders. If less than a majority
of the outstanding shares are represented at a meeting, a majority of the shares
so represented may adjourn the meeting from time to time in accordance with
Section 7 of this Article, until a quorum shall be present or represented.
Section 7. Adjourned Meetings. When a meeting is adjourned to another time and place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the question is one upon which by express provisions of an applicable law or of the corporation's certificate of incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question. Where a separate vote by class is required, the affirmative vote of the
majority of shares of such class present in person or represented by proxy at the meeting shall be the act of such class.
Section 9. Voting Rights. Except as otherwise provided by the General Corporation Law of the State of Delaware or by the corporation's certificate of incorporation and subject to Section 3 of Article VI hereof, every stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of common stock held by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him, her or it by proxy. Every proxy must be signed by the stockholder granting the proxy or by his, her or its attorney-in-fact. No proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally.
Section 11. Action by Written Consent. Unless otherwise provided in the corporation's certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken and bearing the dates of signature of the stockholders who signed the consent or consents, shall be signed by the holders of outstanding stock having not less than a majority of the shares entitled to vote, or, if greater, not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in the state of Delaware, or the corporation's principal place of business, or an officer or agent of the corporation having custody of the book or books in which proceedings of meetings of the stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested provided, however, that no consent or consents delivered by certified or registered mail shall be deemed delivered until such consent or consents are actually received at the registered office. All consents properly delivered in accordance with this section shall be deemed to be recorded when so delivered. No written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered to the corporation as required by this section, written consents signed by the holders of a sufficient number of shares to take such corporate action are so recorded. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Any action taken pursuant to such written consent or consents of the stockholders shall have the same force and effect as if taken by the stockholders at a meeting thereof.
ARTICLE III
DIRECTORS
Section 1. General Powers. The business and affairs of the corporation shall be managed by or under the direction of the board of directors.
Section 2. Number, Election and Term of Office. The number of directors which shall constitute the first board shall be six (6). Thereafter, the number of directors shall be established in accordance with the Stockholders Agreement, dated as of February ____, 2004, by and among the corporation and the other persons and entities who are a party thereto (for so long as the provisions governing the composition of the board of directors are in effect), and thereafter by resolution of the board. The directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote in the election of directors. The directors shall be elected in this manner at the annual meeting of the stockholders, except as provided in Section 4 of this Article III. Each director elected shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided.
Section 3. Removal and Resignation. Any director or the entire board of directors may be removed at any time, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. Whenever the holders of any class or series are entitled to elect one or more directors by the provisions of the corporation's certificate of incorporation, the provisions of this section shall apply, in respect to the removal without cause or a director or directors so elected, to the vote of the holders of the outstanding shares of that class or series and not to the vote of the outstanding shares as a whole. Any director may resign at any time upon written notice to the corporation.
Section 4. Vacancies. Except as otherwise provided by the corporation's certificate of incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority vote of the holders of the corporation's outstanding stock entitled to vote thereon. Each director so chosen shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as herein provided.
Section 5. Annual Meetings. The annual meeting of each newly elected board of directors shall be held without other notice than this by-law immediately after, and at the same place as, the annual meeting of stockholders.
Section 6. Other Meetings and Notice. Regular meetings, other than the annual meeting, of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by resolution of the board. Special meetings of the board of directors may be called by or at the request of the chairman or president on notice to each director, either personally, by telephone, by mail, by e-mail, or by telegraph with a sufficient time for the convenient assembly (including, without limitation, in accordance with Section 10 of this Article III) of the directors thereat; in like manner and on like notice the president must call a special meeting on the written request of at least a majority of the directors.
Section 7. Quorum, Required Vote and Adjournment. A majority of the total number of directors shall constitute a quorum for the transaction of business. The vote of a majority of directors present at a meeting at which a quorum is present shall be the act of the board of directors. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
Section 8. Committees. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation, which to the extent provided in such resolution or these by-laws shall have and may exercise the powers of the board of directors in the management and affairs of the corporation except as otherwise limited by law. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required.
Section 9. Committee Rules. Each committee of the board of directors may fix its own rules of procedure and shall hold its meetings as provided by such rules, except as may otherwise be provided by a resolution of the board of directors designating such committee. Unless otherwise provided in such a resolution, the presence of at least a majority of the members of the committee shall be necessary to constitute a quorum. In the event that a member and that member's alternate, if alternates are designated by the board of directors as provided in Section 8 of this Article III, of such committee is or are absent or disqualified, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in place of any such absent or disqualified member.
Section 10. Communications Equipment. Members of the board of directors or any committee thereof may participate in and act at any meeting of such board or committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in the meeting pursuant to this section shall constitute presence in person at the meeting.
Section 11. Waiver of Notice and Presumption of Assent. Any member of the board of directors or any committee thereof who is present at a meeting shall be conclusively presumed to have waived notice of such meeting except when such member attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Such member shall be conclusively presumed to have assented to any action taken unless his or her dissent shall be entered in the minutes of the meeting or unless his or her written dissent to such action shall be filed with the person acting as the secretary of the meeting before the adjournment thereof or shall be forwarded by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to any member who voted in favor of such action.
Section 12. Action by Written Consent. Unless otherwise restricted by the corporation's certificate of incorporation, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the corporation shall be elected by the board of directors and shall consist of a chairman, if any is elected, a president, one or more vice presidents, a secretary, a chief financial officer and such other officers and assistant officers as may be deemed necessary or desirable by the board of directors. Any number of offices may be held by the same person, except that no person may simultaneously hold the office of president and secretary. In its discretion, the board of directors may choose not to fill any office for any period as it may deem advisable.
Section 2. Election and Term of Office. The officers of the corporation shall be elected annually by the board of directors at its first meeting held after each annual meeting of stockholders or as soon thereafter as conveniently may be. The president shall appoint other officers to serve for such terms as he or she deems desirable. Vacancies may be filled or new offices created and filled at any meeting of the board of directors. Each officer shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the board of directors may be removed by the board of directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed.
Section 4. Vacancies. Any vacancy occurring in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term by the board of directors then in office.
Section 5. Compensation. Compensation of all officers shall be fixed by the board of directors, and no officer shall be prevented from receiving such compensation by virtue of his or her also being a director of the corporation.
Section 6. The Chairman of the Board. The Chairman of the Board, if one shall have been elected, shall be a member of the board, an officer of the corporation, and, if present, shall preside at each meeting of the board of directors or shareholders. The Chairman of the Board shall, in the absence or disability of the president, act with all of the powers and be subject to all the restrictions of the president. He shall advise the president, and in the president's absence, other officers of the corporation, and shall perform such other duties as may from time to time be assigned to him by the board of directors.
Section 7. The President. The president shall be the chief executive officer of the corporation. In the absence of the Chairman of the Board or if a Chairman of the Board shall have not been elected, the president shall preside at all meetings of the stockholders and board of directors at which he or she is present; subject to the powers of the board of directors, shall have general charge of the business, affairs and property of the corporation, and control over its officers, agents and employees; and shall see that all orders and resolutions of the board of directors are carried into effect. The president shall have such other powers and perform such other duties as may be prescribed by the board of directors or as may be provided in these by-laws.
Section 8. Vice-presidents. The vice-president, if any, or if there shall be more than one, the vice-presidents in the order determined by the board of directors shall, in the absence or disability of the president, act with all of the powers and be subject to all the restrictions of the president. The vice-presidents shall also perform such other duties and have such other powers as the board of directors, the president or these by-laws may, from time to time, prescribe.
Section 9. The Secretary and Assistant Secretaries. The secretary shall attend all meetings of the board of directors, all meetings of the committees thereof and all meetings of the stockholders and record all the proceedings of the meetings in a book or books to be kept for that purpose. Under the president's supervision, the secretary shall give, or cause to be given, all notices required to be given by these by-laws or by law; shall have such powers and perform such duties as the board of directors, the president or these by-laws may, from time to time, prescribe; and shall have custody of the corporate seal of the corporation. The secretary, or an assistant secretary, shall have authority to affix the corporate seal to any instrument requiring it and when so affixed, it may be attested by his or her signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his or her signature. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors, the president, or secretary may, from time to time, prescribe.
Section 10. The Chief Financial Officer and Assistant Treasurer. The chief financial officer shall have the custody of the corporate funds and securities; shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation; shall deposit all monies and other valuable effects in the name and to the credit of the corporation as may be ordered by the board of directors; shall cause the funds of the corporation to be disbursed when such disbursements have been duly authorized, taking proper vouchers for such disbursements; and shall render to the president and the board of directors, at its regular meeting or when the board of directors so requires, an account of the corporation; shall have such powers and perform such duties as the board of directors, the president or these by-laws may, from time to time, prescribe. If required by the board of directors, the chief financial officer shall give the corporation a bond (which shall be rendered every six years) in such sums and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of the office of treasurer and for the restoration to the corporation, in case of death, resignation, retirement, or removal from office, of all books, papers, vouchers, money, and other property of whatever kind in the possession or under the control of the treasurer belonging to the
corporation. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors, shall in the absence or disability of the chief financial officer, perform the duties and exercise the powers of the chief financial officer. The assistant treasurers shall perform such other duties and have such other powers as the board of directors, the president or chief financial officer may, from time to time, prescribe.
Section 11. Other Officers, Assistant Officers and Agents. Officers, assistant officers and agents, if any, other than those whose duties are provided for in these by-laws, shall have such authority and perform such duties as may from time to time be prescribed by resolution of the board of directors.
Section 12. Absence or Disability of Officers. In the case of the absence or disability of any officer of the corporation and of any person hereby authorized to act in such officer's place during such officer's absence or disability, the board of directors may by resolution delegate the powers and duties of such officer to any other officer or to any director, or to any other person whom it may select.
ARTICLE V
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
Section 1. Nature of Indemnity. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or a person of whom he is the legal representative, is or was a director or officer, of the corporation or is or was serving at the request of the corporation as a director, officer, employee, fiduciary, or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee, fiduciary or agent or in any other capacity while serving as a director, officer, employee, fiduciary or agent, shall be indemnified and held harmless by the corporation to the fullest extent which it is empowered to do so by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment) against all expense, liability and loss (including attorneys' fees actually and reasonably incurred by such person in connection with such proceeding and such indemnification shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in Section 2 hereof, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding initiated by such person only if such proceeding was authorized by the board of directors of the corporation. The right to indemnification conferred in this Article V shall be a contract right and, subject to Sections 2 and 5 hereof, shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition. The corporation may, by action of its board of directors, provide indemnification to employees and agents of the corporation with the same scope and effect as the foregoing indemnification of directors and officers.
Section 2. Procedure for Indemnification of Directors and Officers. Any indemnification of a director or officer of the corporation under Section 1 of this Article V or advance of expenses under Section 5 of this Article V shall be made promptly, and in any event within 30 days, upon the written request of the director or officer. If a determination by the corporation that the director or officer is entitled to indemnification pursuant to this Article V is required, and the corporation fails to respond within sixty days to a written request for indemnity, the corporation shall be deemed to have approved the request. If the corporation denies a written request for indemnification or advancing of expenses, in whole or in part, or if payment in full pursuant to such request is not made within 30 days, the right to indemnification or advances as granted by this Article V shall be enforceable by the director or officer in any court of competent jurisdiction. Such person's costs and expenses incurred in connection with successfully establishing his or her right to indemnification, in whole or in part, in any such action shall also be indemnified by the corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law of the State of Delaware for the corporation to indemnify the claimant for the amount claimed, but the burden of such defense shall be on the corporation. Neither the failure of the corporation (including its board of directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the corporation (including its board of directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.
Section 3. Nonexclusivity of Article V. The rights to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article V shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the corporation's certificate of incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise.
Section 4. Insurance. The corporation may purchase and maintain insurance on its own behalf and on behalf of any person who is or was a director, officer, employee, fiduciary, or agent of the corporation or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, whether or not the corporation would have the power to indemnify such person against such liability under this Article V.
Section 5. Expenses. Expenses incurred by any person described in
Section 1 of this Article V in defending a proceeding shall be paid by the
corporation in advance of such proceeding's final disposition unless otherwise
determined by the board of directors in the specific case upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by
the corporation. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate.
Section 6. Employees and Agents. Persons who are not covered by the foregoing provisions of this Article V and who are or were employees or agents of the corporation, or who are or were serving at the request of the corporation as employees or agents of another corporation, partnership, joint venture, trust or other enterprise, may be indemnified to the extent authorized at any time or from time to time by the board of directors.
Section 7. Contract Rights. The provisions of this Article V shall be deemed to be a contract right between the corporation and each director or officer who serves in any such capacity at any time while this Article V and the relevant provisions of the General Corporation Law of the State of Delaware or other applicable law are in effect, and any repeal or modification of this Article V or any such law shall not affect any rights or obligations then existing with respect to any state of facts or proceeding then existing.
Section 8. Merger or Consolidation. For purposes of this Article V, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Article V with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Form. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by
the chairman of the board, the president or a vice-president and the secretary
or an assistant secretary of the corporation, certifying the number of shares
owned by such holder in the corporation. If such a certificate is countersigned
(1) by a transfer agent or an assistant transfer agent other than the
corporation or its employee or (2) by a registrar, other than the corporation or
its employee, the signature of any such chairman of the board, president,
vice-president, secretary, or assistant secretary may be facsimiles. In case any
officer or officers who have signed, or whose facsimile signature or signatures
have been used on, any such certificate or certificates shall cease to be such
officer or officers of the corporation whether because of death, resignation or
otherwise before such certificate or certificates have been delivered by the
corporation, such certificate or certificates may nevertheless be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the corporation. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on
the books of the corporation. Shares of stock of the corporation shall only be transferred on the books of the corporation by the holder of record thereof or by such holder's attorney duly authorized in writing, upon surrender to the corporation of the certificate or certificates for such shares endorsed by the appropriate person or persons, with such evidence of the authenticity of such endorsement, transfer, authorization, and other matters as the corporation may reasonably require, and accompanied by all necessary stock transfer stamps. In that event, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate or certificates, and record the transaction on its books. The board of directors may appoint a bank or trust company organized under the laws of the United States or any state thereof to act as its transfer agent or registrar, or both in connection with the transfer of any class or series of securities of the corporation.
Section 2. Lost Certificates. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates previously issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his or her legal representative, to give the corporation a bond sufficient to indemnify the corporation against any claim that may be made against the corporation on account of the loss, theft or destruction of any such certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the board of directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the next day preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting.
Section 4. Fixing a Record Date for Action by Written Consent. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date has been fixed by the board of directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by statute, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the board of directors and prior action by the board of directors is required by statute, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action.
Section 5. Fixing a Record Date for Other Purposes. In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment or any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purposes of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto.
Section 6. Subscriptions for Stock. Unless otherwise provided for in the subscription agreement, subscriptions for shares shall be paid in full at such time, or in such installments and at such times, as shall be determined by the board of directors. Any call made by the board of directors for payment on subscriptions shall be uniform as to all shares of the same class or as to all shares of the same series. In case of default in the payment of any installment or call when such payment is due, the corporation may proceed to collect the amount due in the same manner as any debt due the corporation.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the corporation's certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the corporation's certificate of incorporation. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or any other purpose and the directors may modify or abolish any such reserve in the manner in which it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other orders for the payment of money by or to the corporation and all notes and other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation, and in such manner, as shall be determined by resolution of the board of directors or a duly authorized committee thereof.
Section 3. Contracts. The board of directors may authorize any officer or officers, or any agent or agents, of the corporation to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances.
Section 4. Loans. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest, and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute.
Section 5. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the board of directors.
Section 6. Corporate Seal. The board of directors may provide a corporate seal which shall be in the form of a circle and shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities in any other corporation held by the corporation shall be voted by the chairman or president, unless the board of directors confers other authority to vote with respect thereto, which authority may be general or confined to specific instances, upon some other person or officer. Any person authorized to vote securities shall have the power to appoint proxies, with general power of substitution.
Section 8. Inspection of Books and Records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean any purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in the State of Delaware or at its principal place of business.
Section 9. Section Headings. Section headings in these by-laws are for convenience of reference only and shall not be given any substantive effect in limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of these by-laws is or becomes inconsistent with any provision of the corporation's certificate of incorporation, the General Corporation Law of the State of Delaware or any other applicable law, the provision of
these by-laws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect.
ARTICLE VIII
AMENDMENTS
These by-laws may be amended, altered, or repealed and new by-laws adopted at any meeting of the stockholders by a majority vote. The fact that the power to adopt, amend, alter, or repeal the by-laws has been conferred upon the stockholders shall not divest the board of directors of the same powers.
EXHIBIT 4.1
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.,
AS ISSUER
11% SENIOR DISCOUNT NOTES DUE 2014
INDENTURE
DATED AS OF FEBRUARY 4, 2004
THE BANK OF NEW YORK,
AS TRUSTEE
CROSS-REFERENCE TABLE*
Trust Indenture Act Section Indenture Section
--------------------------- -----------------
310(a)(1)...................................................................... 7.10
(a)(2)...................................................................... 7.10
(a)(3)...................................................................... N.A.
(a)(4)...................................................................... N.A.
(a)(5)...................................................................... 7.10
(b)......................................................................... 7.3, 7.8, 7.10
(c)......................................................................... N.A.
311(a)......................................................................... 7.11
(b)......................................................................... 7.11
(c)......................................................................... N.A.
312(a)......................................................................... 2.5
(b)......................................................................... 12.3
(c)......................................................................... 12.3
313(a)......................................................................... 7.6
(b)(1)...................................................................... N.A.
(b)(2)...................................................................... 7.6
(c)......................................................................... 7.6, 12.2
314(a)......................................................................... 4.3, 4.4
(b)......................................................................... N.A.
(c)(1)...................................................................... 12.4
(c)(2)...................................................................... 12.4
(c)(3)...................................................................... 12.4
(d)......................................................................... N.A.
(e)......................................................................... 12.5
(f)......................................................................... N.A.
315(a)......................................................................... 7.2
(b)......................................................................... 7.5, 12.2
(c)......................................................................... 7.1
(d)......................................................................... 7.1
(e)......................................................................... 6.12
316(a)(last sentence).......................................................... 2.9
(a)(1)(A)................................................................... 6.5
(a)(1)(B)................................................................... 6.4
(a)(2)...................................................................... N.A.
(b)......................................................................... 6.7
(c)......................................................................... N.A.
317(a)(1)...................................................................... 6.8
(a)(2)...................................................................... 6.10
(b)......................................................................... 2.4
318(a)......................................................................... 12.1
(b)......................................................................... N.A.
(c)......................................................................... 12.1
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N.A. MEANS NOT APPLICABLE.
TABLE OF CONTENTS
Page
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ARTICLE I.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1. Definitions............................................................................. 1
Section 1.2. Other Definitions....................................................................... 26
Section 1.3. Incorporation by Reference of Trust Indenture Act....................................... 27
Section 1.4. Rules of Construction................................................................... 27
Section 1.5. Acts of Holders......................................................................... 28
ARTICLE II.
THE NOTES
Section 2.1. Form and Dating......................................................................... 29
Section 2.2. Execution and Authentication............................................................ 30
Section 2.3. Registrar and Paying Agent.............................................................. 31
Section 2.4. Paying Agents to Hold Money in Trust.................................................... 31
Section 2.5. Holder Lists............................................................................ 32
Section 2.6. Transfer and Exchange................................................................... 32
Section 2.7. Replacement Notes....................................................................... 41
Section 2.8. Outstanding Notes....................................................................... 41
Section 2.9. Treasury Notes.......................................................................... 42
Section 2.10. Temporary Notes......................................................................... 42
Section 2.11. Cancellation............................................................................ 42
Section 2.12. Defaulted Interest...................................................................... 43
Section 2.13. Persons Deemed Owners................................................................... 43
Section 2.14. CUSIP Numbers........................................................................... 43
ARTICLE III.
REDEMPTION AND REPURCHASE
Section 3.1. Notices to Trustee...................................................................... 44
Section 3.2. Selection of Notes...................................................................... 44
Section 3.3. Notice of Optional Redemption........................................................... 45
Section 3.4. Effect of Notice of Redemption.......................................................... 46
Section 3.5. Deposit of Redemption Price or Purchase Price........................................... 46
Section 3.6. Notes Redeemed or Repurchased in Part................................................... 46
Section 3.7. Optional Redemption..................................................................... 47
Section 3.8. Optional Redemption upon Equity Offerings............................................... 47
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Section 3.9. Repurchase upon Change of Control Offer................................................. 47
Section 3.10. Repurchase upon Application of Excess Proceeds.......................................... 49
ARTICLE IV.
COVENANTS
Section 4.1. Payment of Principal and Interest....................................................... 51
Section 4.2. Maintenance of Office or Agency......................................................... 51
Section 4.3. Reports to Holders...................................................................... 52
Section 4.4. Compliance Certificate.................................................................. 53
Section 4.5. Taxes................................................................................... 54
Section 4.6. Stay, Extension and Usury Laws.......................................................... 54
Section 4.7. Limitation on Restricted Payments....................................................... 54
Section 4.8. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries............ 57
Section 4.9. Limitation on Incurrence of Additional Indebtedness..................................... 59
Section 4.10. Limitation on Asset Sales............................................................... 59
Section 4.11. Limitations on Transactions with Affiliates............................................. 62
Section 4.12. Limitation on Liens..................................................................... 63
Section 4.13. Continued Existence..................................................................... 64
Section 4.14. Insurance Matters....................................................................... 64
Section 4.15. Offer to Repurchase upon Change of Control.............................................. 65
Section 4.16. Limitation of Guarantees by Restricted Subsidiaries..................................... 65
Section 4.17. Payments for Consent.................................................................... 66
Section 4.18. Limitation on Preferred Stock of Restricted Subsidiaries................................ 66
Section 4.19. Limitation on Designation of Unrestricted Subsidiaries.................................. 66
ARTICLE V.
SUCCESSORS
Section 5.1. Merger, Consolidation and Sale of Assets................................................ 68
Section 5.2. Successor Corporation Substituted....................................................... 70
ARTICLE VI.
DEFAULTS AND REMEDIES
Section 6.1. Events of Default....................................................................... 70
Section 6.2. Acceleration............................................................................ 72
Section 6.3. Other Remedies.......................................................................... 72
Section 6.4. Waiver of Existing Defaults............................................................. 73
Section 6.5. Control by Majority..................................................................... 73
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Section 6.6. Limitation on Suits..................................................................... 73
Section 6.7. Rights of Holders of Notes to Receive Payment........................................... 74
Section 6.8. Collection Suit by Trustee.............................................................. 74
Section 6.9. Notice.................................................................................. 74
Section 6.10. Trustee May File Proofs of Claim........................................................ 75
Section 6.11. Priorities.............................................................................. 75
Section 6.12. Undertaking for Costs................................................................... 76
ARTICLE VII.
TRUSTEE
Section 7.1. Duties of Trustee....................................................................... 76
Section 7.2. Rights of Trustee....................................................................... 77
Section 7.3. Individual Rights of Trustee............................................................ 78
Section 7.4. Trustee's Disclaimer.................................................................... 78
Section 7.5. Notice of Defaults...................................................................... 79
Section 7.6. Reports by Trustee to Holder of the Notes............................................... 79
Section 7.7. Compensation, Reimbursement and Indemnity............................................... 79
Section 7.8. Replacement of Trustee.................................................................. 81
Section 7.9. Successor Trustee by Merger, Etc........................................................ 82
Section 7.10. Eligibility; Disqualification........................................................... 82
Section 7.11. Preferential Collection of Claims Against Company....................................... 82
ARTICLE VIII.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance................................ 82
Section 8.2. Legal Defeasance and Discharge.......................................................... 83
Section 8.3. Covenant Defeasance..................................................................... 83
Section 8.4. Conditions to Legal or Covenant Defeasance.............................................. 84
Section 8.5. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other
Miscellaneous Provisions. .............................................................. 86
Section 8.6. Repayment to the Company................................................................ 86
Section 8.7. Reinstatement........................................................................... 87
ARTICLE IX.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.1. Without Consent of Holders of Notes..................................................... 87
Section 9.2. With Consent of Holders of Notes........................................................ 88
Section 9.3. Compliance with Trust Indenture Act..................................................... 89
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Section 9.4. Revocation and Effect of Consents....................................................... 90
Section 9.5. Notation on or Exchange of Notes........................................................ 90
Section 9.6. Trustee to Sign Amendment, Etc.......................................................... 90
ARTICLE X.
GUARANTEE
Section 10.1. Unconditional Guarantee................................................................. 90
Section 10.2. Severability............................................................................ 91
Section 10.3. Limitation of Guarantor's Liability..................................................... 92
Section 10.4. Release of Guarantor.................................................................... 92
Section 10.5. Contribution............................................................................ 92
Section 10.6. Waiver of Subrogation................................................................... 93
Section 10.7. Execution of Guarantee.................................................................. 93
Section 10.8. Waiver of Stay, Extension or Usury Laws................................................. 94
ARTICLE XI.
SATISFACTION AND DISCHARGE
Section 11.1. Satisfaction and Discharge.............................................................. 94
Section 11.2. Application of Trust.................................................................... 95
ARTICLE XII.
MISCELLANEOUS
Section 12.1. Trust Indenture Act Controls............................................................ 95
Section 12.2. Notices................................................................................. 96
Section 12.3. Communication by Holders of Notes with Other Holders of Notes........................... 97
Section 12.4. Certificate and Opinion as to Conditions Precedent...................................... 97
Section 12.5. Statements Required in Certificate or Opinion........................................... 97
Section 12.6. Rules by Trustee and Agents............................................................. 98
Section 12.7. No Personal Liability of Directors, Officers, Employees and Stockholders................ 98
Section 12.8. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial......................... 99
Section 12.9. No Adverse Interpretation of Other Agreements........................................... 99
Section 12.10. Successors.............................................................................. 99
Section 12.11. Severability............................................................................ 99
Section 12.12. Counterpart Originals................................................................... 99
Section 12.13. Table of Contents, Headings, Etc........................................................ 99
Section 12.14. Qualification of Indenture.............................................................. 100
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EXHIBITS
Exhibit A Form of Series A Note
Exhibit B Form of Series B Note
Exhibit C Form of Guarantee
Exhibit D(1) Form of Regulation S Certification
Exhibit D(2) Form of Certificate to Be Delivered upon Exchange or
Registration of Transfer of Notes
Exhibit E Form of Certificate to Be Delivered in Connection with
Transfers to Non-QIB Accredited Investors
Exhibit F Form of Certificate to Be Delivered in Connection with
Transfers Pursuant to Regulation S
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INDENTURE
INDENTURE dated as of February 4, 2004 between Town Sports International Holdings, Inc., a Delaware corporation (the "Company"), and The Bank of New York, a New York banking corporation, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders (as defined below) of the Company's 11% Senior Discount Notes due 2014:
ARTICLE I.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1. Definitions.
"Accreted Value" means, as of any date (the "Specified Date"), the amount provided below for each $1,000 principal amount at maturity of Notes:
(1) if the Specified Date occurs on one of the following dates (each, a "Semi-Annual Accrual Date"), the Accreted Value will equal the amount set forth below for such Semi-Annual Accrual Date:
SEMI-ANNUAL ACCRUAL DATE ACCRETED VALUE ------------------------ -------------- August 1, 2004 $ 617.63 February 1, 2005 $ 651.60 August 1, 2005 $ 687.44 February 1, 2006 $ 725.25 August 1, 2006 $ 765.13 February 1, 2007 $ 807.22 August 1, 2007 $ 851.61 February 1, 2008 $ 898.45 August 1, 2008 $ 947.87 February 1, 2009 $ 1,000.00 |
(2) if the Specified Date occurs before the first Semi-Annual Accrual Date, the Accreted Value will equal the sum of (A) the original issue price of a Note and (B) an amount equal to the product of (x) the Accreted Value for the first Semi-Annual Accrual Date less such original issue price multiplied by (y) a fraction, the numerator of which is the number of days from the Issue Date to the Specified Date, using a 360-day year of twelve 30-day months, and the denominator of which is the number of
days elapsed from the Issue Date to the first Semi-Annual Accrual Date, using a 360-day year of twelve 30-day months;
(3) if the Specified Date occurs between two Semi-Annual Accrual Dates, the Accreted Value will equal the sum of (A) the Accreted Value for the Semi-Annual Accrual Date immediately preceding such Specified Date and (B) an amount equal to the product of (x) the Accreted Value for the immediately following Semi-Annual Accrual Date less the Accreted Value for the immediately preceding Semi-Annual Accrual Date multiplied by (y) a fraction, the numerator of which is the number of days from the immediately preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day year of twelve 30-day months, and the denominator of which is 180; or
(4) if the Specified Date occurs after the last Semi-Annual Accrual Date, the Accreted Value will equal $1,000.
"Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or at the time it merges or consolidates with the Company or any of its Restricted Subsidiaries or assumed in connection with the acquisition of assets from such Person and in each case not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary or such acquisition, merger or consolidation.
"Additional Interest" means all additional interest then owing pursuant to Section 4 of the Registration Rights Agreement.
"Additional Notes" means 11% Senior Discount Notes due 2014
issued after the Issue Date pursuant to Article II and in compliance with
Section 4.9.
"Affiliate" means, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing.
"Affiliate Transaction" has the meaning set forth in Section 4.11.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Acquisition" means (1) an Investment by the Company or any Restricted Subsidiary in any other Person pursuant to which such Person shall become a Restricted Subsidiary or shall be merged with or into the Company or any Restricted Subsidiary,
or (2) the acquisition by the Company or any Restricted Subsidiary of the assets of any Person (other than a Restricted Subsidiary) which constitute all or substantially all of the assets of such Person or comprise any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance,
conveyance, transfer, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer for value by the
Company or any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Restricted Subsidiary of:
(1) any Capital Stock of any Restricted Subsidiary; or (2) any other property or
assets of the Company or any Restricted Subsidiary other than in the ordinary
course of business; provided, however, that Asset Sales shall not include: (a) a
transaction or series of related transactions for which the Company or its
Restricted Subsidiaries receive aggregate consideration of less than $2.5
million; (b) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of the Company as permitted under Article V;
(c) disposals or replacements of obsolete equipment in the ordinary course of
business; (d) the sale, lease, conveyance, disposition or other transfer by the
Company or any Restricted Subsidiary of assets or property to the Company or one
or more Restricted Subsidiaries; and (e) any Restricted Payment permitted by
Section 4.7 or any Permitted Investment.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or state law for the relief of debtors.
"Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee.
"BRS Group" means Bruckmann, Rosser, Sherrill & Co., Inc. and its Affiliates.
"Business Day" means a day other than a Saturday, Sunday or other day on which commercial banking institutions (including, without limitation, the Federal Reserve System) or the Corporate Trust Office of the Trustee are authorized or required by law to close in New York City.
"Capitalized Lease Obligation" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations
at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means:
(1) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of Common Stock and Preferred Stock of such Person; and
(2) with respect to any Person that is not a corporation, any and all partnership, membership or other equity interests of such Person.
"Cash Equivalents" means:
(1) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody's;
(3) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250.0 million;
(5) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clause
(1) above entered into with any bank meeting the qualifications
specified in clause (4) above; and
(6) investments in money market funds that invest substantially all their assets in securities of the types described in clauses (1) through (5) above.
"Certificated Notes" means, collectively, the U.S. Certificated Notes and the Offshore Certificated Notes.
"Change of Control" means the occurrence of one or more of the following events:
(1) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof (whether or not otherwise in compliance with the provisions of this Indenture), other than to a Permitted Holder;
(2) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of this Indenture);
(3) any Person or Group, other than a Permitted Holder, shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company;
(4) the replacement of a majority of the Board of Directors of the Company over a two-year period from the directors who constituted the Board of Directors of the Company at the beginning of such period, and such replacement shall not have been approved by a vote of at least a majority of the Board of Directors of the Company then still in office who either were members of such Board of Directors at the beginning of such period or whose election as a member of any such Board of Directors was previously so approved; or
(5) the failure at any time by the Company to beneficially own (as defined in Rule 13d-3 and 13d-5 under the Exchange Act) directly or indirectly, 100% of the Common Stock of TSI.
"Change of Control Offer" has the meaning set forth in Section 4.15.
"Change of Control Payment Date" has the meaning set forth in
Section 3.9.
"Clearstream" shall mean Clearstream Banking, Societe Anonyme, Luxembourg.
"Commission" means the Securities and Exchange Commission.
"Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of, such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock.
"Company" means Town Sports International Holdings, Inc., a Delaware corporation, until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter means such successor Person.
"Consolidated EBITDA" means, with respect to any Person for any period, the sum (without duplication) of:
(1) Consolidated Net Income; and
(2) to the extent Consolidated Net Income has been reduced thereby,
(a) all income taxes of such Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary, unusual or nonrecurring gains or losses or taxes attributable to sales or dispositions outside the ordinary course of business);
(b) Consolidated Interest Expense; and
(c) Consolidated Non-cash Charges less any non-cash items increasing Consolidated Net Income for such period,
all as determined on a consolidated basis for such Person and its Restricted Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio of Consolidated EBITDA of such Person during the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma (including any pro forma expense and cost reductions calculated on a basis consistent with Regulation S-X under the Securities Act) basis for the period of such calculation to:
(1) the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise
to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period; and
(2) any asset sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any Consolidated EBITDA attributable to the assets that are the subject of the Asset Acquisition or asset sale during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such asset sale or Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or any such Restricted Subsidiary of such Person had directly incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio":
(1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and that will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date;
(2) if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Four Quarter Period; and
(3) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to
Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of:
(1) Consolidated Interest Expense; plus
(2) the product of
(a) the amount of all dividend payments on any series of Preferred Stock of such Person (other than dividends paid or to be paid in such period in Qualified Capital Stock) paid or required to be paid during such period, and
(b) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local income tax rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any period, the sum of, without duplication:
(1) the aggregate of the interest expense of such Person and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, including without limitation,
(a) any amortization of debt discount;
(b) the net costs under Interest Swap Obligations;
(c) all capitalized interest; and
(d) the interest portion of any deferred payment obligation; and
(2) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any period, the aggregate net income (or loss) of such Person and its Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; provided that there shall be excluded therefrom:
(1) after-tax gains or losses from Asset Sales (without regard to the $2.5 million limitation set forth in the definition thereof) or abandonments or reserves relating thereto;
(2) after-tax items classified as extraordinary or nonrecurring gains or losses;
(3) the net income (or loss) of any Person acquired in a "pooling of interests" transaction accrued prior to the date it becomes a Restricted Subsidiary or is merged or consolidated with the Company or with any Restricted Subsidiary;
(4) the net income (but not loss) of any Restricted Subsidiary to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is restricted by a contract, operation of law or otherwise (other than restrictions permitted by Section 4.8);
(5) the net income of any Person, other than the Company or a Restricted Subsidiary, except to the extent of cash dividends or distributions paid to the Company or to a Restricted Subsidiary by such Person;
(6) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued); and
(7) in the case of a successor to the Company by consolidation or merger or as a transferee of the Company's assets, any net income of the successor corporation prior to such consolidation, merger or transfer of assets.
"Consolidated Non-cash Charges" means, with respect to any Person for any period, the aggregate depreciation, amortization and other non-cash expenses of such Person (including, without limitation, charges related to the impairment of intangibles) and its Restricted Subsidiaries reducing Consolidated Net Income of such Person for such period, determined on a consolidated basis in accordance with GAAP (including deferred rent but excluding any such charge which requires an accrual of or a reserve for cash charges for any future period).
"Corporate Trust Office of the Trustee" means the principal office of the Trustee at which at any time its corporate trust business shall be administered, which office at the date hereto is located at 101 Barclay Street, Floor 8 West, New York, New York 10286, Attention: Corporate Trust Trustee Department, or such other address as the Trustee may designate from time to time by notice to the Holders and the Company, or the principal corporate trust office of any successor Trustee (or such other address as such successor Trustee may designate from time to time by notice to the Holders and the Company).
"Covenant Defeasance" has the meaning set forth in Section 8.3.
"Credit Agreement" means the Credit Agreement dated as of April 16, 2003, by and among TSI, the lenders from time to time party thereto in their capacities as lenders thereunder and Deutsche Bank Trust Company Americas, as agent, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder or adding the Company or Subsidiaries of the Company or TSI as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary of the Company against fluctuations in currency values.
"Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default.
"Depositary" means, with respect to the Notes issuable in whole or in part in global form, the Person specified in Section 2.6 as the Depositary with respect to the Notes, until a successor shall have been appointed and become such pursuant to the applicable provisions of this Indenture, and, thereafter, "Depositary" shall mean or include such successor.
"Designation" has the meaning set forth in Section 4.19.
"Designation Amount" has the meaning set forth in Section 4.19.
"Disqualified Capital Stock" means that portion of any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof on or prior to the final maturity date of the Notes.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary incorporated or otherwise organized or existing under the laws of the United States or any state thereof.
"Equity Offering" means a public or private offering of Qualified Capital Stock of the Company (other than to a Subsidiary of the Company) that generates gross proceeds to the Company of at least $15.0 million.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto.
"Exchange Offer" means the offer that shall be made by the Company pursuant to the Registration Rights Agreement to exchange Series A Notes for Series B Notes.
"Existing TSI Indenture" means the indenture dated as of April 16, 2003 among TSI, the guarantors named therein and The Bank of New York, as trustee, as amended or modified from time to time.
"Existing TSI Notes" means the 9 5/8% Senior Notes due 2011 of TSI issued under the Existing TSI Indenture.
"fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be evidenced by a Board Resolution of the Board of Directors of the Company.
"Farallon" means Farallon Partners, L.L.C. and its Affiliates.
"Final Memorandum" shall mean the Company's final offering memorandum dated January 28, 2004, whereby the Company offered $213.0 million aggregate principal amount Series A Notes.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary that is not a Domestic Restricted Subsidiary.
"GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of April 16, 2003. All ratios and computations based on GAAP contained in this Indenture shall be computed in conformity with GAAP applied on a consistent basis, except that calculations made for purposes of determining compliance with the terms of the covenants and with other provisions of this Indenture shall be made without giving effect to (i) the deduction or amortization of any premiums, fees and expenses incurred in connection with any financings or any other permitted incurrence of Indebtedness and (ii) depreciation, amortization or other
expenses recorded as a result of the application of purchase accounting in accordance with Accounting Principles Board Opinion Nos. 16 and 17 and FASB Nos. 141 and 142.
"guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness or other obligations.
"Guarantee" means any guarantee of the obligation of the Company under this Indenture and the Notes by a Guarantor in accordance with the provisions of this Indenture. When used as a verb, "Guarantee" shall have a corresponding meaning.
"Guarantor" means each of the Company's Restricted Subsidiaries that in the future executes a supplemental indenture in which such Restricted Subsidiary agrees to be bound by the terms of this Indenture as a Guarantor; provided that any Person constituting a Guarantor as described above shall cease to constitute a Guarantor when its respective Guarantee is released in accordance with the terms of this Indenture.
"Holder" means a Person in whose name a Note is registered.
"incur" has the meaning set forth in Section 4.9.
"Indebtedness" means with respect to any Person, without duplication:
(1) all Obligations of such Person for borrowed money;
(2) all Obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;
(3) all Capitalized Lease Obligations of such Person;
(4) all Obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all Obligations under any title retention agreement (but excluding trade accounts payable and other accrued liabilities arising in the ordinary course of business);
(5) all Obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction;
(6) guarantees and other contingent obligations in respect of Indebtedness referred to in clauses (1) through (5) above and clause (8) below;
(7) all Obligations of any other Person of the type referred to in clauses (1) through (6) which are secured by any Lien on any property or asset of such Person, the
amount of such Obligation being deemed to be the lesser of the fair market value of such property or asset and the amount of the Obligation so secured;
(8) all Obligations under currency agreements and interest swap agreements of such Person; and
(9) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price.
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value shall be determined reasonably and in good faith by the Board of Directors of the Company. The amount of Indebtedness of any Person at any date shall be the outstanding balance on such date of all unconditional Obligations as described above, and the maximum liability upon the occurrence of the contingency giving rise to the Obligation, on any contingent Obligations at such date; provided, however, that the amount outstanding at any time of any Indebtedness incurred with original issue discount is the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP.
"Indenture" means this Indenture, as amended or supplemented from time to time.
"Independent Financial Advisor" means a firm: (1) that does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Company; and (2) that, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged.
"Initial Purchaser" means Deutsche Bank Securities Inc.
"Institutional Accredited Investors" means institutional accredited investors as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
"Interest Swap Obligations" means the obligations of any Person pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made
by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other Person. "Investment" shall exclude extensions of trade credit by the Company and its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of the Company or such Restricted Subsidiary, as the case may be. If the Company or any Restricted Subsidiary sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary such that, after giving effect to any such sale or disposition, it ceases to be a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Common Stock of such Restricted Subsidiary not sold or disposed of.
"Issue Date" means February 4, 2004.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest).
"Management Agreement" means that certain Professional Services Agreement dated as of December 10, 1996, by and between BRS Group and TSI.
"Moody's" means Moody's Investors Service, Inc.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (other than the portion of any such deferred payment constituting interest) received by the Company or any of its Restricted Subsidiaries from such Asset Sale net of:
(1) reasonable out-of-pocket expenses and fees relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions);
(2) taxes paid or payable after taking into account any reduction in consolidated tax liability due to available tax credits or deductions and any tax sharing arrangements;
(3) repayment of Indebtedness that is secured by the assets sold in the relevant Asset Sale or other Indebtedness that is required to be repaid in connection with such Asset Sale; and
(4) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale.
"Note Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto.
"Notes" means the Series A Notes and the Series B Notes, if any, that are issued under this Indenture, as amended or supplemented from time to time.
"Obligations" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness.
"Officer" means (a) with respect to any Person that is a corporation, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, the Controller, the Secretary or any Vice-President of such Person and (b) with respect to any other Person, the individuals selected by such Person to perform functions similar to those of the officers listed in clause (a).
"Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the Chief Executive Officer, the Chief Financial Officer, the Treasurer or the principal accounting officer of the Company, that meets the requirements of Sections 12.4 and 12.5.
"Offshore Certificated Notes" means permanent Certificated Notes in registered form in substantially the form set forth in Exhibit A, issued pursuant to Section 2.6 in exchange for interests in the Rule 144A Global Note or the Regulation S Global Note.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee that meets the requirements of Sections 12.4 and 12.5. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee.
"Permitted Holder" means any of BRS Group, Farallon and their respective Affiliates.
"Permitted Indebtedness" means, without duplication, each of the following:
(1) Indebtedness under (i) the Notes issued under this Indenture in an aggregate principal amount not to exceed $213.0 million and any Guarantees thereof and (ii) the Existing TSI Notes and guarantees thereof (including any guarantees thereof by the Company);
(2) Indebtedness incurred pursuant to the Credit
Agreement in an aggregate principal amount at any time outstanding not
to exceed $50.0 million to the extent incurred under this clause (2),
less the amount of all required principal payments actually made by the
Company in respect of the loans thereunder that were incurred under
this clause (2) in accordance with the provisions set forth under
Section 4.10 (which, in the case of revolving loans, are accompanied by
a corresponding permanent commitment reduction);
(3) other Indebtedness (including Capitalized Lease Obligations) of the Company and its Restricted Subsidiaries outstanding on the Issue Date;
(4) Purchase Money Indebtedness and Capitalized Lease
Obligations of the Company and its Restricted Subsidiaries in an
aggregate amount for all Indebtedness incurred pursuant to this clause
(4) not to exceed $20.0 million outstanding at any one time;
(5) Interest Swap Obligations covering Indebtedness of the Company or any of its Restricted Subsidiaries; provided, however, that such Interest Swap Obligations are entered into to protect the Company and its Restricted Subsidiaries from fluctuations in interest rates on Indebtedness incurred in accordance with this Indenture to the extent the notional principal amount of such Interest Swap Obligation does not exceed, at the time of incurrence thereof, the principal amount of the Indebtedness to which such Interest Swap Obligation relates;
(6) Indebtedness under Currency Agreements; provided that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder;
(7) Indebtedness of a Restricted Subsidiary to the Company or to another Restricted Subsidiary for so long as such Indebtedness is held by the Company, a Restricted Subsidiary or the holders of a Lien permitted under this Indenture, in each case
subject to no Lien held by a Person other than the Company, a Restricted Subsidiary or the holders of a Lien permitted under this Indenture; provided that if as of any date any Person other than the Company, a Restricted Subsidiary or the holders of a Lien permitted under this Indenture owns or holds any such Indebtedness or holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness pursuant to this clause (7);
(8) Indebtedness of the Company to a Restricted Subsidiary for so long as such Indebtedness is held by a Restricted Subsidiary or the holders of a Lien permitted under this Indenture, in each case subject to no Lien other than a Lien permitted under this Indenture; provided that (a) any Indebtedness of the Company to any Restricted Subsidiary that is not a Guarantor is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under this Indenture and the Notes and (b) if as of any date any Person other than a Restricted Subsidiary or the holders of a Lien permitted under this Indenture owns or holds any such Indebtedness or any Person holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the Company under this clause (8);
(9) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within four Business Days of incurrence;
(10) Indebtedness of the Company or any of its Restricted Subsidiaries represented by letters of credit for the account of the Company or such Restricted Subsidiary, as the case may be, in order to provide security for workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in the ordinary course of business;
(11) Refinancing Indebtedness;
(12) Indebtedness represented by guarantees by the Company or its Restricted Subsidiaries of Indebtedness otherwise permitted to be incurred under this Indenture; provided that, in the case of a guarantee by a Restricted Subsidiary, such Restricted Subsidiary complies with Section 4.16 to the extent applicable;
(13) Indebtedness of the Company or any of its Restricted Subsidiaries in respect of bid, payment and performance bonds, bankers' acceptances, workers' compensation claims, surety or appeal bonds, payment obligations in connection with self-
insurance or similar obligations, and bank overdrafts (and letters of credit in respect thereof) in the ordinary course of business;
(14) Indebtedness of the Company or any Restricted Subsidiary consisting of guarantees, indemnities or obligations in respect of purchase price adjustments in connection with the acquisition or disposition of assets; and
(15) additional Indebtedness of the Company and its Restricted Subsidiaries in an aggregate principal amount not to exceed $10.0 million at any one time outstanding (which amount may, but need not, be incurred in whole or in part under the Credit Agreement).
For purposes of determining any particular amount of
Indebtedness under Section 4.9, guarantees, Liens or letter of credit
obligations supporting Indebtedness otherwise included in the determination of
such particular amount shall not be included. For purposes of determining
compliance with Section 4.9 in the event that an item of Indebtedness meets the
criteria of more than one of the categories of Permitted Indebtedness described
in clauses (1) through (15) above or is permitted to be incurred pursuant to the
Consolidated Fixed Charge Coverage Ratio provisions of such covenant, the
Company shall, in its sole discretion, classify (or later reclassify) such item
of Indebtedness in any manner that complies with Section 4.9. Accrual of
interest, accretion or amortization of original issue discount, the payment of
interest on any Indebtedness in the form of additional Indebtedness with the
same terms, the payment of dividends on Disqualified Capital Stock in the form
of additional shares of the same class of Disqualified Capital Stock and change
in the amount outstanding due solely to the result of fluctuations in the
exchange rates of currencies will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Capital Stock for purposes of
Section 4.9.
"Permitted Investments" means:
(1) Investments by the Company or any Restricted Subsidiary in any Person that is or will become immediately after such Investment a Restricted Subsidiary or that will merge or consolidate into the Company or a Restricted Subsidiary;
(2) Investments in the Company by any Restricted Subsidiary; provided that any Indebtedness incurred by the Company evidencing such Investment by a Restricted Subsidiary that is not a Guarantor is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under the Notes and this Indenture;
(3) Investments in cash and Cash Equivalents;
(4) loans and advances to directors, employees and officers of the Company and its Restricted Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of $5.0 million at any one time outstanding;
(5) Currency Agreements and Interest Swap Obligations entered into in the ordinary course of the Company's or a Restricted Subsidiary's businesses and otherwise in compliance with this Indenture;
(6) other Investments, including Investments in Unrestricted Subsidiaries, not to exceed $10.0 million at any one time outstanding;
(7) Investments in securities of trade creditors or members received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or members or in good faith settlement of delinquent obligations of such trade creditors or members;
(8) Investments represented by guarantees that are otherwise permitted under this Indenture;
(9) Investments the payment for which is Qualified Capital Stock of the Company;
(10) Investments made by the Company or its Restricted Subsidiaries as a result of consideration received in connection with an Asset Sale made in compliance with Section 4.10; and
(11) the acquisition by the Company of obligations of one or more officers, directors or employees of the Company or any of its Subsidiaries in connection with such officers', directors' or employees' acquisition of shares of capital stock of the Company so long as no cash is paid by the Company or any of its Subsidiaries to such officers, directors or employees in connection with the acquisition of any such obligations.
"Permitted Liens" means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges or claims either
(a) not delinquent or
(b) contested in good faith by appropriate proceedings and as to which the Company or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP;
(2) statutory and contractual Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof;
(3) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money);
(4) judgment Liens not giving rise to an Event of Default;
(5) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or of any of its Restricted Subsidiaries;
(6) any interest or title of a lessor under any Capitalized Lease Obligation; provided that such Liens do not extend to any property or asset which is not leased property subject to such Capitalized Lease Obligation;
(7) purchase money Liens to finance property or assets of the Company or any Restricted Subsidiary acquired after the Issue Date; provided, however, that
(a) the related purchase money Indebtedness shall not exceed the cost of such property or assets and shall not be secured by property or assets of the Company or any Restricted Subsidiary other than the property and assets so acquired and
(b) the Lien securing such Indebtedness shall be created within 90 days of such acquisition;
(8) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;
(9) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof;
(10) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and setoff;
(11) Liens securing Interest Swap Obligations which Interest Swap Obligations relate to Indebtedness that is otherwise permitted under this Indenture;
(12) Liens securing Indebtedness under Currency Agreements;
(13) Liens securing Acquired Indebtedness incurred in accordance with Section 4.9; provided that
(a) such Liens secured such Acquired Indebtedness at the time of and prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary and were not granted in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary and
(b) such Liens do not extend to or cover any property or assets of the Company or of any of its Restricted Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company or a Restricted Subsidiary and are no more favorable to the lienholders than those securing the Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary;
(14) Liens on assets of a Restricted Subsidiary that is not a Guarantor to secure Indebtedness and other obligations of such Restricted Subsidiary that are otherwise permitted under this Indenture;
(15) leases, subleases, licenses and sublicenses granted to others that do not materially interfere with the ordinary course of business of the Company and its Restricted Subsidiaries;
(16) banker's Liens, rights of setoff and similar Liens with respect to cash and Cash Equivalents on deposit in one or more bank accounts in the ordinary course of business;
(17) Liens arising from filing Uniform Commercial Code financing statements regarding leases;
(18) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; and
(19) additional Liens not to exceed $10.0 million at any one time.
"Person" means an individual, partnership, corporation, limited liability company, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof.
"PORTAL Market" means the Portal Market operated by the National Association of Securities Dealers, Inc. or any successor thereto.
"Preferred Stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation.
"Purchase Date" means, with respect to any Note to be repurchased, the date fixed for such repurchase by or pursuant to this Indenture.
"Purchase Money Indebtedness" means Indebtedness of the Company or its Restricted Subsidiaries incurred for the purpose of financing all or any part of the purchase price or the cost of installation, construction or improvement of any property.
"Purchase Price" means the amount payable for the repurchase of any Note on a Purchase Date, exclusive of accrued and unpaid interest and Additional Interest (if any) thereon to the Purchase Date, unless otherwise specifically provided.
"QIB" means a qualified institutional buyer as defined in Rule 144A under the Securities Act.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock.
"Redemption Date" means, with respect to any Note to be redeemed, the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price" means the amount payable for the redemption of any Note on a Redemption Date, exclusive of accrued and unpaid interest and Additional Interest (if any) thereon to the Redemption Date, unless otherwise specifically provided.
"Refinance" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the
Company or any Restricted Subsidiary of the Company of Indebtedness incurred in
accordance with Section 4.9 (other than pursuant to clause (2), (4), (5), (6),
(7), (8), (9), (10), (12), (13), (14) or (15) of the definition of "Permitted
Indebtedness"), in each case that does not:
(1) result in an increase in the aggregate principal amount of Indebtedness of such Person as of the date of such proposed Refinancing (plus the amount of any premium required to be paid under the terms of the instrument governing such Indebtedness and plus the amount of reasonable expenses incurred by the Company or any Restricted Subsidiary in connection with such Refinancing); or
(2) create Indebtedness with: (a) a Weighted Average Life
to Maturity that is less than the Weighted Average Life to Maturity of
the Indebtedness being Refinanced; or (b) a final maturity earlier than
the final maturity of the Indebtedness being Refinanced; provided that
(x) if such Indebtedness being Refinanced is Indebtedness solely of the
Company, then such Refinancing Indebtedness shall be Indebtedness
solely of the Company and (y) if such Indebtedness being Refinanced is
subordinate or junior to the Notes, then such Refinancing Indebtedness
shall be subordinate to the Notes at least to the same extent and in
the same manner as the Indebtedness being Refinanced.
"Registration Rights Agreement" means the Registration Rights Agreement dated as of the Issue Date between the Company and the Initial Purchaser.
"Regulation S" means Regulation S as promulgated under the Securities Act.
"Replacement Assets" means assets of a kind used or usable in the business of the Company and its Restricted Subsidiaries as conducted on the date of the relevant Asset Sale.
"Responsible Officer" shall mean, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture.
"Restricted Subsidiary" means any Subsidiary of the Company that has not been designated by the Board of Directors of the Company, by a Board Resolution of the Company delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in compliance with Section 4.19. Any such Designation may be revoked by a Board Resolution of the Company delivered to the Trustee, subject to the provisions of Section 4.19.
"Revocation" has the meaning set forth under Section 4.19.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"S&P" means Standard & Poor's Ratings Service.
"Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Company or a Restricted Subsidiary of any property, whether owned by the Company or any Restricted Subsidiary at the Issue Date or later acquired, which has been or is to be sold or transferred by the Company or by such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such Property.
"Securities Act" means the Securities Act of 1933, as amended, or any successor statute or statutes thereto.
"Series A Notes" means the Company's 11% Senior Discount Notes due 2014.
"Series B Notes" means notes to be issued by the Company pursuant to Section 2.6 hereunder containing terms identical to the Series A Notes (except (i) that interest thereon shall accrue from the last date on which interest was paid on the Series A Notes or, if no such interest has been paid, from the date of original issuance, (ii) that the legend or legends relating to transferability and other related matters set forth on the Series A Notes, including the text referred to in footnote 2 of Exhibit A hereto, shall be removed or appropriately altered and (iii) as otherwise set forth herein), to be offered to Holders of Series A Notes in exchange for Series B Notes pursuant to the Exchange Offer or any exchange offer specified in any registration rights agreement relating to the Additional Notes or to be offered in connection with any issuance of Additional Notes pursuant to a registration statement filed pursuant to the Securities Act.
"Significant Subsidiary" will have the meaning set forth in Rule 1.02(w) of Regulation S-X under the Securities Act.
"Subordinated Indebtedness" means Indebtedness of the Company that is by its express terms subordinated or junior in right of payment to the Notes.
"Subsidiary", with respect to any Person, means:
(1) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person; or
(2) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person.
"Surviving Entity" has the meaning set forth in Section 5.1.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA; provided that in the event the Trust Indenture Act of 1939 is amended after such date, "TIA" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended.
"Transactions" means the manner in which the proceeds received by the Company from the sale of the Notes on the Issue Date will be used, including the payment of dividends to the Company's shareholders and the repurchase of TSI's preferred stock.
"Transfer Restricted Security" means a Note that is a restricted security as defined in Rule 144(a)(3) under the Securities Act.
"Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture, and thereafter means the successor serving hereunder.
"TSI" means Town Sports International, Inc., a New York corporation.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as such pursuant to and in compliance with Section 4.19. Any such designation may be revoked by a Board Resolution of the Company delivered to the Trustee, subject to the provisions of Section 4.19.
"U.S. Certificated Notes" means permanent U.S. Certificated Notes in registered form in substantially the form set forth in Exhibit A that are offered and sold to Institutional Accredited Investors.
"U.S. Government Obligations" shall mean securities which are
(i) direct obligations of the United States of America for the payment of which
its full faith and credit is pledged or (ii) obligations of a Person controlled
or supervised by and acting as an agency or instrumentality of the United States
of America, the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in
either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligations or a specific payment of interest on or principal of any such U.S. Government Obligations held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligations or the specific payment of interest on or principal of the U.S. Government Obligations evidenced by such depository receipt.
"U.S. Person" means any U.S. Person as defined in Regulation S.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (1) the then outstanding aggregate principal amount of such Indebtedness into (2) the sum of the total of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of which all the outstanding voting securities (other than in the case of a foreign Restricted Subsidiary, directors' qualifying shares or an immaterial amount of shares required to be owned by other Persons pursuant to applicable law) are owned by the Company or another Wholly Owned Restricted Subsidiary.
Section 1.2. Other Definitions.
Term Defined in Section ---- ------------------ "Adjusted Net Assets"........................................ 10.5 "Agent Members".............................................. 2.6 "Certificated Notes"......................................... 2.1 "Covenant Defeasance"........................................ 8.3 "Event of Default"........................................... 6.1 "Foreign Person"............................................. 2.6 "Global Notes"............................................... 2.1 "Legal Defeasance"........................................... 8.2 "Net Proceeds Offer"......................................... 4.10 "Net Proceeds Offers Amount"................................. 4.10 "Net Proceeds Offers Trigger Date"........................... 4.10 "Paying Agent"............................................... 2.3 "Permanent Regulation S Global Note"......................... 2.1 |
Term Defined in Section ---- ------------------ "Private Placement Legend"................................... 2.6 "Registrar".................................................. 2.3 "Regulation S Global Note"................................... 2.1 "Restricted Payment"......................................... 4.7 "Rule 144A Global Note"...................................... 2.1 "Surviving Entity"........................................... 5.1 "Temporary Regulation S Global Note"......................... 2.1 |
Section 1.3. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company and any successor obligor upon the Notes.
All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule under the TIA have the meanings so assigned to them.
Section 1.4. Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the plural include the singular;
(e) provisions apply to successive events and transactions; and
(f) references to sections of or rules under the Securities Act, the Exchange Act and the TIA shall be deemed to include substitute, replacement and successor sections or rules adopted by the Commission from time to time.
Section 1.5. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 7.1) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him or her the execution thereof. Where such execution is by an officer of a corporation or a member of a partnership, on behalf of such corporation or partnership, such certificate or affidavit shall also constitute sufficient proof of his or her authority.
(c) The ownership of Notes shall be proved by the register maintained by the Registrar.
(d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Note shall bind every future Holder of the same Note and the Holder of every Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Note.
ARTICLE II.
THE NOTES
Section 2.1. Form and Dating.
The Series A Notes and the Trustee's certificate of authentication relating thereto shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage in addition to those set forth in Exhibit A hereto. The Series B Notes shall be substantially in the form of Exhibit B hereto. The notation on each Note relating to the Guarantees, if any, shall be substantially in the form set forth on Exhibit C hereto. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall be issued initially in the form of a single permanent global Note in registered form, substantially in the form set forth in Exhibit A (the "Rule 144A Global Note"), deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided and shall bear the legend set forth in Section 2.6(h). The aggregate principal amount of the Rule 144A Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, as hereinafter provided.
Notes offered and sold in offshore transactions in reliance on
Regulation S shall be issued initially in the form of a single temporary global
Note in registered form, substantially in the form set forth in Exhibit A (the
"Temporary Regulation S Global Note"), deposited with the Trustee, as custodian
for the Depositary, duly executed by the Company and authenticated by the
Trustee as hereinafter provided and shall bear the legend set forth in Section
2.6(h). At any time following 40 days after the later of the commencement of the
offering of the Notes and the Issue Date, upon receipt by the Trustee and the
Company of a duly executed certificate substantially in the form of Exhibit D(1)
hereto, a single permanent Global Note in registered form substantially in the
form set forth in Exhibit A (the "Permanent Regulation S Global Note," and
together with the Temporary Regulation S Global Note, the "Regulation S Global
Note") duly executed by the Company and authenticated by the Trustee as
hereinafter provided shall be deposited with the Trustee, as custodian for the
Depositary, and the Registrar shall reflect on its books and records the date
and a decrease in the principal amount of the Regulation S Global Note in an
amount equal to the principal amount of the beneficial interest in the
Regulation S Global Note transferred.
The Rule 144A Global Note and the Regulation S Global Note are sometimes referred to herein as the "Global Notes."
Section 2.2. Execution and Authentication.
Two Officers of the Company shall sign the Notes for the Company by manual or facsimile signature.
If an Officer whose signature is on a Note was an Officer at the time of such execution but no longer holds that office or position at the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture.
The Trustee, upon a written order of the Company signed by two Officers of the Company, together with the other documents required by Sections 12.4 and 12.5, shall authenticate (i) Series A Notes for original issue on the Issue Date in the aggregate principal amount at maturity of $213.0 million (Accreted Value on the Issue Date of $585.95 per $1,000 principal amount at maturity of the Notes) as of the Issue Date and (ii) subject to Section 4.9, Additional Notes. The Trustee, upon written order of the Company signed by two Officers of the Company, together with the other documents required by Sections 12.4 and 12.5, shall authenticate Series B Notes; provided that such Series B Notes shall be issuable only upon the valid surrender for cancellation of Series A Notes of a like Accreted Value and aggregate principal amount at maturity in accordance with the Exchange Offer or an exchange offer specified in any registration rights agreement relating to the Additional Notes or to be offered in connection with any issuance of Additional Notes pursuant to a registration statement filed pursuant to the Securities Act. Such written order of the Company shall specify the amount of Notes to be authenticated and the date on which the original issue of Notes is to be authenticated. Any Additional Notes shall be part of the same issue as the Notes being issued on the Issue Date and will vote on all matters as one class with the Notes being issued on the Issue Date, including, without limitation, waivers, amendments, redemptions, Change of Control Offers and Net Proceeds Offers. For the purposes of this Indenture, except for Section 4.9, references to the Notes include Additional Notes, if any.
The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. Unless otherwise provided in the appointment, an authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or with any Affiliate of the Company.
Section 2.3. Registrar and Paying Agent.
The Company shall maintain an office or agency where Notes may be presented or surrendered for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. At the option of the Company, payment of interest and Additional Interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds will be required with respect to principal, Redemption Price and Purchase Price of, and interest and Additional Interest (if any) on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Trustee or the Paying Agent. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Paying Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company may act as Paying Agent or Registrar. The Depositary shall, by acceptance of a Global Note, agree that transfers of beneficial interests in such Global Note may be effected only through a book-entry system maintained by the Depositary (or its agent), and that ownership of a beneficial interest in the Note shall be required to be reflected in a book entry.
The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Note Custodian with respect to the Global Notes, until such time as the Trustee has resigned or a successor has been appointed.
Section 2.4. Paying Agents to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to agree in writing that such the Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of Accreted Value of, premium, if any, interest and Additional Interest, if any, on the Notes, and shall notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and account for any money disbursed. Upon payment over to the Trustee, the Paying Agent (if other than the Company) shall have no further liability for the money. If the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes.
Section 2.5. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish or cause the Registrar to furnish to the Trustee at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes, and the Company shall otherwise comply with TIA Section 312(a).
Section 2.6. Transfer and Exchange.
(a) Transfer and Exchange Generally: Book Entry Provisions. Upon surrender for registration of transfer of any Note to the Registrar, and satisfaction of the requirements for such transfer set forth in this Section 2.6, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of any authorized denominations and of a like aggregate principal amount at maturity and bearing such restrictive legends as may be required by this Indenture.
Notes may be exchanged for other Notes of any authorized denominations and of a like aggregate principal amount at maturity, upon surrender of the Notes to be exchanged at any such office or agency maintained by the Company pursuant to Section 4.2. Whenever any Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Notes which the Holder making the exchange is entitled to receive bearing registration numbers not contemporaneously outstanding.
All Notes presented or surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company and the Registrar, and the Notes shall be duly executed by the Holder thereof or his attorney duly authorized in writing. Except as otherwise provided in this Indenture, and in addition to the requirements set forth in the legend referred to in Section 2.6(h)(i) below, in connection with any transfer of Transfer Restricted Securities any request for transfer shall be accompanied by a certification to the Trustee relating to the manner of such transfer substantially in the form of Exhibit D(2) hereto.
(b) Book-Entry Provisions for the Global Notes. The Rule 144A Global Note and Regulation S Global Note initially shall (i) be registered in the name of the Depositary or the nominee of such Depositary, (ii) be delivered to the Trustee as custodian for the Depositary and (iii) bear legends as set forth in Section 2.6(h).
Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any Rule 144A Global Note or Regulation S Global Note, as the case may be, held on their behalf by the Depositary, or the Trustee as its
custodian, or under the Rule 144A Global Note or Regulation S Global Note, as the case may be, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of Rule 144A Global Note or Regulation S Global Note, as the case may be, for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Note.
Transfers of the Rule 144A Global Note and the Regulation S Global Note shall be limited to transfers of such Rule 144A Global Note or Regulation S Global Note in whole, but not in part, to the Depositary, its successors or their respective nominees. Beneficial interests in the Rule 144A Global Note and the Regulation S Global Note may be transferred in accordance with the applicable rules and procedures of the Depositary and the provisions of this Section 2.6. The registration of transfer and exchange of beneficial interests in the Global Note, which does not involve the issuance of a Certificated Note, shall be effected through the Depositary, in accordance with this Indenture (including the restrictions on transfer set forth herein) and the procedures of the Depositary therefor. The Trustee shall have no responsibility or liability for any act or omission of the Depositary.
At any time at the request of the beneficial holder of an interest in the Rule 144A Global Note or Permanent Regulation S Global Note to obtain a Certificated Note, such beneficial holder shall be entitled to obtain a Certificated Note upon written request to the Trustee and the Note Custodian in accordance with the standing instructions and procedures existing between the Note Custodian and Depositary for the issuance thereof. Upon receipt of any such request, the Trustee, or the Note Custodian at the direction of the Trustee, will cause, in accordance with the standing instructions and procedures existing between the Depositary and the Note Custodian, the aggregate principal amount of the Rule 144A Global Note or Permanent Regulation S Global Note, as appropriate, to be reduced by the principal amount of the Certificated Note issued upon such request to such beneficial holder and, following such reduction, the Company will execute and the Trustee will authenticate and deliver to such beneficial holder (or its nominee) a Certificated Note or Certificated Notes in the appropriate aggregate principal amount in the name of such beneficial holder (or its nominee) and bearing such restrictive legends as may be required by this Indenture.
(c) Transfers to Non-QIB Institutional Accredited Investors. The following provisions shall apply with respect to the registration of any proposed transfer of a Transfer Restricted Security to any Institutional Accredited Investor that is not a QIB (other than any Person that is not a U.S. Person as defined under Regulation S, a "Foreign Person"):
(i) the Registrar shall register the transfer of any
Note, whether or not such Note bears the Private Placement Legend, if
(x) (A) the requested transfer is at least
two years after the later of the Issue Date of the Notes and (B) the proposed transferee has certified to the Registrar that the requested transfer is at least two years after last date on which such Note was held by an Affiliate of the Company, or (y) the proposed transferee has delivered to the Registrar (A) a certificate substantially in the form of Exhibit E hereto and (B) such certifications, legal opinions and other information as the Trustee and the Company may reasonably request to confirm that such transaction is in compliance with the Securities Act; and
(ii) if the proposed transferor is an Agent Member holding a beneficial interest in the Global Note, upon receipt by the Registrar of (x) the documents, if any, required by clause (i) and (y) instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Certificated Notes of like tenor and amount.
(d) Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Transfer Restricted Security to a QIB (other than Foreign Persons):
(i) if the Note to be transferred consists of Certificated Notes or an interest in the Regulation S Global Note, the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on a certificate substantially in the form of Exhibit D(2) stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who is a QIB within the meaning of Rule 144A and is aware that the sale to it is being made in reliance on Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the Note to be transferred consists of Certificated Notes or an interest in the Regulation S Global Note, upon receipt by the Registrar of the documents referred to in clause (i) and instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Rule 144A Global Note in an amount equal to the principal amount of the Certificated Notes or the interest in the Regulation S Global Note, as the case may be, to be transferred, and the Trustee shall cancel the Certificated Notes or decrease the amount of the Regulation S Global Note so transferred.
(e) Transfers of Interests in the Temporary Regulation S Global Note. The following provisions shall apply with respect to the registration of any proposed transfer of interests in the Temporary Regulation S Global Note:
(i) the Registrar shall register the transfer of an interest in the Temporary Regulation S Global Note if (x) the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit F hereto stating, among other things, that the proposed transferee is a Foreign Person or (y) the proposed transferee is a QIB and the proposed transferor has checked the box provided for on a certificate substantially in the form of Exhibit D(2) stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A; and
(ii) if the proposed transferee is an Agent Member, upon receipt by the Registrar of the documents referred to in clause (i)(y) above and instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Rule 144A Global Note in an amount equal to the principal amount of the Temporary Regulation S Global Note to be transferred, and the Trustee, as Note Custodian, shall decrease the amount of the Temporary Regulation S Global Note.
(f) Transfers to Foreign Persons. The following provisions shall apply with respect to any transfer of a Transfer Restricted Security to a Foreign Person:
(i) the Registrar shall register any proposed transfer of a Note to a Foreign Person upon receipt of a certificate substantially in the form of Exhibit F hereto from the proposed transferor and such certifications, legal opinions and other information as the Trustee or the Company may reasonably request; and
(ii) (a) if the proposed transferor is an Agent Member
holding a beneficial interest in the Rule 144A Global Note or the Note
to be transferred consists of Certificated Notes, upon receipt by the
Registrar of (x) the documents, if any, required by paragraph (i) and
(y) instructions in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and a decrease in the principal amount of the Rule
144A Global Note in an amount equal to the principal amount of the
beneficial interest in the Rule 144A Global Note or cancel the
Certificated Notes, as the case may be, to be transferred, and (b) if
the proposed transferee is an Agent Member, upon receipt by the
Registrar of instructions given in accordance with the Depositary's and
the Registrar's procedures, the Registrar shall reflect on its books
and records the date and an increase in the principal amount of the
Regulation S Global Note in an amount equal to the principal amount of
the Certificated Notes to be transferred, and the Trustee shall
decrease the amount of the Rule 144A Global Note.
(g) The Depositary. The Depositary shall be a clearing agency registered under the Exchange Act. The Company initially appoints The Depository Trust Company to
act as Depositary with respect to the Global Note. Initially, the Rule 144A Global Note and the Regulation S Global Note shall be issued to the Depositary, registered in the name of Cede & Co., as the nominee of the Depositary, and deposited with the Note Custodian for Cede & Co.
Notes in Certificated form issued in exchange for all or a part of a Global Note pursuant to this Section 2.6 shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. Upon execution and authentication, the Trustee shall deliver such Certificated Notes in Certificated form to the persons in whose names such Notes in Certificated form are so registered.
Certificated Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in the Rule 144A Global Note or the Permanent Regulation S Global Note, as the case may be, if at any time:
(i) the Depositary for the Notes notifies the Company that the Depositary is unwilling or unable to continue as Depositary for the Rule 144A Global Note or the Permanent Regulation S Global Note, as the case may be, and a successor Depositary is not appointed by the Company within 90 days after delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Certificated Notes under this Indenture,
and the Company shall execute, and the Trustee shall, upon receipt of an authentication order in accordance with Section 2.2, authenticate and deliver Certificated Notes in an aggregate principal amount equal to the principal amount of the Rule 144A Global Note or the Permanent Regulation S Global Note, as the case may be, in exchange for such Global Notes.
(h) Legends.
(i) Except as permitted by the following paragraphs (ii) and (iii), each Note certificate evidencing Global Notes and Certificated Notes (and all Notes issued in exchange therefor or substitution thereof) shall (x) be subject to the restrictions on transfer set forth in this Section 2.6 (including those set forth in the legend below) unless such restrictions on transfer shall be waived by written consent of the Company, and the Holder of each Transfer Restricted Security, by such Holder's acceptance thereof, agrees to be bound by all such restrictions on transfer and (y) bear the legend set forth below (the "Private Placement Legend"):
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a)(1), (2), (3), OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR"), (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO TOWN SPORTS INTERNATIONAL HOLDINGS, INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS NOTE), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF TOWN SPORTS INTERNATIONAL HOLDINGS, INC. SO REQUESTS) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND TOWN SPORTS INTERNATIONAL HOLDINGS, INC. SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
(ii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Note) pursuant to Rule 144 under the Securities Act or pursuant to an effective registration statement under the Securities Act:
(a) in the case of any Transfer Restricted Security that is a Certificated Note, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a Certificated Note that does not bear the legend set forth in (i) above and rescind any restriction on the transfer of such Transfer Restricted Security; and
(b) in the case of any Transfer Restricted Security represented by a Global Note, such Transfer Restricted Security shall not be required to bear the legend set forth in (i) above, but shall continue to be subject to the provisions of Section 2.6(b); provided, however, that with respect to any request for an exchange of a Transfer Restricted Security that is represented by a Global Note for a Certificated Note that does not bear the legend set forth in (i) above, which request is made in reliance upon Rule 144, the Holder thereof shall certify in writing to the Registrar that such request is being made pursuant to Rule 144 (such certifications to be substantially in the form of Exhibit D(2) hereto).
(iii) Notwithstanding the foregoing, upon consummation of the Exchange Offer, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.2, the Trustee shall authenticate Series B Notes in exchange for Series A Notes accepted for exchange in the Exchange Offer, which Series B Notes shall not bear the legend set forth in (i) above, and the Registrar shall rescind any restriction on the transfer of such Series A Notes, in each case unless the Company has notified the Registrar in writing that the Holder of such Series A Notes is either (A) a broker-dealer, (B) a Person participating in the distribution of the Series A Notes or (C) a Person who is an affiliate (as defined in Rule 144A) of the Company.
(iv) Each Global Note, whether or not a Transfer Restricted Security, shall also bear the following legend on the fact thereof:
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS NOTE IS NOT EXCHANGEABLE
FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
(v) Any Global Note may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Indenture as may be required by the Note Custodian, the Depositary or by the National Association of Securities Dealers, Inc. in order for the Notes to be tradable on the PORTAL Market or tradable on Euroclear or Clearstream or as may be required for the Notes to be tradable on any other market developed for trading of securities pursuant to Rule 144A or Regulation S under the Securities Act or required to comply with any applicable law or any regulation thereunder or with the rules and regulations of any securities exchange or automated quotation system upon which the Notes may be listed or traded or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Notes are subject.
(i) Cancellation and/or Adjustment of Global Notes. At
such time as all beneficial interests in Global Notes have been exchanged for
Certificated Notes, redeemed, repurchased or canceled, all Global Notes shall be
returned to or retained and canceled by the Trustee in accordance with Section
2.11. At any time prior to such cancellation, if any beneficial interest in a
Global Note is exchanged for Certificated Notes, redeemed, repurchased or
canceled, the principal amount of Notes represented by such Global Notes shall
be reduced
accordingly and an endorsement shall be made on such Global Note by the Trustee or the Note Custodian, at the direction of the Trustee, to reflect such reduction. In the event of any transfer of any beneficial interest between the Rule 144A Global Note and the Regulation S Global Note in accordance with the standing procedures and instructions between the Depositary and the Note Custodian and the transfer restrictions set forth herein, the aggregate principal amount of each of the Rule 144A Global Note and the Regulation S Global Note shall be appropriately increased or decreased, as the case may be, and an endorsement shall be made on each of the Rule 144A Global Note and the Regulation S Global Note by the Trustee or the Note Custodian, at the direction of the Trustee, to reflect such reduction or increase.
(j) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Certificated Notes and Global Notes at the Registrar's request.
(ii) No service charge shall be made to a Holder for any registration of transfer, fee or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 3.6 and 9.5).
(iii) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part.
(iv) All Certificated Notes and Global Notes issued upon any registration of transfer or exchange of Certificated Notes or Global Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Certificated Notes or Global Notes surrendered upon such registration of transfer or exchange.
(v) The Company shall not be required:
(a) to issue, to register the transfer of or to exchange Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.2 and ending at the close of business on the day of selection; or
(b) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or
(c) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date.
(vi) Prior to due presentment of the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of all payments with respect to such Notes, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Certificated Notes and Global Notes in accordance with the provisions of Section 2.2.
Section 2.7. Replacement Notes.
If any mutilated Note is surrendered to the Trustee or either the Company or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an authentication order in accordance with Section 2.2, shall authenticate a replacement Note if the Trustee's requirements for replacement of Notes are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Trustee and the Company each may charge such Holder for their expenses in replacing such Note.
Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder.
Section 2.8. Outstanding Notes.
The Notes outstanding at any time are all the Notes that have been authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee or the Note Custodian in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.9, a Note does not cease to be outstanding because the Company or any of its Affiliates holds the Note.
If a Note is replaced pursuant to Section 2.7, it shall cease to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser for value.
If the principal amount of any Note is considered paid under
Section 4.1, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest.
Section 2.9. Treasury Notes.
In determining whether the Holders of the required principal amount at maturity of Notes have concurred in any direction, waiver or consent, Notes owned by the Company or by any Affiliate thereof shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver of consent, only Notes that a Responsible Officer of the Trustee knows are so owned shall be so disregarded. The Company agrees to notify the Trustee of the existence of any such treasury Notes or Notes owned by the Company or an Affiliate thereof.
Section 2.10. Temporary Notes.
Until Certificated Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an authentication order in accordance with Section 2.2, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of Certificated Notes, but may have such variations as the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate Certificated Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of this Indenture.
Section 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or Paying Agent, and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall dispose of all canceled Notes in accordance with the Trustee's usual procedures. The Trustee shall maintain a record of all canceled Notes. All cancelled Notes shall be delivered to the Company. Subject to Section 2.7 the Company may not issue new Notes to replace Notes that have been paid or that have been delivered to the Trustee for cancellation.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, the Company shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.1. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date; provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid.
Section 2.13. Persons Deemed Owners.
Prior to due presentment of a Note for registration of transfer and subject to Section 2.12, the Company, the Trustee, any Paying Agent, any co-registrar and any Registrar may deem and treat the person in whose name any Note shall be registered upon the register of Notes kept by the Registrar as the absolute owner of such Note (whether or not such Note shall be overdue and notwithstanding any notation of the ownership or other writing thereon made by anyone other than the Company, any co-registrar or any Registrar) for the purpose of receiving all payments with respect to such Note and for all other purposes, and none of the Company, the Trustee, any Paying Agent, any co-registrar or any Registrar shall be affected by any notice to the contrary.
Section 2.14. CUSIP Numbers.
The Company in issuing the Notes may use a "CUSIP" number, and if so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Notes, and that reliance may be placed only on the other identification numbers printed on the Notes. The Company shall notify the Trustee of any change to the CUSIP numbers.
ARTICLE III.
REDEMPTION AND REPURCHASE
Section 3.1. Notices to Trustee.
If the Company elects to redeem Notes pursuant to the provisions of Section 3.7 or 3.8, it shall furnish to the Trustee, at least 30 days but not more than 60 days before the Redemption Date (unless a shorter notice period shall be satisfactory to the Trustee), an Officers' Certificate setting forth the Section of this Indenture pursuant to which the redemption shall occur, the Redemption Date, the Accreted Value and principal amount at maturity of Notes to be redeemed and the Redemption Price.
If the Registrar is not the Trustee, the Company shall, concurrently with each notice of redemption or repurchase, cause the Registrar to deliver to the Trustee a certificate (upon which the Trustee may rely) setting forth the principal amounts of Notes held by each Holder.
Section 3.2. Selection of Notes.
Except as set forth below, if less than all of the Notes are to be redeemed, the Trustee shall select the Notes or portions thereof to be redeemed in compliance with the requirements of the principal national securities exchange, if any, on which such Notes are listed or, if such Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate. In the event of partial redemption by lot, the particular Notes or portions thereof to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the Redemption Date (unless a shorter period shall be satisfactory to the Trustee) by the Trustee from the outstanding Notes not previously called for redemption.
If less than all of the Notes tendered are to be repurchased pursuant to the provisions of Section 3.8, the Trustee shall select the Notes only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to DTC procedures), unless such method is otherwise prohibited.
The Trustee shall promptly notify the Company in writing of the Notes or portions thereof selected for redemption or repurchase and, in the case of any Note selected for partial redemption or repurchase, the principal amount thereof to be redeemed or repurchased. Notes and portions thereof selected shall be in amounts of $1,000 principal amount at maturity or integral multiples of $1,000 principal amount at maturity, except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000 principal amount at maturity, shall be redeemed. No Notes of a principal amount at maturity of $1,000 or less shall be redeemed in part.
Section 3.3. Notice of Optional Redemption.
In the event Notes are to be redeemed pursuant to Section 3.7 or 3.8, at least 30 days but not more than 60 days before the Redemption Date, the Company shall send, by first-class mail, a notice of redemption to each Holder whose Notes are to be redeemed in whole or in part, with a copy to the Trustee.
The notice shall identify the Notes or portions thereof to be redeemed (including the CUSIP number, if any) and shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if any Note is being redeemed in part, the portion of the Accreted Value and principal amount at maturity of such Note to be redeemed and that, after the Redemption Date, upon surrender of such Note, a new Note or Notes in Accreted Value and principal amount at maturity equal to the unredeemed portion will be issued;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying Agent to collect the Redemption Price, Additional Interest, if any, and, unless the Redemption Date is after a record date and or before the succeeding interest payment date, accrued interest thereon to the Redemption Date;
(f) that, unless the Company defaults in making the redemption payment, Accreted Value or interest and any Additional Interest on Notes called for redemption will cease to accrete or accrue on and after the Redemption Date, as the case may be, and the only remaining right of the Holders of such Notes is to receive payment of the Redemption Price, any Additional Interest and, unless the Redemption Date is after a record date and on or before the succeeding interest payment date, Accreted Value or accrued interest thereon to the Redemption Date upon surrender to the Paying Agent of the Notes redeemed;
(g) if fewer than all the Notes are to be redeemed, the identification of the particular Notes (or portions thereof) to be redeemed, as well as the aggregate principal amount at maturity of the Notes to be redeemed and the aggregate principal amount at maturity of Notes to be outstanding after such partial redemption;
(h) the section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and
(i) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes and that reliance may be placed only on the other identification numbers printed on the Notes.
At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided that the Company shall deliver to the Trustee, at least 30 days prior to the Redemption Date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph.
Section 3.4. Effect of Notice of Redemption.
Once notice of redemption is mailed, Notes or portions thereof called for redemption become due and payable on the Redemption Date at the Redemption Price. Upon surrender to any Paying Agent, such Notes or portions thereof shall be paid at the Redemption Price, plus Additional Interest, if any, and accrued interest to the Redemption Date; provided, however, that installments of interest which are due and payable on or prior to the Redemption Date shall be payable to the Holders of such Notes, registered as such, at the close of business on the relevant record date for the payment of such installment of interest.
Section 3.5. Deposit of Redemption Price or Purchase Price.
On or before 10:00 a.m. Eastern Time on each Redemption Date or Purchase Date, the Company shall irrevocably deposit with the Trustee or with the Paying Agent money sufficient to pay the aggregate amount due on all Notes to be redeemed or repurchased on that date, including without limitation any accrued and unpaid interest and Additional Interest, if any, to the Redemption Date or Purchase Date. Upon written request by the Company, the Trustee or the Paying Agent shall promptly return to the Company any money not required for that purpose.
Unless the Company defaults in making such payment, Accreted
Value will cease to accrete and interest and any Additional Interest on the
Notes to be redeemed or repurchased will cease to accrue on the applicable
Redemption Date or Purchase Date, whether or not such Notes are presented for
payment. If any Note called for redemption shall not be so paid upon surrender
because of the failure of the Company to comply with the preceding paragraph,
interest will be paid on the unpaid principal, from the applicable Redemption
Date or Purchase Date until such principal is paid, and on any interest not paid
on such unpaid principal, in each case at the rate provided in the Notes and in
Section 4.1.
Section 3.6. Notes Redeemed or Repurchased in Part.
Upon surrender of a Note that is redeemed or repurchased in part, the Company shall issue and the Trustee shall authenticate for the Holder at the expense of the Company
a new Note equal in Accreted Value and principal amount at maturity to portion of the Note surrendered that is not to be redeemed or repurchased.
Section 3.7. Optional Redemption.
The Company may redeem any or all of the Notes at any time on or after February 1, 2009 at the Redemption Prices set forth in paragraph 5 of the Notes (an "Optional Redemption"). Any redemption pursuant to this Section 3.7 shall be made pursuant to the provisions of Sections 3.1 through 3.6.
Section 3.8. Optional Redemption upon Equity Offerings.
In the event the Company completes one or more Equity Offerings on or before February 1, 2007, the Company may, at its option, use the net cash proceeds from any such Equity Offering to redeem up to 35% of the original principal amount of the Notes, in each case, at a Redemption Price equal to 111% of the Accreted Value thereof at the date of redemption; provided, however, that at least 65% of the aggregate principal amount at maturity of the Notes initially issued under this Indenture will remain outstanding immediately after any such redemption; and provided, further, that the Company shall make such redemption not more than 120 days after the consummation of any such Equity Offering. Any redemption pursuant to this Section 3.8 shall be made pursuant to the provisions of Sections 3.1 through 3.6.
Section 3.9. Repurchase upon Change of Control Offer.
In the event that, pursuant to Section 4.15, the Company shall be required to commence a Change of Control Offer, it shall follow the procedures specified below.
Within 30 days following the date upon which the Change of Control occurred, the Company must send, by first-class mail, a notice to each Holder, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Change of Control Offer. The Change of Control shall be made to all Holders. The notice, which shall govern the terms of the Change of Control Offer, shall state:
(a) the transaction or transactions that constitute the
Change of Control, providing information, to the extent publicly
available, regarding the Person or Persons acquiring control, and
stating that the Change of Control Offer is being made pursuant to this
Section 3.9 and Section 4.15 and that, to the extent lawful, all Notes
tendered will be accepted for payment;
(b) the Purchase Price, the last day of the Change of Control Offer Period and the Purchase Date, which must be no earlier than 30 days nor later than 45 days
from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date");
(c) that any Note not properly tendered or otherwise not accepted for repurchase will continue to accrete Accreted Value and accrue interest and Additional Interest, if any;
(d) that, unless the Company defaults in the payment of the amount due on the Change of Control Payment Date, Accreted Value will cease to accrete on all Notes or portions thereof accepted for repurchase pursuant to the Change of Control Offer and such Notes or portions thereof shall cease to accrue interest and Additional Interest, if any, after the Change of Control Payment Date;
(e) that Holders electing to have any Notes purchased pursuant to the Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, or transfer by book-entry transfer, to the Company, a Depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to the close of business on the third Business Day prior to the Change of Control Payment Date;
(f) that Holders will be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than the Change of Control Offer Payment Date, a telegram, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for repurchase, and a statement that such Holder is withdrawing his election to have the Notes redeemed in whole or in part; and
(g) that Holders whose Notes are being repurchased only in part will be issued new Notes equal in Accreted Value and principal amount at maturity to the portion of the Notes tendered (or transferred by book-entry transfer) that is not to be repurchased, which portion must be equal to $1,000 in principal amount or an integral multiple thereof.
On or before the Change of Control Payment Date, the Company shall to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Purchase Price, together with accrued and unpaid interest and Additional Interest, if any, thereon to the Change of Control Payment Date in respect of all Notes or portions thereof so tendered and accepted for repurchase and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being repurchased by the Company. The Paying Agent shall promptly (but in any case not later than five days after the Change of Control Payment Date) mail to each Holder of Notes so repurchased the amount due in connection with such
Notes, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company in the form of an Officers' Certificate shall authenticate and mail or deliver (or cause to transfer by book entry) to each relevant Holder a new Note, in a principal amount equal to any unpurchased portion of the Notes surrendered to the Holder thereof; provided that each such new Note shall be in a principal amount of $l,000 or and integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.
If the Change of Control Payment Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest and Additional Interest, if any, in each case to the Change of Control Payment Date, shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders pursuant to the Change of Control Offer.
Section 3.10. Repurchase upon Application of Excess Proceeds.
In the event that, pursuant to Section 4.10, the Company shall be required to commence a Net Proceeds Offer, it shall follow the procedures specified below.
The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Net Proceeds Offer. The Net Proceeds Offer shall be made to all Holders. Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 30 days following the Net Proceeds Offer Trigger Date, with a copy to the Trustee, and shall comply with the procedures set forth in this Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their Notes in whole or in part in integral multiples of $1,000 principal amount at maturity in exchange for cash. A Net Proceeds Offer shall remain open for a period of 20 Business Days or such longer period as may be required by law. The notice, which shall govern the terms of the Net Proceeds Offer, shall state:
(a) that the Net Proceeds Offer is being made pursuant to this Section 3.10 and Section 4.10;
(b) the Net Proceeds Offer Amount, the Purchase Price and the Purchase Date;
(c) that any Note not properly tendered or otherwise not accepted for repurchase shall continue to accrete Accreted Value and accrue interest and Additional Interest, if any;
(d) that, unless the Company defaults in the payment of the amount due on the Purchase Date, Accreted Value will cease to accrete on all Notes or portions thereof accepted for repurchase pursuant to the Net Proceeds Offer and such Notes or
portions thereof shall cease to accrue interest and Additional Interest, if any, after the Purchase Date;
(e) that Holders electing to have any Notes repurchased pursuant to any Net Proceeds Offer shall be required to tender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, or transfer by book-entry transfer, to the Company, a Depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Purchase Date;
(f) that Holders will be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than the Purchase Date, a telegram, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes delivered for repurchase and a statement that such Holder is withdrawing his election to have such Notes repurchased in whole or in part;
(g) that, to the extent Holders properly tender Notes and holders of Indebtedness of the Company that ranks pari passu in right of payment with the Notes properly tender such Indebtedness in an amount exceeding the Net Proceeds Offer Amount, the tendered Notes and such other pari passu Indebtedness will be purchased on a pro rata basis based on the aggregate principal amounts of Notes and such other pari passu Indebtedness tendered (and the Trustee shall select the tendered Notes of tendering Holders on a pro rata basis based on the amount of Notes tendered); and
(h) that Holders whose Notes are being repurchased only in part will be issued new Notes equal in Accreted Value and principal amount at maturity to the portion of the Notes tendered (or transferred by book-entry transfer) that is not to be repurchased, which portion must be equal to $1,000 in aggregate principal amount at maturity or an integral multiple thereof.
On or before the Purchase Date, the Company shall to the extent lawful, (i) accept for payment, on a pro rata basis in accordance with this Indenture to the extent necessary, the Net Proceeds Offer Amount of (A) Notes or portions thereof properly tendered pursuant to the Net Proceeds Offer and (B) properly tendered other Indebtedness of the Company that ranks pari passu in right of payment with the Notes, or if less than the Net Proceeds Offer Amount has been tendered, all Notes and such other pari passu Indebtedness properly tendered, (ii) deposit with the Paying Agent an amount equal to the Purchase Price, plus accrued and unpaid interest and Additional Interest, if any, thereon to the Purchase Date in respect of all Notes or portions thereof so tendered and accepted for repurchase and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being repurchased by the Company. The Paying Agent shall promptly (but in any case not later than five days
after the Purchase Date) mail to each Holder of Notes so repurchased the amount due in connection with such Notes, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company in the form of an Officers' Certificate shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion to the Holder thereof; provided that each such new Note shall be in a principal amount at maturity of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Net Proceeds Offer on or as soon as practicable after the Purchase Date.
If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest and Additional Interest, if any, in each case to the Purchase Date, shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders to the Net Proceeds Offer.
ARTICLE IV.
COVENANTS
Section 4.1. Payment of Principal and Interest.
The Company shall pay or cause to be paid the Accreted Value (and premium, if any), Redemption Price and Purchase Price of, and interest on the Notes on the dates, in the amounts and in the manner provided herein and in the Notes. Accreted Value (and premium, if any), Redemption Price, Purchase Price and interest shall be considered paid on the date due if the Paying Agent, if other than the Company, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay the aggregate amount then due. The Company shall pay all Additional Interest, if any, on the dates, in the amounts and in the manner set forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue Accreted Value (and premium, if any), Redemption Price and Purchase Price at the same rate per annum on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Additional Interest (without regard to any applicable grace period) at the same rate to the extent lawful.
Section 4.2. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer
or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Office of the Trustee.
The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligations to maintain an office or agency in the Borough of Manhattan, the City of New York, for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of
the Trustee as one such office or agency of the Company in accordance with
Section 2.3. The Trustee may resign such agency at any time by giving written
notice to the Company no later than 30 days prior to the effective date of such
resignation.
Section 4.3. Reports to Holders.
Whether or not required by the rules and regulations of the Commission, so long as any Notes are outstanding, the Company will furnish the Holders, with a copy to the Trustee:
(i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and its consolidated Subsidiaries (showing in reasonable detail, either on the face of the financial statements or in the footnotes thereto and in "Management's Discussion and Analysis of Financial Condition and Result of Operations," the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company, if any) and, with respect to the annual information only, a report thereon by the Company's certified independent accountants; and
(ii) the information that would be required to be included in all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports, in each case within the time periods specified in the Commission's rules and regulations.
In addition, following the consummation of the Exchange Offer, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and reports with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, the Company has agreed that, for so long as any Notes remain outstanding, it will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Section 4.4. Compliance Certificate.
The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture in all material respects, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture in all material respects and is not in Default in the performance or observance of any of the terms, provisions and conditions of this Indenture (and, if a Default or an Event of Default shall have occurred, describing all such Defaults or Events of Default) of which he or she may have knowledge, and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which, payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event.
So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.3 shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article IV or Article V or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation.
The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith (and in any event within five Business Days) upon any Officer of the Company becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default.
Section 4.5. Taxes.
The Company shall pay or discharge, and shall cause each of its Subsidiaries to pay or discharge, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes.
Section 4.6. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though such law has not been enacted.
Section 4.7. Limitation on Restricted Payments.
The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any distribution (other than dividends or distributions payable in the Qualified Capital Stock of the Company) on or in respect of shares of the Company's Capital Stock to holders of such Capital Stock;
(2) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock;
(3) make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to (a) any scheduled maturity, (b) any scheduled or mandatory repayment or (c) any scheduled sinking fund payment, any Indebtedness of the Company that is subordinate or junior in right of payment to the Notes; or
(4) make any Investment (other than Permitted Investments)
(each of the foregoing actions set forth in clauses (1), (2), (3) and (4) being referred to as a "Restricted Payment"), if at the time of such Restricted Payment or immediately after giving effect thereto,
(i) a Default or an Event of Default shall have occurred and be continuing;
(ii) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.9; or
(iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to April 16, 2003 (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined reasonably and in good faith by the Board of Directors of the Company (or if prior to the Issue Date, by the Board of Directors of TSI)) shall exceed the sum of, without duplication:
(a) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned subsequent to the end of the fiscal quarter immediately prior to April 16, 2003 (determined as if the Company owned TSI for all periods prior to the Issue Date) and on or prior to the end of the most recently ended fiscal quarter for which internal financial statements are available as of the date the Restricted Payment occurs (treating such period as a single accounting period); plus
(b) 100% of the aggregate net cash proceeds received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to April 16, 2003 and on or prior to the date the Restricted Payment occurs of Qualified Capital Stock of the Company (or if prior to the Issue Date, Qualified Capital Stock of TSI); plus
(c) without duplication of any amounts included in clause (iii)(b) above, 100% of the aggregate net cash proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock subsequent to April 16, 2003 (or if prior to the Issue Date, received by TSI from a holder of TSI's Capital Stock) and on or prior to the date the Restricted Payment occurs; plus
(d) without duplication, an amount equal to the sum of:
(x) the net reduction in Investments in Unrestricted Subsidiaries resulting from dividends, repayments of loans or advances or other transfers of assets by any Unrestricted Subsidiary to the Company or any Restricted Subsidiary or the receipt of proceeds by the Company or any Restricted Subsidiary from the sale or other disposition of any portion of the Capital Stock of any Unrestricted Subsidiary, in each case occurring subsequent to April 16, 2003, and
(y) the consolidated net Investments on the date of Revocation made by the Company or any of its Restricted Subsidiaries in any Subsidiary of the Company that has been designated an Unrestricted Subsidiary after April 16, 2003 upon its redesignation as a Restricted Subsidiary in accordance with Section 4.19.
Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit:
(1) the payment of any dividend or redemption payment within 60 days after the date of declaration of such dividend or the mailing of such irrevocable redemption notice if the dividend or redemption payment, as the case may be, would have been permitted on the date of declaration or the date of mailing of such notice;
(2) if no Default or Event of Default shall have occurred and be continuing, the acquisition of any shares of Capital Stock of the Company, either
(a) solely in exchange for shares of Qualified Capital Stock of the Company or
(b) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Restricted Subsidiary of the Company) of shares of Qualified Capital Stock of the Company;
(3) if no Default or Event of Default shall have occurred and be continuing, the acquisition of any Indebtedness of the Company that is subordinate or junior in right of payment to the Notes either
(a) solely in exchange for shares of Qualified Capital Stock of the Company or
(b) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Restricted Subsidiary of the Company) of
(x) shares of Qualified Capital Stock of the Company or
(y) Refinancing Indebtedness;
(4) if no Default or Event of Default shall have occurred and be continuing, repurchases by the Company of Capital Stock of the Company or options or warrants to purchase Capital Stock of the Company, stock appreciation rights or any similar equity interest in the Company from consultants, directors, officers and employees of the Company or any of its Subsidiaries or their authorized representatives upon the death,
disability, retirement or termination of employment of such consultants, directors, officers or employees in an aggregate amount not to exceed $750,000 in any calendar year plus the amount of any proceeds received under key-man life insurance policies that are used to make such payments;
(5) if no Default shall have occurred and be continuing, the purchase, redemption, defeasance or other acquisition or retirement of Indebtedness of the Company that is subordinate or junior in right of payment to the Notes in connection with an asset sale net proceeds amount offer or change of control offer after complying with Sections 4.10 and 4.15;
(6) if no Default or Event of Default shall have occurred and be continuing, Restricted Payments in an aggregate amount not to exceed $10.0 million; and
(7) any payments made in furtherance of the Transactions with the net proceeds received by the Company from the sale of the Notes on the Issue Date.
In determining the aggregate amount of Restricted Payments
made subsequent to April 16, 2003 in accordance with clause (iii) of the second
preceding paragraph, amounts expended pursuant to clauses (1), (2)(b), 3(b)(x),
(4) and (6) of the immediately preceding paragraph shall be included in such
calculation.
Section 4.8. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on or in respect of its Capital Stock;
(2) make loans or advances or pay any Indebtedness or other obligation owed to the Company or any other Restricted Subsidiary; or
(3) transfer any of its property or assets to the Company or any other Restricted Subsidiary,
in each case, except for such encumbrances or restrictions existing under or by reason of:
(a) applicable law;
(b) this Indenture, the Notes, the Existing TSI Indenture as in effect on the Issue Date and the Existing TSI Notes and the guarantees thereof;
(c) customary non-assignment provisions of any contract or any lease governing a leasehold interest of any Restricted Subsidiary;
(d) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person so acquired (including, but not limited to, such Person's direct and indirect Subsidiaries);
(e) agreements existing on the Issue Date (other than the Credit Agreement) to the extent and in the manner such agreements are in effect on the Issue Date;
(f) the Credit Agreement or an agreement governing any other Indebted-ness of the Company or any Restricted Subsidiary permitted to be incurred under this Indenture; provided that either (y) with respect to any agreement governing such other Indebtedness, the provisions relating to such encumbrance or restriction are no less favorable to the Company in any material respect than the provisions contained in the Credit Agreement as in effect on the Issue Date or (z) any encumbrance or restriction contained in such other Indebtedness does not prohibit (except upon a default or event of default thereunder) the payment of dividends or the making of loans or advances in an amount sufficient, as determined by its Board of Directors in its reasonable and good faith judgment (including the use of reasonable projections of future operating performance), to make scheduled payments of cash interest on the Notes;
(g) restrictions on the transfer of assets subject to any Lien permitted under this Indenture imposed by the holder of such Lien;
(h) restrictions imposed by any agreement to sell assets or Capital Stock permitted under this Indenture to any Person pending the closing of such sale;
(i) customary provisions in joint venture agreements and other similar agreements in each case relating solely to the respective joint venture or similar entity or to the equity interest therein;
(j) customary provisions imposed by agreements governing Indebtedness of a Foreign Restricted Subsidiary permitted to be incurred under this Indenture to the extent that such encumbrance or restriction relates solely to the respective Foreign Restricted Subsidiary; and
(k) an agreement governing Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred pursuant to an agreement referred to in clauses (b) and (d) through (g) above; provided, however, that the provisions relating to such encumbrance or restriction contained in any such Indebtedness are no less favorable to the Company in any material respect as determined by the Board of Directors of the
Company in its reasonable and good faith judgment than the provisions relating to such encumbrance or restriction contained in agreements referred to in such clauses (b) and (d) through (g) above.
Section 4.9. Limitation on Incurrence of Additional Indebtedness.
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively, "incur") any Indebtedness (other than Permitted Indebtedness); provided, however, that if no Default or Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, (i) the Company may incur Indebtedness (including, without limitation, Acquired Indebtedness) if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.00 to 1.00 and (ii) any of TSI and its Restricted Subsidiaries may incur Indebtedness (including, without limitation, Acquired Indebtedness) if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, TSI's Consolidated Fixed Charge Coverage Ratio is greater than 2.00 to 1.00.
Section 4.10. Limitation on Asset Sales.
(A) The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) the Company or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Board of Directors of the Company);
(2) at least 75% of the consideration received by the Company or its Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash or Cash Equivalents and shall be received at the time of such disposition; provided, however, that the amount of (a) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet or the notes thereto) of the Company or any Restricted Subsidiary (other than liabilities that are by their terms subordinated to the Notes) that are assumed by the transferee in such Asset Sale and from which the Company or such Restricted Subsidiary is released and (b) any notes, securities or other obligations received by the Company or by any such Restricted Subsidiary from such transferee that are immediately converted by the Company or by such Restricted Subsidiary into cash or Cash Equivalents shall be deemed to be cash for purposes of this provision; and
(3) upon the consummation of an Asset Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within 360 days of receipt thereof either:
(a) to pay (i) Indebtedness under the Credit Agreement (and, in the case of any such Indebtedness under any revolving credit facility, effect a corresponding permanent reduction in the availability under such revolving credit facility) or other Indebtedness ranking pari passu with the Notes; provided, however, that if the Company repays such other pari passu Indebtedness it must make an equal and ratable offer to all holders of Notes as provided in the following paragraph or (ii) in the case of an Asset Sale by a Restricted Subsidiary, Indebtedness of such Restricted Subsidiary,
(b) to make an Investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets that will be used in the business of the Company and its Restricted Subsidiaries as existing on the Issue Date or in businesses reasonably related thereto ("Replacement Assets"), and/or
(c) a combination of prepayment and investment permitted by the foregoing clauses (3)(a) and (3)(b).
(B) On the 361st day after an Asset Sale or such earlier date, if any, as the Board of Directors of the Company or of such Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses (3)(a), (3)(b) and (3)(c) of paragraph (A) above (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds that have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in clauses (3)(a), (3)(b) and (3)(c) of paragraph (A) above (each a "Net Proceeds Offer Amount") shall be applied by the Company or such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date not less than 45 nor more than 60 days following the applicable Net Proceeds Offer Trigger Date, the maximum Accreted Value of Notes and principal amount of other Indebtedness of the Company that ranks pari passu in right of payment with the Notes (to the extent required by the instrument governing such other Indebtedness) that may be purchased out of the Net Proceeds Offer Amount; provided, however, notwithstanding the foregoing, in the case of an Asset Sale by a Restricted Subsidiary of the Company, the Company shall not be required to make a Net Proceeds Offer to the extent such Restricted Subsidiary is not permitted pursuant to its outstanding Indebtedness to make a Restricted Payment to the Company. Any Notes and other Indebtedness to be purchased pursuant to a Net Proceeds Offer shall be purchased pro rata based on the aggregate principal amount at maturity of Notes and such other Indebtedness outstanding and all Notes shall be purchased at an offer price in cash in an amount equal to 100% of the Accreted Value thereof, plus accrued and unpaid interest to the date of purchase.
The Net Proceeds Offer shall be made in compliance with the applicable procedures set forth in Article III and shall include all instructions and materials necessary to enable Holders to tender their Notes.
(C) The Company may defer the Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $10.0 million resulting from one or more Asset Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and not just the amount in excess of $10.0 million, shall be applied as required pursuant to this Section 4.10).
(D) In the event of the transfer of substantially all
(but not all) of the property and assets of the Company and its Restricted
Subsidiaries as an entirety to a Person in a transaction permitted under Section
5.1, the successor corporation shall be deemed to have sold the properties and
assets of the Company and its Restricted Subsidiaries not so transferred for
purposes of this Section 4.10, and shall comply with the provisions of this
Section 4.10 with respect to such deemed sale as if it were an Asset Sale. In
addition, the fair market value of such properties and assets of the Company or
its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this Section 4.10.
(E) Notwithstanding paragraphs (A) through (D) of this
Section 4.10, the Company and its Restricted Subsidiaries will be permitted to
consummate an Asset Sale without complying with such paragraphs to the extent:
(i) at least 75% of the consideration for such Asset Sale constitutes Replacement Assets; and
(ii) such Asset Sale is for fair market value;
provided that any consideration not constituting Replacement Assets received by the Company or any of its Restricted Subsidiaries in connection with any Asset Sale permitted to be consummated under this paragraph shall constitute Net Cash Proceeds subject to the provisions of paragraphs (A) through (D) of this Section 4.10.
(F) The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations to
the extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with this Section
4.10, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.10 by virtue thereof.
Section 4.11. Limitations on Transactions with Affiliates.
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under the third paragraph of this Section 4.11 and (y) Affiliate Transactions on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of $2.5 million will be approved by the Board of Directors of the Company or such Restricted Subsidiary, as the case may be, such approval to be evidenced by a Board Resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Restricted Subsidiary enters into an Affiliate Transaction (or a series of related Affiliate Transactions related to a common plan) that involves an aggregate fair market value of more than $10.0 million, the Company or such Restricted Subsidiary, as the case may be, will, prior to the consummation thereof, obtain an opinion from an Independent financial Advisor stating that such transaction or series of related transactions are fair to the Company or to the relevant Restricted Subsidiary, as the case may be, from a financial point of view.
The restrictions set forth in the first paragraph of this
Section 4.11 shall not apply to:
(1) reasonable fees and compensation paid to and indemnity provided on behalf of officers, directors, employees or consultants of the Company or any Restricted Subsidiary as determined in good faith by the Company's Board of Directors or senior management;
(2) transactions exclusively between or among the Company and any of its Restricted Subsidiaries or exclusively between or among such Restricted Subsidiaries provided such transactions are not otherwise prohibited by this Indenture;
(3) Restricted Payments and Permitted Investments permitted by this Indenture; or
(4) management or advisory fees to BRS Group or its affiliates in accordance with the terms of the Management Agreement as in effect on the Issue Date or as the same may be modified or amended; provided, however, that such modification
or amendment cannot provide for the payment of such fees in an amount in excess of 1.5% of Consolidated EBITDA of the Company.
Section 4.12. Limitation on Liens.
The Company will not, directly or indirectly, create, incur, assume or permit or suffer to exist any Liens upon any property or assets of the Company (excluding property, assets and Capital Stock of Restricted Subsidiaries to secure Indebtedness of Restricted Subsidiaries), whether owned on the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or assign or otherwise convey any right to receive income or profits therefrom unless:
(1) in the case of Liens securing Subordinated Indebtedness, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens; and
(2) in all other cases, the Notes are secured on an equal and ratable basis,
except for
(a) Liens existing as of the Issue Date to the extent and in the manner such Liens are in effect on the Issue Date,
(b) (x) Liens securing Indebtedness permitted by clauses
(2) and (15) of the definition of "Permitted Indebtedness" and (y)
Liens securing Indebtedness permitted under Section 4.9 (other than
Indebtedness permitted by clauses (2) and (15) of the definition of
"Permitted Indebtedness"); provided that the principal amount of such
Indebtedness so incurred under Section 4.9 (other than pursuant to
clauses (2) and (15) of the definition of Permitted Indebtedness), and
the principal amount of all other Indebtedness secured by Liens
permitted by this clause (y), shall, at the time such Indebtedness is
incurred and after giving effect to such incurrence, not exceed an
aggregate principal amount equal to the difference between (i) 1.25
times Consolidated EBITDA of the Company for the most recently ended
four full fiscal quarters for which internal financial statements are
available and (ii) the amount of Indebtedness then outstanding under
clauses (2) and (15) of the definition of "Permitted Indebtedness,"
(c) Liens securing the Notes,
(d) Liens of the Company on assets of any Restricted Subsidiary of the Company,
(e) Liens securing Refinancing Indebtedness that is incurred to Refinance any Indebtedness that has been secured by a Lien permitted under this Indenture and that has been incurred in accordance with the provisions of this Indenture; provided, however, that such Liens
(x) are no less favorable to the Holders and are not more favorable to the lienholders with respect to such Liens, in each case in any material respect, than the Liens in respect of the Indebtedness being Refinanced and
(y) do not extend to or cover any property or assets of the Company not securing the Indebtedness so Refinanced,
(f) Liens in favor of the Company and
(g) Permitted Liens.
Section 4.13. Continued Existence.
Subject to Article V, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate or other existence in accordance with the organizational documents (as the same may be amended from time to time) of the Company and (ii) the material rights (charter and statutory), licenses and franchises of the Company, except to the extent that the Board of Directors of the Company determines in good faith that the preservation of such right, license or franchise is no longer necessary or desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders.
Section 4.14. Insurance Matters.
The Company shall provide or cause to be provided, for itself and each of its Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds that, in the reasonable, good faith opinion of the Company, are adequate and appropriate for the conduct of the business of the Company and its Subsidiaries in a prudent manner, with reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in such amounts, with such deductibles, and by such methods as shall be either (i) consistent with past practices of the Company or the applicable Subsidiary or (ii) customary, in the reasonable, good faith opinion of the Company, for corporations similarly situated in the industry, unless the failure to provide such insurance (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of the Company and its Subsidiaries, taken as a whole.
Section 4.15. Offer to Repurchase upon Change of Control.
Upon the occurrence of a Change of Control, each Holder will have the right to require that the Company purchase all or a portion (equal to $1,000 or an integral multiple thereof) of such Holder's Notes (a "Change of Control Offer") at a Purchase Price equal to 101% of the Accreted Value thereof, plus accrued and unpaid interest and Additional Interest, if any, thereon to the Change of Control Payment Date. The Change of Control Offer shall be made in compliance with the applicable procedures set forth in Article III and shall include all instructions and materials necessary to enable Holders to tender their Notes.
The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.
The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with this Section
4.15, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.15 by virtue thereof.
Section 4.16. Limitation of Guarantees by Restricted Subsidiaries.
The Company will not permit any of its Restricted
Subsidiaries, directly or indirectly, by way of the pledge of any intercompany
note or otherwise, to assume, guarantee or in any other manner become liable
with respect to any Indebtedness of the Company (other than Indebtedness
represented by any guarantees (including through the pledge of intercompany
notes or otherwise) of Indebtedness under the Credit Agreement and the Existing
TSI Notes), unless, in any such case (a) such Restricted Subsidiary executes and
delivers a supplemental indenture to this Indenture providing a Guarantee and
(b) if any such assumption, guarantee or other liability of such Restricted
Subsidiary is provided in respect of Indebtedness that is expressly subordinated
to the Notes, the guarantee or other instrument provided by such Restricted
Subsidiary in respect of such subordinated Indebtedness shall be subordinated to
the Guarantee substantially to the same extent as such Indebtedness is
subordinated to the Notes. This Section 4.16 shall not apply to guarantees by
Restricted Subsidiaries of Indebtedness of Restricted Subsidiaries.
Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary of the Notes shall provide by its terms that it shall be automatically and unconditionally re-
leased and discharged, without any further action required on the part of the Trustee or any Holder, upon: (i) the unconditional release of such Restricted Subsidiary from its liability in respect of the Indebtedness in connection with which such Guarantee was executed and delivered pursuant to the preceding paragraph or (ii) any sale or other disposition (by merger or otherwise) to any Person which is not a Restricted Subsidiary of the Company of all of the Company's Capital Stock in, or all or substantially all of the assets of, such Restricted Subsidiary; provided that (a) such sale or disposition of such Capital Stock or assets is otherwise in compliance with the terms of this Indenture and (b) such assumption, guarantee or other liability of such Restricted Subsidiary has been released by the holders of the other Indebtedness so guaranteed.
Section 4.17. Payments for Consent.
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid and is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.
Section 4.18. Limitation on Preferred Stock of Restricted Subsidiaries.
The Company will not permit any of its Restricted Subsidiaries to issue any Preferred Stock (other than to the Company or to a Wholly Owned Restricted Subsidiary) or permit any Person (other than the Company or a Wholly Owned Restricted Subsidiary) to own any Preferred Stock of any Restricted Subsidiary.
Section 4.19. Limitation on Designation of Unrestricted Subsidiaries.
(a) The Company may designate any Subsidiary of the Company (other than a Subsidiary of the Company that owns Capital Stock of a Restricted Subsidiary) as an "Unrestricted Subsidiary" under this Indenture (a "Designation") only if:
(1) no Default shall have occurred and be continuing at the time of or after giving effect to such Designation;
(2) the Company would be permitted under this Indenture to make an Investment at the time of Designation (assuming the effectiveness of such Designation) in an amount (the "Designation Amount") equal to the sum of:
(a) the fair market value of the Capital Stock of such Subsidiary owned by the Company and its Restricted Subsidiaries on such date and
(b) the aggregate amount of other Investments of the Company and its Restricted Subsidiaries in such Subsidiary on such date; and
(3) the Company would be permitted to incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to
Section 4.9 at the time of Designation (assuming the effectiveness of
such Designation).
In the event of any such Designation, the Company shall be
deemed to have made an Investment constituting a Restricted Payment pursuant to
Section 4.7 for all purposes of this Indenture in the Designation Amount.
(b) The Company shall not, and shall not permit any Restricted Subsidiary to, at any time:
(1) provide direct or indirect credit support for or a guarantee of any Indebtedness of any Unrestricted Subsidiary (including of any undertaking, agreement or instrument evidencing such Indebtedness); or
(2) be directly or indirectly liable for any Indebtedness of any Unrestricted Subsidiary.
(c) The Company may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"), whereupon such Subsidiary shall then constitute a Restricted Subsidiary, if:
(1) no Default shall have occurred and be continuing at the time of and after giving effect to such Revocation; and
(2) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if incurred at such time, have been permitted to be incurred for all purposes of this Indenture.
All Designations and Revocations must be evidenced by Board Resolutions of the Company certifying compliance with the foregoing provisions.
ARTICLE V.
SUCCESSORS
Section 5.1. Merger, Consolidation and Sale of Assets.
The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and its Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person, unless:
(1) either:
(a) the Company shall be the surviving or continuing corporation; or
(b) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company and of its Restricted Subsidiaries substantially as an entirety (the "Surviving Entity"):
(x) will be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia; and
(y) will expressly assume, by supplemental indenture (in form and substance reasonably satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the principal of and premium, if any, and interest on all of the Notes and the performance of every covenant of the Notes, this Indenture and the Registration Rights Agreement on the part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction and the assumption contemplated by clause(1)(b)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to clause (i) of Section 4.9;
(3) immediately before and immediately after giving
effect to such transaction and the assumption contemplated by clause
(1)(b)(y) above (including, without limitation, giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred and any Lien granted in connection with or in respect of the
transaction), no Default or Event of Default shall have occurred or be
continuing; and
(4) the Company or the Surviving Entity shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of this Indenture and that all conditions precedent in this Indenture relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, will be deemed to be the transfer of all or substantially all of the properties and assets of the Company.
Upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing in which the Company is not the continuing corporation, the Surviving Entity shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture and the Notes with the same effect as if such Surviving Entity had been named as such.
Each Guarantor (other than any Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and this Indenture in connection with any transaction complying with the provisions of Section 4.10) will not, and the Company will not cause or permit any Guarantor to, consolidate with or merge with or into any Person other than the Company or any other Guarantor unless:
(1) the entity formed by or surviving any such consolidation or merger (if other than the Guarantor) or to which such sale, lease, conveyance or other disposition shall have been made is a corporation, limited liability company or partnership organized and existing under the laws of the United States or any State thereof or the District of Columbia;
(2) such entity assumes by supplemental indenture all of the obligations of the Guarantor on its Guarantee; and
(3) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing.
Any merger or consolidation of a Guarantor with and into the Company (with the Company being the surviving entity) or another Guarantor that is a Restricted Subsidiary need only comply with clause (4) of the first paragraph of this Section 5.1.
Section 5.2. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.1, the Surviving Entity shall succeed to and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such Surviving Entity had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal, Purchase Price or Redemption Price of or interest or Additional Interest, if any, on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.1.
ARTICLE VI.
DEFAULTS AND REMEDIES
Section 6.1. Events of Default.
Each of the following constitutes an "Event of Default":
(a) the failure to pay interest on any Note when the same becomes due and payable and the default continues for a period of 30 days;
(b) the failure to pay the principal of any Note, when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer) on the date specified for such payment in the applicable offer to purchase;
(c) a default in the observance or performance of any other covenant or agreement contained herein which default continues for a period of 30 days after the Company receives written notice specifying the default (and demanding that such default be remedied) from the Trustee or the Holders of at least 25% of the outstanding principal amount at maturity of the Notes (except in the case of a default with respect to Section 5.1, which will constitute an Event of Default with such notice requirement but without such passage of time requirement);
(d) the failure to pay at final stated maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness of the Company or any Restricted Subsidiary of the Company, or the acceleration
of the final stated maturity of any such Indebtedness (which acceleration is not rescinded, annulled or otherwise cured within 20 days of receipt by the Company or such Restricted Subsidiary of notice of any such acceleration), if the aggregate principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at final stated maturity or which has been accelerated (in each case with respect to which the 20-day period described above has passed), aggregates $5.0 million or more at any time;
(e) one or more judgments in an aggregate amount in excess of $5.0 million (to the extent not covered by insurance) shall have been rendered against the Company or any of its Significant Subsidiaries and such judgments remain undischarged, unpaid or unstayed for a period of 60 days after such judgment or judgments become final and non-appealable;
(f) the Company or any Significant Subsidiary of the Company:
(i) commences a voluntary case under any Bankruptcy Law,
(ii) consents to the entry of an order for relief against it in an involuntary case,
(iii) consents to the appointment of a custodian or receiver of it or for all or substantially, all of its property, or
(iv) makes a general assignment for the benefit of its creditors; or
(g) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(i) is for relief in an involuntary case against the Company or any Significant Subsidiary of the Company,
(ii) appoints a custodian or receiver of the Company or any Significant Subsidiary or for all or substantially all of the property of any of the foregoing, or
(iii) orders the liquidation of the Company or any of its Significant Subsidiaries,
and the order or decree remains unstayed and in effect for 60 consecutive days.
Section 6.2. Acceleration.
If an Event of Default (other than an Event of Default specified in clause (f) or (g) of Section 6.1 with respect to the Company) shall occur and be continuing, the Trustee or the Holders of at least 25% in aggregate principal amount at maturity of outstanding Notes may declare the Accreted Value of and accrued and unpaid interest, if any, on all the Notes to be due and payable by notice in writing to the Company and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration" and the same shall become immediately due and payable. If an Event of Default specified in clause (f) or (g) of Section 6.1 relating to the Company occurs and is continuing, then all unpaid Accreted Value of and premium, if any, and accrued and unpaid interest, if any, on all of the outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder.
The Holders of not less than a majority in aggregate principal amount at maturity of the Notes by written notice to the Company and the Trustee may, on behalf of the Holders of all of the Notes, rescind such declaration and its consequences:
(1) if the rescission would not conflict with any judgment or decree;
(2) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration;
(3) to the extent the payment of such interest is lawful, if interest on overdue installments of interest and overdue principal that has become due otherwise than by such declaration of acceleration has been paid;
(4) if the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances; and
(5) in the event of the cure or waiver of an Event of Default of the type described in clause (f) or (g) of Section 6.1, if the Trustee shall have received an Officers' Certificate and an Opinion of Counsel stating that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right consequent thereto.
Section 6.3. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of Accreted Value, premium, if any, interest or Addi-
tional Interest, if any, on the Notes or to enforce the performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding, and any recovery or judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Notes. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law.
Section 6.4. Waiver of Existing Defaults.
The Holders of a majority in aggregate principal amount at maturity of the Notes may waive any existing Default or Event of Default under this Indenture, and its consequences, except a default in the payment of the Accreted Value, premium, if any, or interest on any Notes. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.
Section 6.5. Control by Majority.
Holders of a majority in aggregate principal amount at maturity of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with applicable law or this Indenture that the Trustee reasonably determines may be unduly prejudicial to the rights of other Holders of Notes or that may subject the Trustee to personal liability and shall be entitled to the benefit of Sections 7.1(c)(iii) and (e).
Section 6.6. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default;
(b) the Holders of at least 25% in aggregate principal amount at maturity of the then outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and
(e) during such 60-day period the Holders of a majority in aggregate principal amount at maturity of the then outstanding Notes do not give the Trustee a direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note.
Section 6.7. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of Accreted Value, or premium, if any, interest or Additional Interest, if any, on the Note, on or after the respective due dates thereon (including in connection with an offer to repurchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the written consent of such Holder.
Section 6.8. Collection Suit by Trustee.
If an Event of Default specified in Section 6.l(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of Accreted Value, premium and Additional Interest, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, Accreted Value, premium, if any, and interest and Additional Interest, if any, and such further amounts as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expense, disbursements and advances of the Trustee, its agents and counsel.
Section 6.9. Notice.
The Company shall provide an Officers' Certificate to the Trustee promptly upon any such Officer obtaining knowledge of any Default or Event of Default (provided that such Officers shall provide such certification at least annually whether or not such Officers know of any Default or Event of Default) that has occurred and, if applicable, describe such Default or Event of Default and the status thereof.
Section 6.10. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents (including
accountants, experts or such other processionals as the Trustee deems necessary,
advisable or appropriate) and counsel and the Holders of the Notes allowed in
any judicial proceedings relative to the Company (or any other obligor upon the
Notes), its creditors or its property and shall be entitled and empowered to
collect, receive and distribute any money or other property payable or
deliverable on any such claims, and any custodian in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee, and in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.7. To the extent that the payment of any such compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.7 out of the estate in any such
proceeding, shall be denied for any reason, payment of the same shall be secured
by a lien on, and shall be paid out of, any and all distributions, dividends,
money, securities and other properties that the Holders may be entitled to
receive in such proceeding whether in liquidation or under any plan of
reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 6.11. Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under Section 7.7, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes for Accreted Value or Purchase Price, Redemption Price and Additional Interest, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for Accreted Value or Purchase Price, Redemption Price and Additional Interest, if any, and interest, respectively; and
Third: to the Company or to such party as a court of competent jurisdiction shall direct.
The Trustee may fix a special record date and payment date for any payment to Holders of Notes pursuant to this Section 6.11.
Section 6.12. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7, or a suit by Holders of more than 10% in aggregate principal amount at maturity of the then outstanding Notes.
ARTICLE VII.
TRUSTEE
Section 7.1. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the TIA and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture or the TIA against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may conclusively rely, without investigation, as to the truth or the statements and the correctness of the opinions expressed therein, upon and statements, certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to determine whether or not they conform on their face to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section;
(ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5.
(d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to this Section 7.1.
(e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, pursuant to the provisions of this Indenture, including, without limitation, Section 6.5, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense which might be incurred by it in compliance with such request or direction.
(f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.
Section 7.2. Rights of Trustee.
(a) The Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an Officer's Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel of its own selection and the written advice of such counsel and Opinions of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys, accountants, experts and such other professionals as the Trustee deems necessary, advisable or appropriate and shall not be responsible for the misconduct or negligence of any attorney, accountant, expert or other such professional appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficiently evidenced by a written order signed by two Officers of the Company.
(f) The Trustee shall not be charged with knowledge of
any Default or Event of Default under Section 6.1 (other than under Section
6.1(a) (subject to the following sentence) or Section 6.1(b)) unless either (i)
a Responsible Officer shall have actual knowledge thereof, or (ii) the Trustee
shall have received notice thereof in accordance with Section 12.2 from the
Company or any Holder of the Notes. The Trustee shall not be charged with
knowledge of the Company's obligation to pay Additional Interest, or the
cessation of such obligation, unless the Trustee receives written notice thereof
from the Company or any Holder.
(g) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder.
The Trustee may request that the Company deliver an Officers' Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers' Certificate may be signed by any person specified as so authorized in any such certificate previously delivered and not superseded.
Section 7.3. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest within the meaning of the TIA it must eliminate such conflict within 90 days, or apply (subject to the consent of the Company) to the Commission for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11.
Section 7.4. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture, or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the
Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication.
Section 7.5. Notice of Defaults.
If a Default or Event of Default occurs and is continuing, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default in payment on any Note (including the failure to make a mandatory repurchase pursuant hereto), the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes.
Section 7.6. Reports by Trustee to Holder of the Notes.
Within 60 days after each May 1 beginning with the May 1 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the
Holders of Notes shall be mailed to the Company and filed with the Commission
and each stock exchange on which the Notes are listed in accordance with TIA
Section 313(d). The Company shall promptly notify the Trustee when the Notes are
listed on any stock exchange.
Section 7.7. Compensation, Reimbursement and Indemnity.
The Company shall pay to the Trustee from time to time such compensation for its acceptance of this Indenture and the rendering by it of the services required hereunder as shall be agreed upon in writing by the Company and the Trustee. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by or on behalf of it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's attorneys, accountants, experts and such other professionals as the Trustee deems necessary, advisable or appropriate.
The Company shall indemnify the Trustee (which for purposes of this Section 7.7 shall include its officers, directors, employees and agents) and any predecessor Trustee against any and all losses, liabilities, claims, damages or expenses, including taxes (other than taxes based upon, measured by or determined by the income of the Trustee), incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture (including its duties under Section 9.6), including the costs and expenses of enforcing this Indenture against the Company (including this Section 7.7) and defending itself against or investigating any claim (whether asserted by the Company, any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or willful misconduct. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend any claim or threatened claim asserted against the Trustee, and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.7 shall survive the resignation or removal of the Trustee, the satisfaction and discharge of this Indenture and the termination of this Indenture.
To secure the Company's payment obligations in this Section 7.7, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay Accreted Value, premium, if any, Redemption Price or Purchase Price of or Additional Interest, if any, or interest on, particular Notes. Such Lien shall survive the resignation or removal of the Trustee, the satisfaction and discharge of this Indenture and the termination of this Indenture.
When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(f) or (g) occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law.
In no event shall the Trustee be liable for any indirect, special, punitive or consequential loss or damage of any kind whatsoever, including, but not limited to, lost profits, even if the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.
In no event shall the Trustee be liable for any failure or delay in the performance of its obligations hereunder because of circumstances beyond its control, including, but not limited to, acts of God, flood, war (whether declared or undeclared), terrorism, fire, riot, embargo, government action, including any laws, ordinances, regulations, governmental ac-
tion or the like which delay, restrict or prohibit the providing of the services contemplated by this Agreement.
Section 7.8. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a custodian, receiver or public officer takes charge of the Trustee or its property for the purpose of rehabilitation, conversation or liquidation; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the date on which the successor Trustee takes office, the Holders of a majority in aggregate principal amount at maturity of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 30 days after the retiring trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of Notes of at least 10% in aggregate principal amount at maturity of the then outstanding Notes may petition any court of competent jurisdiction, in the case of the Trustee, at the expense of the Company, for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note who has been a bona fide holder of a Note or Notes for at least six months, fails to comply with Section 7.10, such Holder of a Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring
Trustee shall become effective, and the successor Trustee shall have all the
rights, powers and duties of the Trustee under this Indenture. The Company shall
mail a notice of its succession to each Holder of a Note. The retiring Trustee
shall promptly transfer all property held by it as Trustee to the successor
Trustee; provided all sums owing to the Trustee hereunder have been paid and
subject to the Lien provided for in Section 7.7. Notwithstanding replacement of
the Trustee pursuant to this Section 7.8, the Company's obligations under
Section 7.7 shall continue for the benefit of the retiring Trustee.
Section 7.9. Successor Trustee by Merger, Etc.
If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation that is eligible under Section 7.10, the successor corporation without any further act shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof (including the District of Columbia) that is authorized under such laws to exercise corporate trust power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $50.0 million as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements of TIA Sections 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b).
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE VIII.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance.
The Company may, at the option of its Board of Directors evidenced by a Board Resolution set forth in an Officers' Certificate, at any time, elect to have either Sec-
tion 8.2 or 8.3 applied to all outstanding Notes upon compliance with the conditions set forth below in this Article VIII.
Section 8.2. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.1 of the option applicable to this Section 8.2, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.4, be deemed to have been discharged from its obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.5 and the other Sections of this Indenture referred to in clauses (a) through (d) below, and to have satisfied all their other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions that shall survive until otherwise terminated or discharged hereunder:
(a) the rights of Holders to receive payments in respect of the Accreted Value, premium, if any, and interest on the Notes when such payments are due;
(b) the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payments;
(c) the rights, powers, trust, duties and immunities of the Trustee and the Company's obligations in connection therewith; and
(d) the Legal Defeasance provisions of this Article VIII.
Subject to compliance with this Article VIII, the Company may exercise its option under this Section 8.2, notwithstanding the prior exercise of its option under Section 8.3.
Section 8.3. Covenant Defeasance.
Upon the Company's exercise under Section 8.1 of the option applicable to this Section 8.3, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.4, be released from its obligations under the covenants contained in Sections 3.9, 3.10, 4.5, 4.7 through 4.12, 4.13 (except to the extent that it applies to the Company's existence), and 4.14 through 4.19, both inclusive, and Section 5.1 with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document, and such omission to comply shall not constitute a Default or an Event of Default under Section 6.1, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.1 of the option applicable to this Section 8.3, subject to the satisfaction of the conditions set forth in Section 8.4 and Sections 6.1(c) through 6.1(e) shall not constitute Events of Default.
Section 8.4. Conditions to Legal or Covenant Defeasance.
The following are the conditions precedent to the application of either Section 8.2 or 8.3 to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders cash in U.S. dollars, U.S. Government Obligations, or a combination thereof, in such amounts as will be sufficient, in the written opinion of a nationally recognized firm of independent public accountants (a copy of which shall be provided to the Trustee), to pay the Accreted Value, premium, if any, and interest on the Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be;
(2) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that:
(a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling; or
(b) since the date of this Indenture, there has been a change in the applicable federal income tax law,
in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;
(1) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
(2) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit and the grant of any Lien securing such borrowings);
(3) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under this Indenture (other than a Default or an Event or Default resulting from the borrowing of funds to be applied to such deposit and the grant of any Lien securing such borrowings) or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound;
(4) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others;
(5) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with; and
(6) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that, assuming no intervening bankruptcy of the Company between the date of deposit and the 91st day following the date of deposit and that no Holder is an insider of the Company, after the 91st day following the date of deposit, the trust funds will not be subject to the effect of any applicable federal bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally.
Notwithstanding the foregoing, the Opinion of Counsel required
by clauses (2)(a) and (3) above need not be delivered if all Notes not
theretofore delivered to the Trustee for cancellation (1) have become due and
payable, (2) will become due and payable on the maturity date within one year or
(3) are to be called for redemption within one year un-
der arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company.
Section 8.5. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions.
Subject to Section 8.6, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.5 only, the "Trustee") pursuant to Section 8.4 in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (other than the Company) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of Accreted Value or Redemption Price of, and Additional Interest, if any, interest on, the Notes, that such money need not be segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or U.S. Government Obligations deposited pursuant to Section 8.4 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article VIII to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or U.S. Government Obligations held by it as provided in Section 8.4 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.4(a)), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.6. Repayment to the Company.
Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the Accreted Value, Redemption Price or Purchase Price of, or Additional Interest, if any, or interest on any Note and remaining unclaimed for two years after such amount has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter look only to the Company for payment thereof as a general creditor, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, at the expense of the Company, may cause to be published once, in The New York Times and The
Wall Street Journal (national editions), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days after the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company.
Section 8.7. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States dollars or U.S. Government Obligations in accordance with Section 8.2 or 8.3, as the case may be, by reason of any order of judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the obligations of the Company under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.2 or 8.3 until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.2 or 8.3, as the case may be; provided, however, that if the Company makes any payment with respect to any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE IX.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.1. Without Consent of Holders of Notes.
Notwithstanding Section 9.2, the Company and the Trustee may amend or supplement this Indenture or the Notes without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency so long as such changes do not, in the opinion of the Trustee, adversely affect the rights of any of the Holders in any material respect.
(b) to provide for uncertificated notes in addition to or in place of certificated Notes;
(c) to provide for the assumption of the Company's obligations to the Holders of the Notes in the case of a merger or consolidation or sale of all or substantially all of the Company's assets pursuant to Article V;
(d) to comply with the requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA; or
(e) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Notes.
Upon the request of the Company, accompanied by a Board Resolution (evidenced by an Officers' Certificate) (a copy of which shall be provided to the Trustee) authorizing the execution of any such amended or supplemental indenture, and upon receipt by the Trustee of an Officers' Certificate and an Opinion of Counsel in compliance with Section 9.6, the Trustee shall join with the Company in the execution of any amended or supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise.
Section 9.2. With Consent of Holders of Notes.
Except as provided below in this Section 9.2, the Company and the Trustee may amend or supplement this Indenture and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount at maturity of the Notes then outstanding (including, without limitation, consents obtained in connection with a tender offer or exchange offer for the Notes), and, subject to Sections 6.2, 6.4 and 6.7, any existing Default or Event of Default or compliance with any provision of this Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes).
Without the consent of each Holder affected, an amendment or waiver may not:
(1) reduce the amount of Notes whose Holders must consent to an amendment;
(2) reduce the rate of or change or have the effect of changing the time for payment of interest, including defaulted interest, on any Notes;
(3) reduce the Accreted Value of or change or have the effect of changing the fixed maturity of any Notes, or change the date on which any Notes may be subject to redemption or repurchase or reduce the redemption or repurchase price therefor;
(4) make any Notes payable in money other than that stated in the Notes;
(5) make any change in provisions of this Indenture protecting the right of each Holder to receive payment of principal of and interest on such Note on or after
the due date thereof or to bring suit to enforce such payment, or permitting Holders of a majority in principal amount of Notes to waive Defaults or Events of Default;
(6) after the Company's obligation to purchase Notes arises hereunder, amend, change or modify in any material respect the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control or make and consummate a Net Proceeds Offer with respect to any Asset Sale that has been consummated or modify any of the provisions or definitions with respect thereto; or
(7) modify or change any provision of this Indenture or the related definitions affecting the ranking of the Notes in a manner which adversely affects the Holders.
Upon the written request of the Company accompanied by a Board Resolution (evidenced by an Officers' Certificate) (a copy of which shall be provided to the Trustee) authorizing the execution of any such amended or supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of an Officers' Certificate and an Opinion of Counsel in compliance with Section 9.6, the Trustee shall join with the Company in the execution of such amended or supplemental indenture unless such amended or supplemental Indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders of Notes under this Section 9.2 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this Section 9.2 becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver.
Section 9.3. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental indenture that complies with the TIA as then in effect.
Section 9.4. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and therefore binds every Holder.
Section 9.5. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall authenticate new Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver.
Section 9.6. Trustee to Sign Amendment, Etc.
The Trustee shall sign any amended or supplemental indenture
authorized pursuant to this Article IX if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amended or supplemental indenture until the Board of
Directors approves such amended or supplemental indenture. In executing any
amended or supplemental indenture, the Trustee shall be entitled to receive, in
addition to the documents required by Sections 12.4 and 12.5, and, subject to
Section 7.1, shall be fully protected in relying upon, an Officers' Certificate
and an Opinion of Counsel stating that (i) the execution of such amended or
supplemental indenture is authorized or permitted by this Indenture, (ii) no
Event of Default shall occur as a result of the execution or delivery of such
amended or supplemental indenture and (iii) the amended or supplemental
indenture complies with the terms of this Indenture.
ARTICLE X.
GUARANTEE
Section 10.1. Unconditional Guarantee.
Each Guarantor, if any, hereby unconditionally guarantees (such guarantee to be referred to herein as a "Guarantee"), on a senior unsecured basis jointly and severally, to
each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, the Notes or the obligations of the Company hereunder or thereunder, that: (i) the Accreted Value and interest on the Notes will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration or otherwise and interest on the overdue principal, if any, and interest on any interest, to the extent lawful, of the Notes and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or of any such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration or otherwise, subject, however, in the case of clauses (i) and (ii) above, to the limitations set forth in Section 10.3. Each Guarantor, if any, hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, and action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor, if any, hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that this Guarantee will not be discharged except by complete performance of the obligations contained in the Notes, this Indenture and in this Guarantee. If any Holder or the Trustee is required by any court or otherwise to return to the Company, any Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Guarantor, any amount paid by the Company or any Guarantor to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor, if any, further agrees that, as between each Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article VI for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Article VI, such obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of this Guarantee.
Section 10.2. Severability.
In case any provision of this Guarantee shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
Section 10.3. Limitation of Guarantor's Liability.
Each Guarantor and by its acceptance hereof each Holder hereby confirms that it is the intention of all such parties that the guarantee by such Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or conveyance for purposes of any Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, the Holders and such Guarantor hereby irrevocably agree that the obligations of such Guarantor under its Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities (including all of its obligations under or with respect to the Credit Agreement and all Interest Swap Obligations and obligations under Currency Agreements) of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to Section 10.5, result in the obligations of such Guarantor under the Guarantee not constituting such fraudulent transfer or conveyance.
Section 10.4. Release of Guarantor.
(a) The Guarantee of a Guarantor will be automatically and unconditionally released without any action on the part of the Trustee or the Holders of the Notes: (1) in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor (including, without limitation, by way of merger or consolidation), if the Company applies the Net Cash Proceeds of that sale or other disposition in accordance with the applicable provisions of this Indenture; (2) in connection with any sale of all of the Capital Stock of that Guarantor, if the Company applies the Net Cash Proceeds of that sale in accordance with the applicable provisions of this Indenture; (3) if the Company designates that Guarantor as an Unrestricted Subsidiary in accordance with the applicable provisions of this Indenture; (4) upon the payment in full of the Notes; or (5) as provided in Section 4.16.
In addition, concurrently with any Legal Defeasance or Covenant Defeasance, the Guarantors shall be released from all of their Obligations under their respective applicable Guarantees.
(b) The Trustee shall deliver an appropriate instrument evidencing such release upon receipt of a request by the Company accompanied by an Officers' Certificate and Opinion of Counsel certifying as to the compliance with this Section 10.4.
Section 10.5. Contribution.
In order to provide for just and equitable contribution among the Guarantors, the Guarantors agree, inter se, that in the event any payment or distribution is made by any Guarantor (a "Funding Guarantor") under its Guarantee, such Funding Guarantor shall be entitled to a contribution from all other Guarantors in a pro rata amount based on the Adjusted
Net Assets (as defined below) of each Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by that Funding Guarantor in discharging the Company's obligations with respect to the Securities or any other Guarantor's obligations with respect to its Guarantee. "Adjusted Net Assets" of such Guarantor at any date shall mean the lesser of the amount by which (x) the fair value of the property of such Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), but excluding liabilities under its Guarantee, of such Guarantor at such date and (y) the present fair salable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), excluding debt in respect of the Guarantee of such Guarantor, as they become absolute and matured.
Section 10.6. Waiver of Subrogation.
Until all Obligations are paid in full, each Guarantor hereby irrevocably waives any claims or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of such Guarantor's obligations under its Guarantee and this Indenture, including, without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Holder against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentence and the Notes shall not have been paid in full, such amount shall have been deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Holders, and shall, forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied upon the Notes, whether matured or unmatured, in accordance with the terms of this Indenture. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 10.6 is knowingly made in contemplation of such benefits.
Section 10.7. Execution of Guarantee.
To evidence their guarantee to the Holders set forth in this Article X, the Guarantors hereby agree to execute the Guarantee in substantially the form attached hereto as Exhibit C, which shall be endorsed on each Note ordered to be authenticated and delivered by the Trustee. Each Guarantor hereby agrees that its Guarantee set forth in this Article X shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Guarantee. Each such Guarantee shall be signed on behalf of each Guarantor by one of its authorized Officers prior to the authentication of the Note on which it is endorsed, and
the delivery of such Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of such Guarantee on behalf of such Guarantor. Such signatures upon the Guarantee may be by manual or facsimile signature of such officers and may be imprinted or otherwise reproduced on the Guarantee, and in case any such officer who shall have signed the Guarantee shall cease to be such officer before the Note on which such Guarantee is endorsed shall have been authenticated and delivered by the Trustee or disposed of by the Company, such Note nevertheless may be authenticated and delivered or disposed of as though the Person who signed the Guarantee had not ceased to be such officer of the Guarantor.
Section 10.8. Waiver of Stay, Extension or Usury Laws.
Each Guarantor covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive each such Guarantor from performing its Guarantee as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) each such Guarantor hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.
ARTICLE XI.
SATISFACTION AND DISCHARGE
Section 11.1. Satisfaction and Discharge.
This Indenture will be discharged and will cease to be of further effect (except as set forth below) and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture when:
(1) either:
(a) all the Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid as provided in Section 2.7 and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation; or
(b) all Notes not theretofore delivered to the Trustee for cancellation have become due and payable or will be due and payable within one year and the Company has irrevocably deposited or caused to be deposited with the
Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Notes to the date of deposit together with irrevocable written instructions from the Company directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be;
(2) the Company has paid all other sums payable by the Company under this Indenture; and
(3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel stating that all conditions precedent under this Indenture relating to the satisfaction and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this
Indenture, the Company's obligations in Sections 2.3, 2.4, 2.6, 2.7, 2.11, 7.7,
7.8, 12.2, 12.3 and 12.4 and the Trustee's and Paying Agent's obligations in
Section 11.2 shall survive until the Notes are no longer outstanding.
Thereafter, only the Company's obligations in Section 7.7 shall survive.
Section 11.2. Application of Trust.
All money deposited with the Trustee pursuant to Section 11.1 shall be held in trust and, at the written direction of the Company, be invested prior to maturity in U.S. Government Obligations, and applied by the Trustee in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for the payment of which money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law.
ARTICLE XII.
MISCELLANEOUS
Section 12.1. Trust Indenture Act Controls.
If any provision hereof limits, qualifies or conflicts with a provision of the TIA or another provision that would be required or deemed under such Act to be part of and govern this Indenture if this Indenture were subject thereto, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be.
Section 12.2. Notices.
Any notice or communication by the Company or the Trustee to others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company:
Town Sports International Holdings, Inc.
888 Seventh Avenue
New York, New York 10106
Attention: Richard Pyle
Fax: (212) 664-8906
With a copy to:
Kirkland & Ellis LLP
153 E. 53rd Street
39th Floor
New York, New York 10022
Attention: Joshua N. Korff, Esq.
Fax: (212) 446-4943
If to the Trustee:
The Bank of New York
Attention: Corporate Trust Trustee Administration
101 Barclay Street, Floor 8W
New York, New York 10286
Fax: (212) 815-5707
The Company or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next
day delivery to its address shown on the register kept by the Registrar. Any
notice or communication shall also be so mailed to any Person described in TIA
Section 313(c), to the extent required by the TIA. Failure to mail a notice or
communication to a Holder or any defect in it shall not affect its sufficiency
with respect to other Holders.
If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the address receives it.
If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time.
Section 12.3. Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c).
Section 12.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied.
Section 12.5. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and
(d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied.
Section 12.6. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions.
Section 12.7. No Personal Liability of Directors, Officers, Employees and Stockholders.
No past, present or future director, officer, employee, incorporator, agent or stockholder or Affiliate or Subsidiary of the Company, as such, shall have any liability (except for any liability for any obligations of the Guarantors under the Guarantees, if any) for any obligations of the Company under the Notes, this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liabilities. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities law and it is the view of the Commission that such a waiver is against public policy.
Section 12.8. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.
THIS INDENTURE, THE GUARANTEES AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. THE COMPANY AND EACH GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
INDENTURE, THE GUARANTEES AND THE NOTES, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY AND EACH GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT THAT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY HOLDER OF THE NOTES TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY OR ANY GUARANTOR IN ANY OTHER JURISDICTION.
Section 12.9. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.
Section 12.10. Successors.
All agreements of the Company in this Indenture and the Notes shall bind their successors. All agreements of the Trustee in this Indenture shall bind its successors.
Section 12.11. Severability.
In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
Section 12.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
Section 12.13. Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture, which have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof.
Section 12.14. Qualification of Indenture.
The Company shall qualify this Indenture under the TIA in accordance with the terms and conditions of the Registration Rights Agreement and shall pay all reasonable costs and expenses (including attorneys' fees for the Company, the Trustee and the Holders of the Notes) incurred in connection therewith, including, but not limited to, costs and expenses of qualification of this Indenture and the Notes and printing this Indenture and the Notes. The Trustee shall be entitled to receive from the Company any such Officers' Certificates, Opinions of Counsel or other documentation as it may reasonably request in connection with any such qualification of this Indenture under the TIA.
[Signatures on following page]
SIGNATURES
TOWN SPORTS INTERNATIONAL
HOLDINGS, INC.
By: /s/ Richard Pyle
-------------------------------
Name: Richard Pyle
Title: Chief Financial Officer
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THE BANK OF NEW YORK,
as Trustee
By: /s/ Patricia Gallagher
--------------------------------
Name: Patricia Gallagher
Title: Vice President
|
EXHIBIT A
FORM OF SERIES A NOTE
(Face of Note)
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
11% SENIOR DISCOUNT NOTE DUE 2014
[THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A
DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE
EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER
OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITARY TO
A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY
OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.](1)
[THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURI-
TIES ACT), (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a)(1), (2), (3), OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR"), (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO TOWN SPORTS INTERNATIONAL HOLDINGS, INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS NOTE), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF TOWN SPORTS INTERNATIONAL HOLDINGS, INC. SO REQUESTS) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND TOWN SPORTS INTERNATIONAL, INC. SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.](2)
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
11% SENIOR DISCOUNT NOTE DUE 2014
CUSIP No.___________
No.____________ $___________________
Interest Payment Dates: February 1 and August 1 with cash interest payments commencing August 1, 2009 Record Dates: January 15 and July 15
THIS NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR PURPOSES OF SECTION 1271 ET SEQ. OF THE INTERNAL REVENUE CODE. FOR EACH $1,000 PRINCIPAL AMOUNT AT MATURITY OF THIS NOTE, THE ISSUE PRICE IS $585.95. THE ISSUE DATE OF THIS NOTE IS FEBRUARY 4, 2004 AND THE YIELD TO MATURITY IS 11%.
TOWN SPORTS INTERNATIONAL HOLDINGS, INC., a Delaware corporation (the "Company," which term includes any successor corporation under the indenture hereinafter referred to ), for value received promises to pay to ____________________________________________________ or registered assigns, the principal sum of _____________________ Dollars on February 1, 2014.
Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefits under the Indenture referred to on the reverse hereof or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed under its corporate seal.
[SEAL] Dated:
TOWN SPORTS INTERNATIONAL
HOLDINGS, INC.
By: ____________________________________
Name:
Title:
By: ____________________________________
Name:
Title:
This is one of the Notes referred to
in the within-mentioned Indenture:
THE BANK OF NEW YORK,
as Trustee
By: ________________________________
Name:
Title:
A-4
|
(Back of Note)
|
11% Senior Discount Notes due 2014
Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
(1) Interest. The Company promises to pay interest on the principal amount of this Note at the rate of 11% per annum from February 4, 2004 until maturity and shall pay the Additional Interest pursuant to Section 4 of the Registration Rights Agreement referred below. Prior to February 1, 2009, interest will accrue on the Notes in the form of an increase in the Accreted Value of the Notes, and no cash interest will be paid. The Accreted Value of the Notes will increase from the date of issuance until February 1, 2009 at a rate of 11% per annum compounded semi-annually as provided in the definition of "Accreted Value" in the Indenture such that the Accreted Value will equal the principal amount at maturity on February 1, 2009. The Company will pay cash interest and Additional Interest semi-annually on February 1 and August 1 of each year commencing August 1, 2009, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Cash interest on the Note will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from February 1, 2009; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be August 1, 2009. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue payments of the principal, Purchase Price and Redemption Price of this Note from time to time on demand at the same rate per annum on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Additional Interest, if any (without regard to any applicable grace periods), hereon from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months.
(2) Method of Payment. The Company will pay interest on the Notes (except defaulted interest) and Additional Interest, if any, to the Persons who are registered Holders of Notes at the close of business on the January 15 and July 15 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Any such installment of interest or Additional Interest, if any, not punctually paid or duly provided for shall forthwith cease to be payable to the registered Holders on such Interest Payment Date, and may be paid to the registered Holders at the close of business on a special interest payment date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered Holders not less than 10 days prior to such special interest payment date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully
provided in the Indenture. The Notes will be payable as to Accreted Value or principal, Redemption Price, Purchase Price, interest and Additional Interest, if any, at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Additional Interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders, provided that payment by wire transfer of immediately available funds will be required with respect to Accreted Value or principal, Redemption Price and Purchase Price of, and interest and Additional Interest (if any) on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Trustee or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.
(3) Paying Agent and Registrar. Initially, The Bank of New York, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company may act in any such capacity.
(4) Indenture. The Company issued the Notes under an Indenture dated as of February 4, 2004 (as in effect from time to time, the "Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S.C. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The Notes are general obligations of the Company.
(5) Optional Redemption. The Company may redeem the Notes, at the Company's option, in whole at any time, or in part from time to time, on or after February 1, 2009, upon not less than 30 nor more than 60 days' notice at the following Redemption Prices (expressed as a percentage of the principal amount), if redeemed during the 12-month period commencing on February 1 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption:
Redemption
Year Price
---- -----
2009............................................... 105.500%
2010............................................... 103.667%
2011............................................... 101.833%
2012 and thereafter................................ 100.000%
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If less than all the Notes are to be redeemed, the Trustee will select the particular Notes or portions thereof to be redeemed by lot, pro rata or by any other method the Trustee shall deem fair and reasonable.
(6) Optional Redemption upon Equity Offerings. At any time, or from time to time, on or prior to February 1, 2007, the Company may, at its option, use the net cash
proceeds of one or more Equity Offerings to redeem up to 35% of the original principal amount of the Notes issued under the Indenture at a Redemption Price equal to 111% of the Accreted Value thereof at the date of redemption, provided that at least 65% of the aggregate principal amount at maturity of Notes issued under the Indenture remains outstanding immediately after any such redemption; and provided, further, that the Company shall make such redemption not more than 120 days after the consummation of any such Equity Offering. If less than all the Notes are to be redeemed, the Trustee will select the particular Notes or portions thereof to be redeemed by lot, only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to DTC procedures).
(7) Mandatory Redemption. Except as set forth in Paragraph 9 below with respect to repurchases of Notes in certain events, the Company shall not be required to make mandatory redemption payments with respect to the Notes.
(8) Notice of Redemption. Subject to the provisions of the Indenture, a notice of redemption will be mailed at least 30 days but not more than 60 days (or in the case of a Change of Control Offer, at least 30 days but not more than 45 days, or in the case of a Net Proceeds Offer, within 30 days) before the applicable redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 principal amount at maturity may be redeemed in part but only in whole multiples of $1,000 principal amount at maturity, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption.
(9) Repurchase at Option of Holder.
(a) If there is a Change of Control, the Company shall be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a Purchase Price equal to 101% of the Accreted Value thereof plus accrued and unpaid interest and Additional Interest, if any, to the date of repurchase, in accordance with the procedures set forth in the Indenture. Within 30 days following any Change of Control, the Company shall send, by first class mail, a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture.
(b) On the 361st day after an Asset Sale or such earlier
date, if any, as the Board of Directors of the Company or of such Restricted
Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset
Sale as set forth in clauses (3)(a), (3)(b) and (3)(c) of paragraph (A) of
Section 4.10 of the Indenture (each, a "Net Proceeds Offer Trigger Date"), such
aggregate amount of Net Cash Proceeds which have not been applied on or before
such Net Proceeds Offer Trigger Date as permitted in clauses (3)(a), (3)(b) and
(3)(c) of paragraph (A) of Section 4.10 of the Indenture (each, a "Net Proceeds
Offer Amount") shall be applied by the Company or such Restricted Subsidiary to
make an offer to purchase (the "Net Proceeds Offer") on a date not less than 45
nor more than 60 days following the applicable Net Proceeds Offer Trigger Date,
the maximum Accreted Value of Notes and principal amount of other Indebtedness
of the Company that ranks pari passu in right of payment with
the Notes (to the extent required by the instrument governing such other Indebtedness) that may be purchased out of the Net Proceeds Offer Amount; provided, however, notwithstanding the foregoing, in the case of an Asset Sale by a Restricted Subsidiary of the Company, the Company shall not be required to make a Net Proceeds Offer to the extent such Restricted Subsidiary is not permitted pursuant to its outstanding Indebtedness to make a Restricted Payment to the Company. Any Notes and other Indebtedness to be purchased pursuant to a Net Proceeds Offer shall be purchased pro rata based on the aggregate principal amount of Notes and such other Indebtedness outstanding and all Notes shall be purchased at an offer price in cash in an amount equal to 100% of the Accreted Value thereof, plus accrued and unpaid interest to the date of purchase. Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 25 days following the Net Proceeds Offer Trigger Date, with a copy to the Trustee, and shall comply with the procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their Notes in whole or in part in integral multiples of $1,000 principal amount at maturity in exchange for cash. To the extent Holders properly tender Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open for a period of 20 Business Days or such longer period as may be required by law.
(10) Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 principal amount at maturity and integral multiples of $1,000 principal amount at maturity. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date.
(11) Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes.
(12) Amendment, Supplement and Waiver. Subject to certain exceptions, the Indenture and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount at maturity of the then outstanding Notes, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount at maturity of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture and the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of
any such Holder, or to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act.
(13) Defaults and Remedies. Events of Default include: (i) default for 30 days in the payment when due of interest or Additional Interest, if any, on the Notes; (ii) default in payment when due of principal, Redemption Price or Purchase Price of the Notes when the same becomes due and payable at maturity, upon redemption, repurchase or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer); (iii) failure by the Company to comply with any covenant contained in the Indenture for 30 days after notice to the Company by the Trustee or the Holders of at least 25% of the aggregate principal amount at maturity of the Notes outstanding; (iv) default under certain other agreements relating to Indebtedness of the Company which default (a) is caused by a failure to pay any amount due at the final stated maturity thereof or (b) results in the acceleration of such Indebtedness prior to its express final stated maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a default for failure to pay principal at final stated maturity or the final stated maturity of which has been so accelerated, aggregates $5.0 million or more and such failure shall not have been cured or waived within 20 days thereof; (v) certain final judgments of the Company or any Significant Subsidiary for the payment of money that remain undischarged for a period of 60 days, provided that the aggregate of all such undischarged judgments exceeds $5.0 million; and (vi) certain events of bankruptcy or insolvency with respect to the Company or any Significant Subsidiary of the Company. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Upon any such declaration, the Accreted Value of, and accrued and unpaid interest, if any, and Additional Interest, if any, on the Notes shall become immediately due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in aggregate principal amount at maturity of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to payment on any Note) if it determines that withholding notice is in their interest. The Holders of a majority in principal amount at maturity of the Notes may waive any existing or past Default or Event of Default under the Indenture, and its consequences, except a default in the payment of the principal of, or interest on any Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.
(14) Trustee Dealings with Company. Subject to certain limitations, the Trustee under the Indenture, in its individual or any other capacity, may become owner or
pledge of Notes and may otherwise deal with the Company or its Affiliates as if it were not Trustee.
(15) No Recourse Against Others. No past, present or future director, officer, employee, incorporator or stockholder or Affiliate or Subsidiary of the Company, as such, shall have any liability (except for any liability for any obligations of the Guarantors under the Guarantees, if any) for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes.
(16) Authentication. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.
(17) Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
(18) Discharge Prior to Maturity. If the Company deposits with the Trustee or Paying Agent cash or U.S. Government Obligations sufficient to pay the principal or Redemption Price of, and interest and Additional Interest, if any, on, the Notes to maturity or a specified Redemption Date and satisfies certain conditions specified in the Indenture, the Company will be discharged from the Indenture, except for certain Sections thereof.
(19) Governing Law. The Indenture and this Note shall be governed by and construed in accordance with the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. The Company hereby irrevocably submits to the jurisdiction of any New York state court sitting in the Borough of Manhattan in the City of New York or any Federal court sitting in the Borough of Manhattan in the City of New York in respect of any suit, action or proceeding arising out of or relating to the Indenture and the Notes, and irrevocably accepts for itself and in respect of its property, generally and unconditionally, jurisdiction of the aforesaid courts. The Company irrevocably waives, to the fullest extent that it may effectively do so under applicable law, trial by jury and any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Trustee or any Holder of the Notes to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Company in any other jurisdiction.
(20) CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the correctness or ac-
curacy of such numbers either as printed on the Notes or as contained in any notice of redemption or repurchase and reliance may be placed only on the other identification numbers placed thereon.
(21) Registration Rights. Pursuant to the Registration Rights Agreement, the Company will be obligated upon the occurrence of certain events to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Series A Note for the Company's 11% Senior Notes due 2014, Series B, which have been registered under the Securities Act, in like principal amount and having terms identical in all material respects as the Series A Notes. The Holders shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement.
The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to:
Town Sports International Holdings, Inc. 888 Seventh Avenue New York, New York 10106 Attention: Richard Pyle
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to
and irrevocably appoint_________________________________________________________ agent to transfer this Note on the books of the Company. The agent may substitute another to act for him.
Date: _____________________
Your Signature: __________________________________ (Sign exactly as your name appears on the face of this Note)
Signature Guarantee: _________________________________________ (Participant in recognized signature guarantee medallion program)
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to elect to have all or any portion of this Note
purchased by the Company pursuant to Section 4.10 ("Net Proceeds Offer") or
Section 4.15 ("Change of Control Offer") of the Indenture, check the applicable
boxes
[ ] Net Proceeds Offer: [ ] Change of Control Offer:
in whole [ ] in whole [ ]
in part [ ] in part [ ]
Amount to be Amount to be
purchased: $___________ purchased: $___________
Dated: ____________________ Signature: ____________________
(Sign exactly as your
name appears on the
other side of this
Note)
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Signature Guarantee: _________________________________________ (Participant in recognized signature guarantee medallion program)
Social Security Number or Taxpayer Identification Number: ______________________________
EXHIBIT B
FORM OF SERIES B NOTE
(Face of Note)
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
11% SENIOR DISCOUNT NOTE DUE 2014
[THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A
DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE
EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER
OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITARY TO
A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY
OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.](3)
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
11% SENIOR DISCOUNT NOTE DUE 2014
CUSIP No.___________
No.____________ $___________________
Interest Payment Dates: February 1 and August 1 Record Dates: January 15 and July 15
THIS NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR PURPOSES OF SECTION 1271 ET SEQ. OF THE INTERNAL REVENUE CODE. FOR EACH $1,000 PRINCIPAL AMOUNT AT MATURITY OF THIS NOTE, THE ISSUE PRICE IS $585.95. THE ISSUE DATE OF THIS NOTE IS FEBRUARY 4, 2004 AND THE YIELD TO MATURITY IS 11%.
TOWN SPORTS INTERNATIONAL HOLDINGS, INC., a Delaware corporation (the "Company," which term includes any successor corporation under the indenture hereinafter referred to ), for value received promises to pay to ____________________________________________________ or registered assigns, the principal sum of _____________________ Dollars on February 4, 2014.
Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefits under the Indenture referred to on the reverse hereof or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed under its corporate seal.
[SEAL] Dated:
TOWN SPORTS INTERNATIONAL
HOLDINGS, INC.
By: _______________________________
Name:
Title:
By: _______________________________
Name:
Title:
This is one of the Notes referred to
in the within-mentioned Indenture:
THE BANK OF NEW YORK,
as Trustee
By: ________________________________
Name:
Title:
B-3
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(Back of Note)
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11% Senior Discount Notes due 2014
Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
1. Interest. The Company promises to pay interest on the principal amount of this Note at the rate of 11% per annum from February 4 until maturity. Prior to February 1, 2009, interest will accrue on the Notes in the form of an increase in the Accreted Value of the Notes, and no cash interest will be paid. The Accreted Value of the Notes will increase from the date of issuance until February 1, 2009 at a rate of 11% per annum compounded semi-annually as provided in the definition of "Accreted Value" in the Indenture such that the Accreted Value will equal the principal amount at maturity on February 1, 2009. The Company will pay cash interest and Additional Interest semi-annually on February 1 and August 1 of each year commencing on August 1, 2009, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Cash interest on the Note will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from February 1, 2009; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be August 1, 2009. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue payments of the principal, Purchase Price and Redemption Price of this Note from time to time on demand at the same rate per annum on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Additional Interest, if any (without regard to any applicable grace periods), hereon from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Notes (except defaulted interest) and Additional Interest, if any, to the Persons who are registered Holders of Notes at the close of business on the January 15 and July 15 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Any such installment of interest or Additional Interest, if any, not punctually paid or duly provided for shall forthwith cease to be payable to the registered Holders on such Interest Payment Date, and may be paid to the registered Holders at the close of business on a special interest payment date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered Holders not less than 10 days prior to such special interest payment date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. The Notes will be payable as to Accreted Value or principal, Re-
demption Price, Purchase Price, interest and Additional Interest, if any, at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Additional Interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders, provided that payment by wire transfer of immediately available funds will be required with respect to Accreted Value or principal, Redemption Price and Purchase Price of, and interest and Additional Interest (if any) on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Trustee or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.
3. Paying Agent and Registrar. Initially, The Bank of New York, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company may act in any such capacity.
4. Indenture. The Company issued the Notes under an Indenture dated as of February 4, 2004 (as in effect from time to time, the "Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S.C. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The Notes are general obligations of the Company.
5. Optional Redemption. The Company may redeem the Notes, at the Company's option, in whole at any time, or in part from time to time, on or after February 1, 2009, upon not less than 30 nor more than 60 days' notice at the following Redemption Prices (expressed as a percentage of the principal amount), if redeemed during the 12-month period commencing on February 1 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption:
Redemption
Year Price
---- -----
2009............................................... 105.500%
2010............................................... 103.667%
2011............................................... 101.833%
2012 and thereafter................................ 100.000%
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If less than all the Notes are to be redeemed, the Trustee will select the particular Notes or portions thereof to be redeemed by lot, pro rata or by any other method the Trustee shall deem fair and reasonable.
6. Optional Redemption upon Equity Offerings. At any time, or from time to time, on or prior to February 1, 2007, the Company may, at its option, use the net cash proceeds of one or more Equity Offerings to redeem up to 35% of the original principal
amount of the Notes issued under the Indenture at a Redemption Price equal to 111% of the Accreted Value thereof at the date of redemption, provided that at least 65% of the aggregate principal amount at maturity of Notes issued under the Indenture remains outstanding immediately after any such redemption; and provided, further, that the Company shall make such redemption not more than 120 days after the consummation of any such Equity Offering. If less than all the Notes are to be redeemed, the Trustee will select the particular Notes or portions thereof to be redeemed by lot, only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to DTC procedures).
7. Mandatory Redemption. Except as set forth in Paragraph 9 below with respect to repurchases of Notes in certain events, the Company shall not be required to make mandatory redemption payments with respect to the Notes.
8. Notice of Redemption. Subject to the provisions of the Indenture, a notice of redemption will be mailed at least 30 days but not more than 60 days (or in the case of a Change of Control Offer, at least 30 days but not more than 45 days, or in the case of a Net Proceeds Offer, within 30 days) before the applicable redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 principal amount at maturity may be redeemed in part but only in whole multiples of $1,000 principal amount at maturity, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption.
9. Repurchase at Option of Holder.
(a) If there is a Change of Control, the Company shall be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a Purchase Price equal to 101% of the Accreted Value thereof plus accrued and unpaid interest and Additional Interest, if any, to the date of repurchase, in accordance with the procedures set forth in the Indenture. Within 30 days following any Change of Control, the Company shall send, by first class mail, a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture.
(b) On the 361st day after an Asset Sale or such earlier
date, if any, as the Board of Directors of the Company or of such Restricted
Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset
Sale as set forth in clauses (3)(a), (3)(b) and (3)(c) of paragraph (A) of
Section 4.10 of the Indenture (each, a "Net Proceeds Offer Trigger Date"), such
aggregate amount of Net Cash Proceeds which have not been applied on or before
such Net Proceeds Offer Trigger Date as permitted in clauses (3)(a), (3)(b) and
(3)(c) of paragraph (A) of Section 4.10 of the Indenture (each, a "Net Proceeds
Offer Amount") shall be applied by the Company or such Restricted Subsidiary to
make an offer to purchase (the "Net Proceeds Offer") on a date not less than 45
nor more than 60 days following the applicable Net Proceeds Offer Trigger Date,
the maximum Accreted Value of Notes and principal amount of other Indebtedness
of the Company that ranks pari passu in right of payment with the Notes (to the
extent required by the instrument governing such other Indebtedness) that
may be purchased out of the Net Proceeds Offer Amount; provided, however, notwithstanding the foregoing, in the case of an Asset Sale by a Restricted Subsidiary of the Company, the Company shall not be required to make a Net Proceeds Offer to the extent such Restricted Subsidiary is not permitted pursuant to its outstanding Indebtedness to make a Restricted Payment to the Company. Any Notes and other Indebtedness to be purchased pursuant to a Net Proceeds Offer shall be purchased pro rata based on the aggregate principal amount of Notes and such other Indebtedness outstanding and all Notes shall be purchased at an offer price in cash in an amount equal to 100% of the Accreted Value thereof, plus accrued and unpaid interest to the date of purchase. Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 25 days following the Net Proceeds Offer Trigger Date, with a copy to the Trustee, and shall comply with the procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their Notes in whole or in part in integral multiples of $1,000 principal amount at maturity in exchange for cash. To the extent Holders properly tender Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open for a period of 20 Business Days or such longer period as may be required by law.
10. Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 principal amount at maturity and integral multiples of $1,000 principal amount at maturity. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date.
11. Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes.
12. Amendment, Supplement and Waiver. Subject to certain exceptions, the Indenture and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount at maturity of the then outstanding Notes, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount at maturity of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture and the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of
any such Holder, or to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act.
13. Defaults and Remedies. Events of Default include: (i) default for 30 days in the payment when due of interest or Additional Interest, if any, on the Notes; (ii) default in payment when due of principal, Redemption Price or Purchase Price of the Notes when the same becomes due and payable at maturity, upon redemption, repurchase or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer); (iii) failure by the Company to comply with any covenant contained in the Indenture for 30 days after notice to the Company by the Trustee or the Holders of at least 25% of the aggregate principal amount at maturity of the Notes outstanding; (iv) default under certain other agreements relating to Indebtedness of the Company which default (a) is caused by a failure to pay any amount due at the final stated maturity thereof or (b) results in the acceleration of such Indebtedness prior to its express final stated maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a default for failure to pay principal at final stated maturity or the final stated maturity of which has been so accelerated, aggregates $5.0 million or more and such failure shall not have been cured or waived within 20 days thereof; (v) certain final judgments of the Company or any Significant Subsidiary for the payment of money that remain undischarged for a period of 60 days, provided that the aggregate of all such undischarged judgments exceeds $5.0 million; and (vi) certain events of bankruptcy or insolvency with respect to the Company or any Significant Subsidiary of the Company. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Upon any such declaration, the Accreted Value of, and accrued and unpaid interest, if any, and Additional Interest, if any, if any, on the Notes shall become immediately due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in aggregate principal amount at maturity of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to payment on any Note) if it determines that withholding notice is in their interest. The Holders of a majority in principal amount at maturity of the Notes may waive any existing or past Default or Event of Default under the Indenture, and its consequences, except a default in the payment of the principal of, or interest on any Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.
14. Trustee Dealings with Company. Subject to certain limitations, the Trustee under the Indenture, in its individual or any other capacity, may become owner or
pledge of Notes and may otherwise deal with the Company or its Affiliates as if it were not Trustee.
15. No Recourse Against Others. No past, present or future director, officer, employee, incorporator or stockholder or Affiliate or Subsidiary of the Company, as such, shall have any liability (except for any liability for any obligations of the Guarantors under the Guarantees, if any) for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes.
16. Authentication. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.
17. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
18. Discharge Prior to Maturity. If the Company deposits with the Trustee or Paying Agent cash or U.S. Government Obligations sufficient to pay the principal or Redemption Price of, and interest and Additional Interest, if any, on, the Notes to maturity or a specified Redemption Date and satisfies certain conditions specified in the Indenture, the Company will be discharged from the Indenture, except for certain Sections thereof.
19. Governing Law. The Indenture and this Note shall be governed by and construed in accordance with the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. The Company hereby irrevocably submits to the jurisdiction of any New York state court sitting in the Borough of Manhattan in the City of New York or any Federal court sitting in the Borough of Manhattan in the City of New York in respect of any suit, action or proceeding arising out of or relating to the Indenture and the Notes, and irrevocably accepts for itself and in respect of its property, generally and unconditionally, jurisdiction of the aforesaid courts. The Company irrevocably waives, to the fullest extent that it may effectively do so under applicable law, trial by jury and any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Trustee or any Holder of the Notes to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Company in any other jurisdiction.
20. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the correctness or ac-
curacy of such numbers either as printed on the Notes or as contained in any notice of redemption or repurchase and reliance may be placed only on the other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to:
Town Sports International Holdings, Inc. 888 Seventh Avenue New York, New York 10106 Attention: Richard Pyle
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to
and irrevocably appoint_________________________________________________________ agent to transfer this Note on the books of the Company. The agent may substitute another to act for him.
Date: _____________________
Your Signature: __________________________ (Sign exactly as your name appears on the face of this Note)
Signature Guarantee: _________________________________________ (Participant in recognized signature guarantee medallion program)
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to elect to have all or any portion of this Note
purchased by the Company pursuant to Section 4.10 ("Net Proceeds Offer") or
Section 4.15 ("Change of Control Offer") of the Indenture, check the applicable
boxes
[ ] Net Proceeds Offer: [ ] Change of Control Offer:
in whole [ ] in whole [ ]
in part [ ] in part [ ]
Amount to be Amount to be
purchased: $___________ purchased: $___________
Dated: ____________________ Signature: ____________________
(Sign exactly as your
name appears on the
other side of this
Note)
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Signature Guarantee: _________________________________________ (Participant in recognized signature guarantee medallion program)
Social Security Number or Taxpayer Identification Number: ______________________________
EXHIBIT C
GUARANTEE
For value received, the undersigned hereby unconditionally guarantees, as principal obligor and not only as a surety, to the Holder of this Note the cash payments in United States dollars of principal of, premium, if any, and interest on this Note (and including Additional Interest payable thereon) in the amounts and at the times when due and interest on the overdue principal, premium, if any, and interest, if any, of this Note, if lawful, and the payment or performance of all other Obligations of the Company under the Indenture (as defined below) or the Note, to the Holder of this Note and the Trustee, all in accordance with and subject to the terms and limitations of this Note, Article X of the Indenture and this Guarantee. This Guarantee will become effective in accordance with Article X of the Indenture and its terms shall be evidenced therein. The validity and enforceability of this Guarantee shall not be affected by the fact that it is not affixed to any particular Note. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Indenture dated as of February 4, 2004, between Town Sports International Holdings, Inc., a Delaware corporation, as issuer (the "Company") and The Bank of New York, as trustee (the "Trustee") (as amended or supplemented, the "Indenture").
THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Each Guarantor hereby agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Guarantee.
This Guarantee is subject to release upon the terms set forth in the Indenture.
[GUARANTOR]
By: _______________________
Name:
Title:
EXHIBIT D(1)
FORM OF REGULATION S CERTIFICATE
__________________,______________
The Bank of New York
101 Barclay Street, Floor 21W
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Re: Town Sports International Holdings, Inc. (the "Company") 11% Senior Discount Notes due 2014 (the "Notes")
Dear Sirs:
This letter relates to U.S. $ ______________ principal amount at maturity of Notes represented by a certificate (the "Legended Certificate") which bears a legend outlining restrictions upon transfer of such Legended Certificate. Pursuant to Section 2.1 of the Indenture (the "Indenture") dated as of February 4, 2004 relating to the Notes, we hereby certify that we are (or we will hold such securities on behalf of) a person outside the United States to whom the Notes could be transferred in accordance with Rule 904 of Regulation S promulgated under the U.S. Securities Act of 1933, as amended.
You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this letter have the meanings set forth in Regulation S).
Very truly yours,
[Name of Holder]
By: ___________________________ Authorized Signature
D(1)-1
EXHIBIT D(2)
CERTIFICATE TO BE DELIVERED
UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES
__________________,______________
The Bank of New York
101 Barclay Street, Floor 21W
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Re: Town Sports International Holdings, Inc. (the "Company") 11% Senior Discount Notes due 2014 (the "Notes")
Dear Sirs:
This Certificate relates to $ _____________ principal amount of Notes held in *____ book-entry or * _____ certificated form by ____________ (the "Transferor").
The Transferor:*
[ ] has requested the Trustee by written order to deliver in exchange for its beneficial interest in the Global Note held by the Depositary a Note or Notes in certificated, registered form of authorized denominations in an aggregate principal amount equal to its beneficial interest in such Global Note (or the portion thereof indicated above); or
[ ] has requested the Trustee by written order to exchange or register the transfer of a Note or Notes.
In connection with such request and in respect of each such Note, the Transferor does hereby certify that Transferor is familiar with the Indenture relating to the above captioned Notes and as provided in Section 2.6 of such Indenture, the transfer of this Note does not require registration under the Securities Act (as defined below) because:*
[ ] Such Note is being acquired for the Transferor's own account, without transfer.
D(2)-1
[ ] Such Note is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933, as amended (the "Securities Act")) in reliance on Rule 144A.
[ ] Such Note is being transferred to an "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) in accordance with Regulation D under the Securities Act.
[ ] Such Note is being transferred pursuant to an exemption from registration in accordance with Regulation S under the Securities Act.
[ ] Such Note is being transferred in accordance with Rule 144 under the Securities Act, or pursuant to an effective registration statement under the Securities Act.
[ ] Such Note is being transferred in reliance on and in compliance with an exemption from the registration requirements of the Securities Act, other than Rule 144A, 144 or Rule 904 under the Securities Act. An Opinion of Counsel to the effect that such transfer does not require registration under the Securities Act accompanies this Certificate.
Very truly yours,
By: ______________________________
Name:
Title:
Date: __________________
D(2)-2
EXHIBIT E
FORM OF CERTIFICATE TO BE
DELIVERED IN CONNECTION WITH
TRANSFERS TO NON QIB ACCREDITED INVESTORS
_____________________,____________
The Bank of New York
101 Barclay Street, Floor 8W
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Re: Town Sports International Holdings, Inc. (the "Company") 11% Senior Discount Notes due 2014 (the "Notes")
Dear Sirs:
In connection with our proposed purchase of the Notes of the Company, we confirm that:
We understand that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the Indenture dated as of February 4, 2004 relating to the Notes (the "Indenture") and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes except in compliance with such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act").
We understand that the Notes have not been registered under the Securities Act or any other applicable securities law, and that the Notes may not be offered, sold or otherwise transferred except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should offer, sell, transfer, pledge, hypothecate or otherwise dispose of any Notes within two years after the original issuance of the Notes, we will do so only (A) to the Company or any Subsidiary thereof, (B) inside the United States to a "qualified institutional buyer" in compliance with Rule 144A under the Securities Act, (C) inside the United States to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes to you a signed letter substantially in the form of this letter, (D) outside the United States to a foreign person in compliance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available), (F) in accordance with another exemption from the registration requirements of the Securities Act, or (G) pursuant to an effective registration statement under the Securities Act, and we further
agree to provide to any person purchasing any of the Notes from us a notice advising such purchaser that resales of the Notes are restricted as stated herein and in the Indenture.
We understand that, on any proposed transfer of any Notes prior to the later of the original issue date of the Notes and the last date the Notes were held by an affiliate of the Company pursuant to paragraphs 2(C), 2(D) and 2(E) above, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed transfer complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect.
We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are acquiring the Notes for investment purposes and not with a view to, or offer of sale in connection with, any distribution in violation of the Securities Act, and we are each able to bear the economic risk of our or its investment.
We are acquiring the Notes purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby.
Very truly yours,
(Name of Transferee)
By: _______________________________
Authorized Signature
EXHIBIT F
FORM OF CERTIFICATE TO BE DELIVERED
IN CONNECTION WITH TRANSFERS
PURSUANT TO REGULATION S
__________________,________
The Bank of New York
Attention: Corporate Trust Trustee Administration
101 Barclay Street, Floor 8W
New York, New York 10286
Re: Town Sports International Holdings, Inc. (the "Company") 11% Senior Discount Notes due 2014 (the "Notes")
Dear Sirs:
In connection with our proposed sale of $_________ aggregate principal amount at maturity of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the Securities Act of 1933, as amended, and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United States;
(2) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States;
(3) no directed selling efforts have been made by us in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the registration requirements of the U.S. Securities Act of 1933.
You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this letter have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By: _______________________________ Authorized Signature
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
Dated as of February 4, 2004
By and Between
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
as Issuer,
and
DEUTSCHE BANK SECURITIES INC.
as Initial Purchaser
11% SENIOR DISCOUNT NOTES DUE 2014
TABLE OF CONTENTS
Page
----
1. DEFINITIONS............................................................... 1
2. EXCHANGE OFFER............................................................ 4
3. SHELF REGISTRATION........................................................ 8
4. ADDITIONAL INTEREST....................................................... 9
5. REGISTRATION PROCEDURES................................................... 11
6. REGISTRATION EXPENSES..................................................... 19
7. INDEMNIFICATION........................................................... 20
8. RULE 144 AND 144A......................................................... 23
9. UNDERWRITTEN REGISTRATIONS................................................ 24
10. MISCELLANEOUS............................................................ 24
(a) No Inconsistent Agreements............................................ 24
(b) Adjustments Affecting Registrable Securities.......................... 24
(c) Amendments and Waivers................................................ 24
(d) Notices............................................................... 25
(e) Successors and Assigns................................................ 26
(f) Counterparts.......................................................... 26
(g) Headings.............................................................. 26
(h) Governing Law......................................................... 26
(i) Severability.......................................................... 26
(j) Securities Held by the Issuers or their Affiliates.................... 27
(k) Third Party Beneficiaries............................................. 27
(l) Entire Agreement...................................................... 27
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REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of February 4, 2004 by and between Town Sports International Holdings, Inc., a Delaware corporation (the "Company") and Deutsche Bank Securities Inc. (the "Initial Purchaser").
This Agreement is entered into in connection with the Purchase Agreement, dated as of January 28, 2004, by and between the Company and the Initial Purchaser (the "Purchase Agreement") that provides for the sale by the Company to the Initial Purchaser of $213,000,000 aggregate principal amount at maturity (yielding gross proceeds of approximately $124,807,350) of the Company's 11% Senior Discount Notes due 2014 (the "Notes"). In order to induce the Initial Purchaser to enter into the Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement for the benefit of the Initial Purchaser and its direct and indirect transferees and assigns. The execution and delivery of this Agreement is a condition to the Initial Purchaser's obligation to purchase the Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the following meanings:
Accreted Value: Shall have the meaning assigned thereto in the Indenture.
Additional Interest: See Section 4(a) hereof.
Advice: See the last paragraph of Section 5 hereof.
Agreement: See the first introductory paragraph hereto.
Applicable Period: See Section 2(b) hereof.
Closing Date: The Closing Date as defined in the Purchase Agreement.
Company: See the first introductory paragraph hereto.
Effectiveness Date: The date that is 210 days after the Issue Date; provided, however, that with respect to any Shelf Registration, the Effectiveness Date shall be the 210th day after the delivery of a Shelf Notice as required pursuant to Section 2(c) hereof.
Effectiveness Period: See Section 3(a) hereof.
Event Date: See Section 4(b) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
Exchange Notes: See Section 2(a) hereof.
Exchange Offer: See Section 2(a) hereof.
Exchange Offer Registration Statement: See Section 2(a) hereof.
Filing Date: (A) If no Exchange Offer Registration Statement has been filed by the Issuers pursuant to this Agreement, the 120th day after the Issue Date; and (B) with respect to a Shelf Registration Statement, the 120th day after the delivery of a Shelf Notice as required pursuant to Section 2(c) hereof.
Holder: Any holder of a Registrable Security or Registrable Securities.
Indemnified Person: See Section 7(c) hereof.
Indemnifying Person: See Section 7(c) hereof.
Indenture: The Indenture, dated as of February 4, 2004, by and between the Company and The Bank of New York, as trustee, pursuant to which the Notes are being issued, as amended or supplemented from time to time in accordance with the terms thereof.
Initial Purchaser: See the first introductory paragraph hereto.
Inspectors: See Section 5(o) hereof.
Issue Date: The date on which the Notes were sold to the Initial Purchaser pursuant to the Purchase Agreement.
NASD: See Section 5(t) hereof.
Notes: See the second introductory paragraph hereto.
Offering Memorandum: The final offering memorandum of the Company dated January 28, 2004, in respect of the offering of the Notes.
Participant: See Section 7(a) hereof.
Participating Broker-Dealer: See Section 2(b) hereof.
Person: An individual, trustee, corporation, partnership, limited liability company, joint stock company, trust, unincorporated association, union, business association, firm or other legal entity.
Private Exchange: See Section 2(b) hereof.
Private Exchange Notes: See Section 2(b) hereof.
Prospectus: The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement: See the second introductory paragraph hereto.
Records: See Section 5(o) hereof.
Registrable Notes: Each Note upon original issuance of the
Notes and at all times subsequent thereto, each Exchange Note as to which
Section 2(c)(v) hereof is applicable upon original issuance and at all times
subsequent thereto and each Private Exchange Note upon original issuance thereof
and at all times subsequent thereto, until in the case of any such Note,
Exchange Note or Private Exchange Note, as the case may be, the earliest to
occur of (i) a Registration Statement (other than, with respect to any Exchange
Note as to which Section 2(c)(v) hereof is applicable, the Exchange Offer
Registration Statement) covering such Note, Exchange Note or Private Exchange
Note, as the case may be, has been declared effective by the SEC and such Note,
Exchange Note or Private Exchange Note, as the case may be, has been disposed of
in accordance with such effective Registration Statement, (ii) such Note,
Exchange Note or Private Exchange Note, as the case may be, is sold in
compliance with Rule 144, (iii) such Note has been exchanged for an Exchange
Note or Exchange Notes pursuant to an Exchange Offer and is entitled to be
resold without complying with the prospectus delivery requirements of the
Securities Act and (iv) such Note, Exchange Note or Private Exchange Note, as
the case may be, ceases to be outstanding for purposes of the Indenture.
Registration Statement: Any registration statement of the Company, including, but not limited to, the Exchange Offer Registration Statement and any registration statement filed in connection with a Shelf Registration, filed with the SEC pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration
statement, including post-effective amendments, all exhibits and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2(c) hereof.
Shelf Registration: See Section 3(a) hereof.
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The trustee under the Indenture and, if existent, the trustee under any indenture governing the Exchange Notes and Private Exchange Notes (if any).
Underwritten registration or underwritten offering: A registration in which securities of the Company are sold to an underwriter for reoffering to the public.
2. EXCHANGE OFFER
(a) The Company shall file with the SEC, to the extent not prohibited by any applicable law or applicable interpretation of the staff of the SEC no later than the Filing Date, a Registration Statement on an appropriate registration form (the "Exchange Offer Registration Statement") with respect to a registered offer (the "Exchange Offer") to exchange any and all of the Registrable Notes (other than the Private Exchange Notes, if any) for a like aggregate principal amount at maturity of debt securities of the Company that are identical in all material respects to the Notes ( the "Exchange Notes") (and that are entitled to the benefits of the Indenture or a trust indenture that is identical in all material respects to the Indenture
(other than such changes to the Indenture or any such identical trust indenture as are necessary to comply with any requirements of the SEC to effect or maintain the qualification thereof under the TIA) and that, in either case, has been qualified under the TIA), except that the Exchange Notes (other than Private Exchange Notes, if any) shall have been registered pursuant to an effective Registration Statement under the Securities Act and shall contain no restrictive legend thereon. The Exchange Offer shall comply with all applicable tender offer rules and regulations under the Exchange Act. The Company agrees to use its reasonable best efforts to (x) cause the Exchange Offer Registration Statement to be declared effective under the Securities Act on or before the Effectiveness Date; (y) keep the Exchange Offer open for not less than 30 days (or longer if required by applicable law) after the date that notice of the Exchange Offer is mailed to Holders; and (z) consummate the Exchange Offer on or prior to the 240th day following the Issue Date. If after such Exchange Offer Registration Statement is declared effective by the SEC, the Exchange Offer or the issuance of the Exchange Notes thereunder is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Exchange Offer Registration Statement shall be deemed not to have become effective for purposes of this Agreement during the period of such interference until the Exchange Offer may legally resume.
Each Holder who participates in the Exchange Offer will be required to represent in writing (i) that any Exchange Notes received by it will be acquired in the ordinary course of its business, (ii) that at the time of the consummation of the Exchange Offer such Holder will have no arrangement or understanding with any Person to participate in the distribution of the Exchange Notes in violation of the provisions of the Securities Act, (iii) that such Holder is not an affiliate of the Company within the meaning of the Securities Act and is not acting on behalf of any persons or entities who could not truthfully make the foregoing representations, (iv) if such Holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of Exchange Notes, and (v) if such Holder is a broker-dealer that will receive Exchange Notes for its own account in exchange for Notes that were acquired as a result of market-making or other trading activities, that it will deliver a prospectus in connection with any resale of such Exchange Notes.
Upon consummation of the Exchange Offer in accordance with this Section 2, the provisions of this Agreement shall continue to apply, mutatis mutandis, solely with respect to Registrable Notes that are Private Exchange Notes and Exchange Notes held by Participating Broker-Dealers, and the Company shall have no further obligation to register Registrable Notes (other than Private Exchange Notes and other than in respect of any Exchange Notes as to which clause 2(c)(v) hereof applies) pursuant to Section 3 hereof. No securities other than the Exchange Notes shall be included in the Exchange Offer Registration Statement.
(b) The Company shall include within the Prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," reasonably ac-
ceptable to the Initial Purchaser, that shall contain a summary statement of the positions taken or policies made by the Staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies, in the judgment of the Initial Purchaser, represent the prevailing views of the staff of the SEC. Such "Plan of Distribution" section shall also expressly permit, to the extent permitted by applicable policies and regulations of the SEC, the use of the Prospectus by all Persons subject to the prospectus delivery requirements of the Securities Act, including to the extent permitted by applicable policies and regulations of the SEC, all Participating Broker-Dealers, and include a statement describing the means by which Participating Broker-Dealers may resell the Exchange Notes in compliance with the Securities Act.
The Company shall use its reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the Prospectus contained therein in order to permit such Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirements of the Securities Act for such period of time as is necessary to comply with applicable law in connection with any resale of the Exchange Notes covered thereby.
If, prior to consummation of the Exchange Offer, the Initial Purchaser holds any Notes acquired by it and having, or that are reasonably likely to be determined to have, the status of an unsold allotment in the initial distribution, the Company, upon the request of the Initial Purchaser simultaneously with the delivery of the Exchange Notes in the Exchange Offer, shall issue and deliver to the Initial Purchaser in exchange (the "Private Exchange") for such Notes held by the Initial Purchaser a like principal amount at maturity of debt securities of the Company that are identical in all material respects to the Exchange Notes (the "Private Exchange Notes") (and that are issued pursuant to the same indenture as the Exchange Notes), except for the placement of a restrictive legend on such Private Exchange Notes. The Private Exchange Notes shall bear the same CUSIP number as the Exchange Notes.
Interest on each Exchange Note will accrue (A) from the later of (i) the last interest payment date on which interest was paid on the Note surrendered in exchange therefor, or (ii) if the Note is surrendered for exchange on a date in a period which includes the record date for an interest payment date to occur on or after the date of such exchange and as to which interest will be paid, the date of such interest payment date or (B) if no interest has been paid on such Note, from the Issue Date.
In connection with the Exchange Offer, the Company shall:
(1) mail to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents;
(2) utilize the services of a depositary for the Exchange Offer with an address in the Borough of Manhattan, The City of New York;
(3) permit Holders to withdraw tendered Notes at any time prior to the close of business, New York time, on the last business day on which the Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all applicable laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer or the Private Exchange, as the case may be, the Company shall:
(1) accept for exchange all Registrable Notes properly tendered and not validly withdrawn pursuant to the Exchange Offer or the Private Exchange;
(2) deliver to the Trustee for cancellation all Registrable Notes so accepted for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each Holder of Notes, Exchange Notes or Private Exchange Notes, as the case may be, equal in principal amount at maturity to the Notes of such Holder so accepted for exchange.
The Exchange Notes and the Private Exchange Notes may be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture, which in either event has been qualified under the TIA or is exempt from such qualification and shall provide that (1) the Exchange Notes shall not be subject to the transfer restrictions set forth in the Indenture and (2) the Private Exchange Notes shall be subject to the transfer restrictions set forth in the Indenture. The Indenture or such indenture shall provide that the Exchange Notes, the Private Exchange Notes and the Notes shall vote and consent together on all matters as one class and that none of the Exchange Notes, the Private Exchange Notes or the Notes will have the right to vote or consent as a separate class on any matter.
(c) If, (i) because of any change in law or in currently prevailing interpretations of the Staff of the SEC, the Company is not permitted to effect an Exchange Offer, (ii) the Exchange Offer is not consummated within 240 days of the Issue Date (provided that if the Exchange Offer shall be consummated after such 240-day period, then the Company's
obligation under this clause (ii) arising from the failure of the Exchange Offer to be consummated within such 240-day period shall terminate), (iii) the holder of Private Exchange Notes so requests at any time within 90 days after the consummation of the Private Exchange, (iv) because of any changes in law or in currently prevailing interpretations of the staff of the SEC, a Holder (other than the Initial Purchaser holding Notes acquired directly from the Company) is not permitted to participate in the Exchange Offer or (v) in the case of any Holder that participates in the Exchange Offer, such Holder does not receive Exchange Notes on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of such Holder as an affiliate of the Company within the meaning of the Securities Act), then the Company shall promptly deliver written notice thereof (the "Shelf Notice") to the Trustee and in the case of clauses (i), (ii) and (iv), all Holders, in the case of clause (iii), the Holders of the Private Exchange Notes and in the case of clause (v), the affected Holder, and shall file a Shelf Registration pursuant to Section 3 hereof.
3. SHELF REGISTRATION
If a Shelf Notice is delivered as contemplated by Section 2(c) hereof, then:
(a) Shelf Registration. The Company shall file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Notes not exchanged in the Exchange Offer, Private Exchange Notes and Exchange Notes as to which Section 2(c)(iv) is applicable (the "Shelf Registration"). The Company shall use its reasonable best efforts to file with the SEC the Shelf Registration on or prior to the applicable Filing Date. The Shelf Registration shall be on Form S-1 or another appropriate form permitting registration of such Registrable Notes for resale by Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Company shall not permit any securities other than the Registrable Notes to be included in the Shelf Registration.
The Company shall use its reasonable best efforts to cause the Shelf Registration to be declared effective under the Securities Act on or prior to the Effectiveness Date and to keep the Shelf Registration continuously effective under the Securities Act until the date that is two years from the Issue Date or such shorter period ending when all Registrable Notes covered by the Shelf Registration have been sold in the manner set forth and as contemplated in the Shelf Registration or cease to be outstanding (the "Effectiveness Period"); provided, however, that the Effectiveness Period in respect of the Shelf Registration shall be extended to the extent required to permit dealers to comply with the applicable prospectus delivery requirements of Rule 174 under the Securities Act and as otherwise provided herein.
(b) Withdrawal of Stop Orders. If the Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder), the Company shall use its best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof.
(c) Supplements and Amendments. The Company shall promptly supplement and amend the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Holders of a majority in aggregate principal amount at maturity of the Registrable Notes covered by such Registration Statement or by any underwriter of such Registrable Notes.
4. ADDITIONAL INTEREST
(a) The Company and the Initial Purchaser agree that the Holders of Registrable Notes will suffer damages if the Company fails to fulfill its obligations under Section 2 or Section 3 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Company agrees to pay, as liquidated damages, additional interest on the Notes ("Additional Interest") under the circumstances and to the extent set forth below (without duplication):
(i) if (A) neither the Exchange Offer Registration Statement nor the Shelf Registration has been filed on or prior to the applicable Filing Date or (B) notwithstanding that the Company has consummated or will consummate the Exchange Offer, the Company is required to file a Shelf Registration and such Shelf Registration is not filed on or prior to the Filing Date applicable thereto, then, commencing on the day after any such Filing Date, Additional Interest shall accrue on the Notes over and above the stated interest at a rate of 0.25% per annum for the first 90 days immediately following the Filing Date, such Additional Interest rate increasing by an additional 0.25% per annum at the beginning of each subsequent 90-day period;
(ii) if (A) neither the Exchange Offer Registration Statement nor the Initial Shelf Registration is declared effective by the SEC on or prior to 210 days after the Issue Date or (B) notwithstanding that the Company has consummated or will consummate the Exchange Offer, the Company is required to file a Shelf Registration and such Shelf Registration is not declared effective by the SEC on or prior to the 90th day following the date such Shelf Registration was filed, then, commencing on the day after such required effective date, Additional Interest shall accrue on the principal amount of the Notes at a rate of 0.25% per annum for the first 90 days immediately following each such filing date, such Additional Interest rate increasing by an additional 0.25% per annum at the beginning of each subsequent 90-day period; and
(iii) if either (A) the Company has not exchanged Exchange Notes for all Notes validly tendered in accordance with the terms of the Exchange Offer on or prior to the 45th day after the date on which the Exchange Offer Registration Statement was declared effective or (B) if applicable, a Shelf Registration has been declared effective and such Shelf Registration ceases to be effective at any time prior to the second anniversary of the Issue Date (other than after such time as all Notes have been disposed of thereunder), then Additional Interest shall accrue on the principal amount of the Notes at a rate of 0.25% per annum for the first 90 days commencing on (x) the 46th day after such effective date, in the case of (A) above, or (y) the day such Shelf Registration ceases to be effective, in the case of (B) above, such Additional Interest rate increasing by an additional 0.25% per annum at the beginning of each such subsequent 90-day period;
provided, however, that the Additional Interest rate on the Notes may not accrue
under more than one of the foregoing clauses (i) through (iii) of this Section
4(a) at the same time and at no time shall the aggregate amount of Additional
Interest accruing exceed at any one time in the aggregate 1.0% per annum; and
provided, further, that (1) upon the filing of the Exchange Offer Registration
Statement or a Shelf Registration (in the case of clause (i) of this Section
4(a)), (2) upon the effectiveness of the Exchange Offer Registration Statement
or the Shelf Registration (in the case of clause (ii) of this Section 4(a)), or
(3) upon the exchange of Exchange Notes for all Notes tendered (in the case of
clause (iii)(A) of this Section 4(a)), or upon the effectiveness of the
applicable Shelf Registration that had ceased to remain effective (in the case
of (iii)(B) of this Section 4(a)), Additional Interest on the Notes as a result
of such clause (or the relevant subclause thereof), as the case may be, shall
cease to accrue.
(b) The Company shall notify the Trustee within three
business days after each and every date on which an event occurs in respect of
which Additional Interest is required to be paid (an "Event Date"). Any amounts
of Additional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this
Section 4 on or prior to February 1, 2009 shall be added to the Accreted Value
of each Note and all Additional Interest due thereafter shall be payable in
cash, in each case, semi-annually on each February 1 and August 1 (to the
holders of record on the January 15 and July 15 immediately preceding such
dates), in each case, commencing with the first such date occurring after any
such Additional Interest commences to accrue. The amount of Additional Interest
will be determined by multiplying the applicable Additional Interest rate by the
Accreted Value of the Registrable Notes, multiplied by a fraction, the numerator
of which is the number of days such Additional Interest rate was applicable
during such period (determined on the basis of a 360-day year consisting of
twelve 30-day months and, in the case of a partial month, the actual number of
days elapsed) and the denominator of which is 360.
5. REGISTRATION PROCEDURES
In connection with the filing of any Registration Statement pursuant to Sections 2 or 3 hereof, the Company shall effect such registrations to permit the sale of the securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Company hereunder, the Company shall:
(a) Prepare and file with the SEC prior to the Filing Date, a Registration Statement or Registration Statements as prescribed by Sections 2 or 3 hereof, and use its reasonable best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, however, that, if (1) such filing is pursuant to Section 3 hereof or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Company shall furnish to and afford the Holders of the Registrable Notes covered by such Registration Statement or each such Participating Broker-Dealer, as the case may be, their counsel and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (in each case at least three business days prior to such filing). The Company shall not file any Registration Statement or Prospectus or any amendments or supplements thereto if the Holders of a majority in aggregate principal amount at maturity of the Registrable Notes covered by such Registration Statement, or any such Participating Broker-Dealer, as the case may be, or their counsel, or the managing underwriters, if any, shall reasonably object on a timely basis.
(b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration or Exchange Offer Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period or the Applicable Period, as the case may be; cause the related Prospectus to be supplemented by any prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; and comply in all material respects with the provisions of the Securities Act and the Exchange Act applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any securities being sold by a Participating Broker-Dealer covered by any such Prospectus; the Company shall be deemed not to have used its reasonable best efforts to keep a Registration Statement effective during
the Applicable Period if the Company voluntarily takes any action that would result in selling Holders of the Registrable Notes covered thereby or Participating Broker-Dealers seeking to sell Exchange Notes not being able to sell such Registrable Notes or such Exchange Notes during that period, unless such action is required by applicable law or unless the Company complies in all material respects with this Agreement, including without limitation, the provisions of paragraph 5(k) hereof and the last paragraph of this Section 5.
(c) If (1) a Shelf Registration is filed pursuant to
Section 3 hereof or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable
Period, the Company shall notify the selling Holders of Registrable
Notes, or each such Participating Broker-Dealer, as the case may be,
their counsel and the managing underwriters, if any, promptly (but in
any event within two business days) and confirm such notice in writing,
(i) when a Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to a Registration Statement
or any post-effective amendment, when the same has become effective
under the Securities Act (including in such notice a written statement
that any Holder may, upon request, obtain, at the sole expense of the
Company, one conformed copy of such Registration Statement or
post-effective amendment including financial statements and schedules,
documents incorporated or deemed to be incorporated by reference and
exhibits), (ii) of the issuance by the SEC of any stop order suspending
the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for that purpose, (iii) if at any time
when a prospectus is required by the Securities Act to be delivered in
connection with sales of the Registrable Securities or resales of
Exchange Notes by Participating Broker-Dealers the representations and
warranties of the Company contained in any agreement (including any
underwriting agreement), contemplated by Section 5(n) hereof cease to
be true and correct, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or
exemption from qualification of a Registration Statement or any of the
Registrable Notes or the Exchange Notes to be sold by any Participating
Broker-Dealer for offer or sale in any jurisdiction, or the initiation
or written threat of any proceeding for such purpose, (v) of the
happening of any event, the existence of any condition or any
information becoming known that makes any statement made in such
Registration Statement or related Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue
in any material respects or that requires the making of any material
changes in or amendments or supplements to such Registration Statement,
Prospectus or documents so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in
the case of the
Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and (vi) of the Company's determination that a post-effective amendment to a Registration Statement would be appropriate.
(d) Use its reasonable best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Notes or the Exchange Notes for sale in any jurisdiction and, if any such order is issued, to use their reasonable best efforts to obtain the withdrawal of any such order at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section
3 and if requested by the managing underwriter or underwriters, if any,
or the Holders of a majority in aggregate principal amount at maturity
of the Registrable Notes being sold in connection with an underwritten
offering, (i) promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriter
or underwriters, if any, such Holders or counsel for any of them
determine is reasonably necessary to be included therein, (ii) make all
required filings of such prospectus supplement or such post-effective
amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment and (iii) supplement or make
amendments to such Registration Statement; provided, however, that the
Company shall not be required to take any action pursuant to this
Section 5(e) that would, in the opinion of counsel for the Company,
violate applicable law.
(f) If (1) a Shelf Registration is filed pursuant to
Section 3 hereof or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable
Period, furnish to each selling Holder of Registrable Notes and to each
such Participating Broker-Dealer who so requests and to their
respective counsel and each managing underwriter, if any, at the sole
expense of the Company, one conformed copy of the Registration
Statement or Registration Statements and each post-effective amendment
thereto, including financial statements and schedules and, if
requested, all documents incorporated or deemed to be incorporated
therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to
Section 3 hereof or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable
Period, de-
liver to each selling Holder of Registrable Notes, or each such Participating Broker-Dealer, as the case may be, their respective counsel and the underwriters, if any, at the sole expense of the Company, as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 5, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Notes or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, if any, and dealers, if any, in connection with the offering and sale of the Registrable Notes covered by, or the sale by Participating Broker-Dealers of the Exchange Notes pursuant to, such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or Exchange Notes or any delivery of a Prospectus contained in the Exchange Offer Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, to use its reasonable best efforts to register or qualify and to cooperate with the selling Holders of Registrable Notes or each such Participating Broker-Dealer, as the case may be, the managing underwriter or underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Notes for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer or the managing underwriter or underwriters reasonably request in writing; provided, however, that where Exchange Notes held by Participating Broker-Dealers or Registrable Notes are offered other than through an underwritten offering, the Company agrees to cause their counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 5(h); use its reasonable best efforts to keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Exchange Notes held by Participating Broker-Dealers or the Registrable Notes covered by the applicable Registration Statement; provided, however, that the Company shall not be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) subject itself to taxation in any such jurisdiction where it is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof, cooperate with the selling Holders of Registrable Notes and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Notes to be sold, which certificates shall not bear any restrictive
legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such Registrable Notes to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or Holders may reasonably request.
(j) Use their respective reasonable best efforts to cause the Registrable Notes covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the Holders thereof or the underwriter or underwriters, if any, to consummate the disposition of such Registrable Notes, except as may be required solely as a consequence of the nature of such selling Holder's business, in which case the Company will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to
Section 3 hereof or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable
Period, upon the occurrence of any event contemplated by paragraph
5(c)(v) or 5(c)(vi) hereof, as promptly as practicable, prepare and
(subject to Section 5(a) hereof) file with the SEC, at the Company's
sole expense, a supplement or post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by
reference, or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Notes being sold
thereunder or to the purchasers of the Exchange Notes to whom such
Prospectus will be delivered by a Participating Broker-Dealer, any such
Prospectus will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(l) Use its reasonable best efforts to cause the Registrable Notes covered by a Registration Statement or the Exchange Notes, as the case may be, to be rated with the appropriate rating agencies, if so requested by the Holders of a majority in aggregate principal amount at maturity of Registrable Notes covered by such Registration Statement or the Exchange Notes, as the case may be, or the managing underwriter or underwriters, if any.
(m) Prior to the effective date of the first Registration Statement relating to the Registrable Notes, (i) provide the Trustee with certificates for the Registrable Notes or Exchange Notes, as the case may be, in a form eligible for deposit with Euroclear and Clearstream and (ii) provide a CUSIP number for the Registrable Notes or Exchange Notes, as the case may be.
(n) In connection with any underwritten offering of
Registrable Notes pursuant to a Shelf Registration, enter into an
underwriting agreement as is customary in underwritten offerings of
debt securities similar to the Notes and take all such other actions as
are reasonably requested by the managing underwriter or underwriters in
order to expedite or facilitate the registration or the disposition of
such Registrable Notes and, in such connection, (i) make such
representations and warranties to, and covenants with, the underwriters
with respect to the business of the Company and its subsidiaries
(including any acquired business, properties or entity, if applicable)
and the Registration Statement, Prospectus and documents, if any,
incorporated or deemed to be incorporated by reference therein, in each
case, as are customarily made by issuers to underwriters in
underwritten offerings of debt securities similar to the Notes, and
confirm the same in writing if and when requested; (ii) obtain the
written opinion of counsel to the Company and written updates thereof
in form, scope and substance reasonably satisfactory to the managing
underwriter or underwriters, addressed to the underwriters covering the
matters customarily covered in opinions requested in underwritten
offerings of debt similar to the Notes and such other matters as may be
reasonably requested by the managing underwriter or underwriters; (iii)
obtain "cold comfort" letters and updates thereof in form, scope and
substance reasonably satisfactory to the managing underwriter or
underwriters from the independent certified public accountants of the
Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business
acquired by the Company for which financial statements and financial
data are, or are required to be, included or incorporated by reference
in the Registration Statement), addressed to each of the underwriters,
such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
underwritten offerings of debt securities similar to the Notes and such
other matters as reasonably requested by the managing underwriter or
underwriters; and (iv) if an underwriting agreement is entered into,
the same shall contain indemnification provisions and procedures no
less favorable than those set forth in Section 7 hereof (or such other
provisions and procedures acceptable to Holders of a majority in
aggregate principal amount at maturity of Registrable Notes covered by
such Registration Statement and the managing underwriter or
underwriters or agents) with respect to all parties to be indemnified
pursuant to said Section. The above shall be done at each closing under
such underwriting agreement, or as and to the extent required
thereunder.
(o) If (1) a Shelf Registration is filed pursuant to
Section 3 hereof or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable
Period, upon reasonable advance notice make available for inspection by
any selling Holder of such Registrable Notes being sold, or each such
Participating Broker-Dealer, as the case may be, any underwriter
participating in any such disposition of Registrable
Notes, if any, and any attorney, accountant or other agent retained by any such selling Holder or each such Participating Broker-Dealer, as the case may be, or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours without interfering in the orderly business of the Company, all financial and other relevant records, pertinent corporate documents and instruments of the Company and its subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the respective officers, directors and employees of the Company and its subsidiaries to supply all information reasonably requested by any such Inspector in connection with such Registration Statement. Any such access granted to the Inspectors under this Section 5(o) shall be subject to the prior receipt by the Company of written undertakings, in form and substance reasonably satisfactory to the Company, to preserve the confidentiality of any information deemed by the Company to be confidential. Records that the Company determines, in good faith, to be confidential and any Records that they notify the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the Company based upon advice of counsel determines that disclosure of such Records is necessary to avoid or correct a material misstatement or omission in such Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, (iii) after giving reasonable prior notice to the Company, disclosure of such information is, in the opinion of counsel for any Inspector, necessary or advisable in connection with any action, claim, suit or proceeding, directly or indirectly, involving or potentially involving such Inspector and arising out of, based upon, relating to or involving this Agreement or any transactions contemplated hereby or arising hereunder or (iv) the information in such Records has been made generally available to the public. Each selling Holder of such Registrable Notes and each such Participating Broker-Dealer will be required to agree that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company unless and until such information is generally available to the public. Each selling Holder of such Registrable Notes and each such Participating Broker-Dealer will be required to further agree that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company to undertake appropriate action to prevent disclosure of the Records deemed confidential at the Company's sole expense.
(p) Provide an indenture trustee for the Registrable Notes or the Exchange Notes, as the case may be, and cause the Indenture or the trust indenture provided for in Section 2(a) hereof, as the case may be, to be qualified under the TIA not later than the effective date of the Exchange Offer or the first Registration Statement relating to the Registrable Notes; and in connection therewith, cooperate with the trustee under any such indenture and the Holders of the Registrable Notes, to effect such changes to such indenture as may be required for such indenture to be so qualified in accordance
with the terms of the TIA; and execute, and use its reasonable best efforts to cause such trustee to execute, all documents as may be required to effect such changes and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner.
(q) Comply in all material respects with all applicable rules and regulations of the SEC and make generally available to its securityholders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Notes are sold to underwriters in a firm commitment or reasonable best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods.
(r) Upon consummation of an Exchange Offer or a Private Exchange, obtain an opinion of counsel to the Company, who may, at the Company's election, be internal counsel to the Company, in a form customary for underwritten transactions, addressed to the Trustee for the benefit of all Holders of Registrable Notes participating in the Exchange Offer or the Private Exchange, as the case may be, that the Exchange Notes or Private Exchange Notes, as the case may be, and the related indenture constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its respective terms, subject to customary exceptions and qualifications.
(s) If an Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Registrable Notes by Holders to the Company (or to such other Person as directed by the Company) in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be, the Company shall mark, or cause to be marked, on such Registrable Notes that such Registrable Notes are being cancelled in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be; in no event shall such Registrable Notes be marked as paid or otherwise satisfied.
(t) Cooperate with each seller of Registrable Notes covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Notes and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD").
(u) Use their respective reasonable best efforts to take all other steps necessary or advisable to effect the registration of the Registrable Notes covered by a Registration Statement contemplated hereby.
The Company may require each seller of Registrable Notes as to which any registration is being effected to furnish to the Company such information regarding such seller and the distribution of such Registrable Notes as the Company may, from time to time, reasonably request. The Company may exclude from such registration the Registrable Notes of any seller who unreasonably fails to furnish such information within a reasonable time after receiving such request and in such event shall have no further obligation under this Agreement (including, without limitation, obligations under Section 4 hereof) with respect to such seller or any subsequent holder of such Registrable Notes. Each seller as to which any Shelf Registration is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such seller not materially misleading.
Each Holder of Registrable Notes and each Participating Broker-Dealer agrees by acquisition of such Registrable Notes or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, that, upon actual receipt of any notice from the Company of the happening of any event of the kind described in Sections 5(c)(ii), 5(c)(iv), 5(c)(v) or 5(c)(vi) hereof, such Holder will forthwith discontinue disposition of such Registrable Notes covered by such Registration Statement or Prospectus or Exchange Notes to be sold by such Holder or Participating Broker-Dealer, as the case may be, until such Holder's or Participating Broker-Dealer's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. During any such discontinuance, no Additional Interest shall accrue or otherwise be payable on the Registrable Notes. In the event that the Company shall give any such notice, each of the Effectiveness Period and the Applicable Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Registrable Notes covered by such Registration Statement or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(k) hereof or (y) the Advice.
6. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not the Exchange Offer or a Shelf Registration is filed or becomes effective, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Notes or Exchange Notes and determination of the eligibility of the Registrable Notes or Exchange Notes for investment under the laws of such jurisdic-
tions (x) where the holders of Registrable Notes are located, in the case of the Exchange Notes, or (y) as provided in Section 5(h) hereof, in the case of Registrable Notes or Exchange Notes to be sold by a Participating Broker-Dealer during the Applicable Period)), (ii) printing expenses, including, without limitation, expenses of printing certificates for Registrable Notes or Exchange Notes in a form eligible for deposit with The Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any, by the Holders of a majority in aggregate principal amount at maturity of the Registrable Notes included in any Registration Statement or sold by any Participating Broker-Dealer, as the case may be, (iii) reasonable messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company and reasonable fees and disbursements of special counsel for the sellers of Registrable Notes (subject to the provisions of Section 6(b) hereof), (v) fees and disbursements of all independent certified public accountants referred to in Section 5(n)(iii) hereof (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (vi) rating agency fees, if any, and any fees associated with making the Registrable Notes or Exchange Notes eligible for trading through The Depository Trust Company, (vii) Securities Act liability insurance, if the Company desires such insurance, (viii) fees and expenses of all other Persons retained by the Company, (ix) internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees of the Company performing legal or accounting duties), (x) the expense of any annual audit, (xi) the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, if applicable, and (xii) the expenses relating to printing, word processing and distributing of all Registration Statements, underwriting agreements, securities sales agreements, indentures and any other documents necessary to comply with this Agreement.
(b) The Company shall reimburse the Holders of the Registrable Notes being registered in a Shelf Registration for the reasonable fees and disbursements of not more than one counsel chosen by the Holders of a majority in aggregate principal amount at maturity of the Registrable Notes to be included in such Registration Statement.
7. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless each Holder of Registrable Notes offered pursuant to a Shelf Registration Statement and each Participating Broker-Dealer selling Exchange Notes during the Applicable Period, the officers and directors of each such Person or its affiliates, and each other Person, if any, who controls any such Person or its affiliates within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a "Participant"), from and against any and all losses, claims, damages and liabilities (including, without limitation, the reasonable legal fees and other expenses actually incurred in connection with any suit, action or proceeding or any claim asserted) caused by, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement pursuant to which the offering
of such Registrable Notes or Exchange Notes, as the case may be, is registered (or any amendment thereto) or related Prospectus (or any amendments or supplements thereto) or any related preliminary prospectus, or caused by, arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company will not be required to indemnify a Participant if (i) such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Participant furnished to the Company in writing by or on behalf of such Participant expressly for use therein or (ii) if such Participant sold to the person asserting the claim the Registrable Notes or Exchange Notes that are the subject of such claim and such untrue statement or omission or alleged untrue statement or omission was contained or made in any preliminary prospectus and corrected in the Prospectus or any amendment or supplement thereto and the Prospectus does not contain any other untrue statement or omission or alleged untrue statement or omission of a material fact that was the subject matter of the related proceeding and it is established by the Company in the related proceeding that such Participant failed to deliver or provide a copy of the Prospectus (as amended or supplemented) to such Person with or prior to the confirmation of the sale of such Registrable Notes or Exchange Notes sold to such Person if required by applicable law, unless such failure to deliver or provide a copy of the Prospectus (as amended or supplemented) was a result of noncompliance by the Company with Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly,
to indemnify and hold harmless the Company, the Company's directors and
officers and each Person who controls the Company within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to each
Participant, but only (i) with reference to information relating to
such Participant furnished to the Company in writing by or on behalf of
such Participant expressly for use in any Registration Statement or
Prospectus, any amendment or supplement thereto or any preliminary
prospectus or (ii) with respect to any untrue statement or
representation made by such Participant in writing to the Company. The
liability of any Participant under this paragraph shall in no event
exceed the proceeds received by such Participant from sales of
Registrable Notes or Exchange Notes giving rise to such obligations.
(c) If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such Person (the "Indemnified Person") shall promptly notify the Person against whom such indemnity may be sought (the "Indemnifying Person") in writing, and the Indemnifying Person, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may reasonably designate in such proceeding and shall pay the reasonable fees and expenses
actually incurred by such counsel related to such proceeding; provided, however, that the failure to so notify the Indemnifying Person shall not relieve it of any obligation or liability that it may have hereunder or otherwise (unless and only to the extent that such failure directly results in the loss or compromise of any material rights or defenses by the Indemnifying Person and the Indemnifying Person was not otherwise aware of such action or claim). In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed in writing to the contrary, (ii) the Indemnifying Person shall have failed within a reasonable period of time to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that, unless there exists a conflict among Indemnified Persons, the Indemnifying Person shall not, in connection with any one such proceeding or separate but substantially similar related proceeding in the same jurisdiction arising out of the same general allegations, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed promptly as they are incurred. Any such separate firm for the Participants and such control Persons of Participants shall be designated in writing by Participants who sold a majority in interest of Registrable Notes and Exchange Notes sold by all such Participants and any such separate firm for the Company, its directors, its officers and such control Persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its prior written consent, but if settled with such consent or if there be a final non-appealable judgment for the plaintiff for which the Indemnified Person is entitled to indemnification pursuant to this Agreement, the Indemnifying Person agrees to indemnify and hold harmless each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Person shall, without the prior written consent of the Indemnified Person (which consent shall not be unreasonably withheld or delayed), effect any settlement or compromise of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party, and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional written release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of any Indemnified Person.
(d) If the indemnification provided for in the first and second paragraphs of this Section 7 is for any reason unavailable to, or insufficient to hold harmless, an Indemnified Person in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof). The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or such Participant or such other Indemnified Person, as the case may be, on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, and any other equitable considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Participants were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses actually incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall a Participant be required to contribute any amount in excess of the amount by which proceeds received by such Participant from sales of Registrable Notes or Exchange Notes, as the case may be, exceeds the amount of any damages that such Participant has otherwise been required to pay or has paid by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in this Section 7 will be in addition to any liability that the Indemnifying Persons may otherwise have to the Indemnified Persons referred to above.
8. RULE 144 AND 144A
The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Registrable Notes, make publicly available annual reports and such information, documents and other reports of the type specified in Sections 13
and 15(d) of the Exchange Act. The Company further covenants for so long as any Registrable Notes remain outstanding, to make available to any Holder or beneficial owner of Registrable Notes in connection with any sale thereof and any prospective purchaser of such Registrable Notes from such Holder or beneficial owner the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Registrable Notes pursuant to Rule 144A.
9. UNDERWRITTEN REGISTRATIONS
If any of the Registrable Notes covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount at maturity of such Registrable Notes included in such offering and reasonably acceptable to the Company.
No Holder of Registrable Notes may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Notes on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements.
10. MISCELLANEOUS
(a) No Inconsistent Agreements. The Company has not entered into, as of the date hereof, and shall not, after the date of this Agreement, enter into any agreement with respect to any of the Company's securities that is inconsistent with the rights granted to the Holders of Registrable Notes in this Agreement or otherwise conflicts with the provisions hereof. The Company has not entered and will not enter into any agreement with respect to any of the Company's securities that will grant to any Person piggy-back registration rights with respect to a Registration Statement.
(b) Adjustments Affecting Registrable Securities. The Company shall not, directly or indirectly, take any action with respect to the Registrable Notes as a class that would adversely affect the ability of the Holders of Registrable Notes to include such Registrable Notes in a registration undertaken pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of the Holders of not less than a majority in aggregate principal amount at maturity of the then outstanding Registrable Notes. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Regis-
trable Notes whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Notes may be given by Holders of at least a majority in aggregate principal amount at maturity of the Registrable Notes being sold by such Holders pursuant to such Registration Statement; provided, however, that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence.
(d) Notices. All notices and other communications (including without limitation any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or facsimile:
1. if to a Holder of the Registrable Notes or any Participating Broker-Dealer, at the most current address of such Holder or Participating Broker-Dealer, as the case may be, set forth on the records of the registrar under the Indenture, with a copy in like manner to the Initial Purchaser as follows:
DEUTSCHE BANK SECURITIES INC.
60 Wall Street
New York, NY 10005
Facsimile No.: (212) 469-2883
Attention: Mark Fedorcik
with a copy to:
Cahill Gordon & Reindel LLP
80 Pine Street
New York, New York 10005
Facsimile No.: (212) 269-5420
Attention: William M. Hartnett, Esq.
2. if to the Initial Purchasers, at the addresses specified in Section 10(d)(1)
3. if to the Company, at the address as follows:
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
888 Seventh Avenue
New York, NY 10106
Facsimile No.: (212) 664-8906
Attention: Richard Pyle
with a copy to:
Kirkland & Ellis LLP
153 E. 53rd Street
39th Floor
New York, NY 10022
Facsimile No.: (212) 446-4900
Attention: Joshua N. Korff, Esq.
All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; one business day after being timely delivered to a next-day air courier; and when receipt is acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign holds Registrable Notes.
(f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
(j) Securities Held by the Issuers or their Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Notes is required hereunder, Registrable Notes held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.
(k) Third Party Beneficiaries. Holders of Registrable Notes and Participating Broker-Dealers are intended third party beneficiaries of this Agreement and this Agreement may be enforced by such Persons.
(l) Entire Agreement. This Agreement, together with the Purchase Agreement and the Indenture, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Initial Purchaser on the one hand and the Company on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
TOWN SPORTS INTERNATIONAL
HOLDINGS, INC.
By: /s/ Richard Pyle
----------------------------------
Name: Richard Pyle
Title: Chief Financial Officer
|
DEUTSCHE BANK SECURITIES INC.,
as Initial Purchaser
By: /s/ Arther B. Schoen
----------------------------------
Name: Arther B. Schoen
Title: MD
By: /s/ Catherine Madigan
----------------------------------
Name: Catherine Madigan
Title: MD
|
Schedule 1
SUBSIDIARIES OF TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
Jurisdiction of
Name Ownership Organization
---- --------- ------------
Town Sports International, Inc. Town Sports International Holdings, Inc. New York
TSI Alexandria, LLC TSI Holdings (VA), Inc. Delaware
TSI Allston, Inc. Town Sports International, Inc. Delaware
TSI Andover, Inc. TSI Holdings (MA), Inc. Massachusetts
TSI Ardmore, LLC TSI Holdings (PA), Inc. Delaware
TSI Arthro-Fitness Services, Inc. Town Sports International, Inc. New York
TSI Livingston, Inc. Town Sports International, Inc. New York
TSI Battery Park, Inc. Town Sports International, Inc. New York
TSI Bethesda, LLC TSI Holdings (MD), Inc. Delaware
TSI Broadway, Inc. Town Sports International, Inc. New York
TSI 217 Broadway, Inc. Town Sports International, Inc. New York
TSI Brooklyn Belt, Inc. Town Sports International, Inc. New York
TSI Brunswick, Inc. Town Sports International, Inc. Delaware
TSI Washington, LLC TSI Holdings (NJ), LLC Delaware
TSI Bulfinch, Inc. Town Sports International, Inc. Delaware
TSI Cash Management, Inc. Town Sports International, Inc. New York
TSI Central Square, Inc. Town Sports International, Inc. Delaware
TSI Centreville, LLC TSI Holdings (VA), Inc. Delaware
TSI Cherry Hill, LLC TSI Holdings (NJ), LLC Delaware
TSI Chevy Chase, Inc. TSI Holdings (DC), Inc. Delaware
TSI Clarendon, LLC TSI Holdings (VA), Inc. Delaware
TSI Cobble Hill, Inc. Town Sports International, Inc. New York
TSI Colonia, LLC TSI Holdings (NJ), LLC Delaware
TSI Commack, Inc. Town Sports International, Inc. New York
TSI Connecticut Avenue, Inc. TSI Holdings (DC), Inc. Delaware
TSI Copley, Inc. Town Sports International, Inc. Delaware
TSI Court Street, Inc. Town Sports International, Inc. New York
TSI Croton, Inc. Town Sports International, Inc. New York
TSI Danbury, Inc. Town Sports International, Inc. Delaware
|
Jurisdiction of
Name Ownership Organization
---- --------- ------------
TSI Danvers, Inc. TSI Holdings (MA), Inc. Massachusetts
TSI Downtown Crossing, Inc. Town Sports International, Inc. Delaware
TSI Dupont Circle, Inc. TSI Holdings (DC), Inc. Delaware
TSI Dupont II, Inc. TSI Holdings (DC), Inc. Delaware
TSI East Cambridge, Inc. Town Sports International, Inc. Delaware
TSI East Meadow, Inc. Town Sports International, Inc. New York
TSI East 23, Inc. Town Sports International, Inc. New York
TSI East 31, Inc. Town Sports International, Inc. New York
TSI East 34, Inc. Town Sports International, Inc. New York
TSI East 36, Inc. Town Sports International, Inc. New York
TSI East 41, Inc. Town Sports International, Inc. New York
TSI East 51, Inc. Town Sports International, Inc. New York
TSI East 59, Inc. Town Sports International, Inc. New York
TSI East 76, Inc. Town Sports International, Inc. New York
TSI East 86, LLC Town Sports International, Inc. New York
TSI East 91, Inc. Town Sports International, Inc. New York
TSI F Street, Inc. TSI Holdings (DC), Inc. Delaware
TSI Fairfax, LLC TSI Holdings (VA), Inc. Delaware
TSI Fenway, Inc. Town Sports International, Inc. Delaware
TSI Fifth Avenue, Inc. Town Sports International, Inc. New York
TSI First Avenue, Inc. Town Sports International, Inc. New York
TSI Forest Hills, Inc. Town Sports International, Inc. New York
TSI Fort Lee, LLC TSI Holdings (NJ), LLC Delaware
TSI Framingham, Inc. TSI Holdings (MA), Inc. Massachusetts
TSI Franklin (MA), Inc. TSI Holdings (MA), Inc. Massachusetts
TSI Franklin Park, LLC TSI Holdings (NJ), LLC Delaware
TSI Freehold, LLC TSI Holdings (NJ), LLC Delaware
TSI Gallery Place, Inc. TSI Holdings (DC), Inc. Delaware
TSI Garden City, Inc. Town Sports International, Inc. New York
TSI Germantown, LLC TSI Holdings (MD), Inc. Delaware
TSI Glover, Inc. TSI Holdings (DC), Inc. Delaware
TSI Grand Central, Inc. Town Sports International, Inc. New York
|
Jurisdiction of
Name Ownership Organization
---- --------- ------------
TSI Great Neck, Inc. Town Sports International, Inc. New York
TSI Greenwich, Inc. Town Sports International, Inc. Delaware
TSI Herald, Inc. Town Sports International, Inc. New York
TSI Highpoint, LLC TSI Holdings (PA), Inc. Delaware
TSI Hoboken, LLC TSI Holdings (NJ), LLC Delaware
TSI Holdings (CIP), Inc. Town Sports International, Inc. Delaware
TSI Holdings (DC), Inc. Town Sports International, Inc. Delaware
TSI Holdings (IP), LLC TSI Insurance, Inc. Delaware
TSI Holdings (MA), Inc. Town Sports International, Inc. Massachusetts
TSI Holdings (MD), Inc. Town Sports International, Inc. Delaware
TSI Holdings (NJ), LLC Town Sports International, Inc. Delaware
TSI Holdings (PA), Inc. Town Sports International, Inc. Delaware
TSI Holdings (VA), Inc. Town Sports International, Inc. Delaware
TSI Huntington, Inc. Town Sports International, Inc. New York
TSI Insurance, Inc. Town Sports International, Inc. New York
TSI International, Inc. Town Sports International, Inc. Delaware
TSI Irving Place, Inc. Town Sports International, Inc. New York
TSI Jersey City, LLC TSI Holdings (NJ), LLC Delaware
TSI Larchmont, Inc. Town Sports International, Inc. New York
TSI Lexington (MA), Inc. TSI Holdings (MA), Inc. Massachusetts
TSI Lincoln, Inc. Town Sports International, Inc. New York
TSI Long Beach, Inc. Town Sports International, Inc. New York
TSI Lynnfield, Inc. TSI Holdings (MA), Inc. Massachusetts
TSI M Street, Inc. TSI Holdings (DC), Inc. Delaware
TSI Madison, Inc. Town Sports International, Inc. New York
TSI Mahwah, LLC TSI Holdings (NJ), LLC Delaware
TSI Mamaroneck, Inc. Town Sports International, Inc. New York
TSI Market Street, LLC TSI Holdings (PA), Inc. Delaware
TSI Marlboro, LLC TSI Holdings (NJ), LLC Delaware
TSI Matawan, LLC TSI Holdings (NJ), LLC Delaware
TSI K Street TSI Holdings (DC), Inc. Delaware
TSI Montclair, LLC TSI Holdings (NJ), LLC Delaware
|
Jurisdiction of
Name Ownership Organization
---- --------- ------------
TSI Murray Hill, Inc. Town Sports International, Inc. New York
TSI Nanuet, Inc. Town Sports International, Inc. New York
TSI Nashua, LLC TSI Holdings (MA), Inc. Delaware
TSI Natick, Inc. Town Sports International, Inc. Delaware
TSI Newark, LLC TSI Holdings (NJ), LLC Delaware
TSI Newbury Street, Inc. Town Sports International, Inc. Delaware
TSI North Bethesda, LLC TSI Holdings (MD), Inc. Delaware
TSI Norwalk, Inc. Town Sports International, Inc. Delaware
TSI Oceanside, Inc. Town Sports International, Inc. New York
TSI Old Bridge, LLC TSI Holdings (NJ), LLC Delaware
TSI Parsippany, LLC TSI Holdings (NJ), LLC Delaware
TSI Plainsboro, LLC TSI Holdings (NJ), LLC Delaware
TSI Princeton, LLC TSI Brunswick, Inc. Delaware
TSI Ramsey, LLC TSI Holdings (NJ), LLC Delaware
TSI Reade Street, Inc. Town Sports International, Inc. New York
TSI Ridgewood, LLC TSI Holdings (NJ), LLC Delaware
TSI Rittenhouse, LLC TSI Holdings (PA), Inc. Delaware
TSI Rodin Place, LLC TSI Holdings (PA), Inc. Delaware
TSI Rye, Inc. Town Sports International, Inc. New York
TSI Scarsdale, Inc. Town Sports International, Inc. New York
TSI Seaport, Inc. Town Sports International, Inc. New York
TSI Sheridan, Inc. Town Sports International, Inc. New York
TSI Silver Spring, LLC TSI Holdings (MD), Inc. Delaware
TSI Society Hill, LLC TSI Holdings (PA), Inc. Delaware
TSI Soho, Inc. Town Sports International, Inc. New York
TSI Somerset, LLC TSI Holdings (NJ), LLC Delaware
TSI South Park Slope, Inc. Town Sports International, Inc. New York
TSI Springfield, LLC TSI Holdings (NJ), LLC Delaware
TSI Stamford Downtown, Inc. Town Sports International, Inc. Delaware
TSI Stamford Post, Inc. Town Sports International, Inc. Delaware
TSI Stamford Rinks, Inc. Town Sports International, Inc. Delaware
TSI Staten Island, Inc. Town Sports International, Inc. New York
|
Jurisdiction of
Name Ownership Organization
---- --------- ------------
TSI Sterling, LLC TSI Holdings (VA), Inc. Delaware
TSI Supplements, Inc. Town Sports International, Inc. Delaware
TSI Syosset, Inc. Town Sports International, Inc. New York
TSI Wall Street, Inc. Town Sports International, Inc. New York
TSI Waltham, LLC TSI Holdings (MA), Inc. Delaware
TSI Washington, Inc. TSI Holdings (DC), Inc. Delaware
TSI Water Street, Inc. Town Sports International, Inc. New York
TSI Wellesley, Inc. TSI Holdings (MA), Inc. Massachusetts
TSI West Caldwell, LLC TSI Holdings (NJ), Inc. Delaware
TSI West Newton, Inc. Town Sports International, Inc. Delaware
TSI West Nyack, Inc. Town Sports International, Inc. New York
TSI West Springfield, LLC TSI Holdings (VA), Inc. Delaware
TSI West 14, Inc. Town Sports International, Inc. New York
TSI West 16, Inc. Town Sports International, Inc. New York
TSI West 23, Inc. Town Sports International, Inc. New York
TSI West 38, Inc. Town Sports International, Inc. New York
TSI West 41, Inc. Town Sports International, Inc. New York
TSI West 44, Inc. Town Sports International, Inc. New York
TSI West 48, Inc. Town Sports International, Inc. New York
TSI West 52, Inc. Town Sports International, Inc. New York
TSI West 73, Inc. Town Sports International, Inc. New York
TSI West 76, Inc. Town Sports International, Inc. New York
TSI West 80, Inc. Town Sports International, Inc. New York
TSI West 94, Inc. Town Sports International, Inc. New York
TSI West 125, Inc. Town Sports International, Inc. New York
TSI Westport, Inc. Town Sports International, Inc. Delaware
TSI Westwood, LLC TSI Holdings (NJ), Inc. Delaware
TSI Weymouth, Inc. Town Sports International, Inc. Delaware
TSI White Plains, Inc. Town Sports International, Inc. New York
TSI Whitestone, Inc. Town Sports International, Inc. New York
TSI Woodmere, Inc. Town Sports International, Inc. New York
|
EXHIBIT 5.1
[LETTERHEAD OF KIRKLAND & ELLIS LLP]
To Call Writer Directly:
(212) 446-4800
April 5, 2004
Town Sports International Holdings, Inc.
888 Seventh Avenue
New York, NY 10106
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We are issuing this opinion letter in our capacity as special legal counsel to Town Sports International Holdings, Inc., a Delaware corporation (the "Registrant"), in connection with the proposed registration by the Issuer of $213,000,000 in aggregate principal amount at maturity of the Issuer's 11% Senior Exchange Discount Notes due 2014 (the "Exchange Notes") pursuant to a Registration Statement on Form S-4 filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"). Such Registration Statement, as amended or supplemented, is hereinafter referred to as the "Registration Statement." The Exchange Notes are to be issued pursuant to the Indenture (as amended and supplemented from time to time, the "Indenture"), dated as of February 4, 2004 by and among the Issuer, the Guarantors and The Bank of New York, as trustee. The Exchange Notes are to be issued in exchange for and in replacement of the Issuer's 11% Senior Discount Notes due 2014 (the "Old Notes"), of which $213,000,000 in aggregate principal amount at maturity is outstanding.
In that connection, we have examined originals, or copies certified or otherwise identified to our satisfaction, of such documents, corporate records and other instruments as we have deemed necessary for the purposes of this opinion, including (i) the Certificate of Incorporation and Bylaws of the Registrant, (ii) minutes and records of the corporate proceedings of the Registrant with respect to the issuance of the Exchange Notes, (iii) the Indenture and (iv) the Registration Statement.
For purposes of this opinion, we have assumed the authenticity of all documents submitted to us as originals, the conformity to the originals of all documents submitted to us as copies and the authenticity of the originals of all documents submitted to us as copies. We have also assumed the genuineness of the signatures of persons signing all documents in connection with which this opinion is rendered, the authority of such persons signing on behalf of the parties thereto other than the Registrant, and the due authorization, execution and delivery of all documents by the parties thereto other than the Registrant. As to any facts material to the opinions expressed herein which we have not independently established or verified, we have relied upon statements and representations of officers and other representatives of the Registrant and others.
Our opinion expressed below is subject to the qualifications
that we express no opinion as to the applicability of, compliance with, or
effect of (i) any bankruptcy, insolvency, reorganization, fraudulent transfer,
fraudulent conveyance, moratorium or other similar law affecting the enforcement
of creditors' rights generally, (ii) general principals of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), and
(iii) public policy considerations which may limit the rights of parties to
obtain certain remedies.
Based upon and subject to the foregoing qualifications, assumptions and limitations and the further limitations set forth below, we are of the opinion that:
(i) Town Sports International Holdings, Inc. is a corporation validly existing under the laws of the State of Delaware.
(ii) The Registrant has the requisite corporate power and authority to execute and deliver the Indenture and to perform its obligations thereunder.
(iii) The execution and delivery of the Indenture by each of the Registrant and the performance of its obligations thereunder, has been duly authorized by Registrant, and does not conflict with the articles of incorporation, bylaws or any applicable provision of New York or Delaware law or require any consent of any Delaware governmental authority.
(iv) When (a) the Registration Statement becomes effective, (b) the Indenture has been duly qualified under the Trust Indenture Act of 1939, as amended, and (c) the Exchange Notes have been duly executed and authenticated in accordance with the provisions of the Indenture and duly delivered to the holders thereof in exchange for the Old Notes, the Exchange Notes and the Guarantees will be validly issued and binding obligations of the Registrant.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement. We also consent to the reference to our firm under the heading "Legal Matters" in the Registration Statement. In giving this consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of the rules and regulations of the Commission.
Our advice on every legal issue addressed in this letter is based on exclusively on the internal law of the State of New York, the General Corporation Law of the State of Delaware and the Delaware case law decided thereunder or the federal law of the United States.
This opinion is limited to the specific issues addressed herein, and no opinion may be inferred or implied beyond that expressly stated herein. We assume no obligation to revise or supplement this opinion should the present laws of the State of New York or Delaware or the federal law of the United States be changed by legislative action, judicial decision or otherwise.
This opinion is furnished to you in connection with the filing of the Registration Statement, and is not to be used, circulated, quoted or otherwise relied upon for any other purposes.
Yours very truly,
KIRKLAND & ELLIS LLP
EXHIBIT 8.1
[LETTERHEAD OF KIRKLAND & ELLIS LLP]
To Call Writer Directly:
(212) 446-4800
April 5, 2004
Town Sports International Holdings, Inc.
888 Seventh Avenue
New York, NY 10106
Re: Exchange Offer for $213,000,000 principal amount at maturity 11% Senior Discount Notes due 2014 for up to $213,000,000 principal amount at maturity 11% Senior Exchange Discount Notes due 2014
Dear Ladies and Gentlemen:
We have acted as counsel to Town Sports International Holdings, Inc. (the "Company") in connection with the Company's proposed offer (the "Exchange Offer") to exchange an aggregate principal amount at maturity of up to $213,000,000 11% Senior Notes due 2014 (the "Old Notes") for up to $213,000,000 11% Senior Exchange Notes due 2014 (the "Exchange Notes"), pursuant to a Registration Statement on Form S-4 filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended. Such Registration Statement, as amended or supplemented, is hereinafter referred to as the "Registration Statement."
You have requested our opinion as to certain United States federal income tax consequences of the Exchange Offer. In preparing our opinion, we have reviewed and relied upon the Registration Statement and such other documents as we deemed necessary.
On the basis of the foregoing, it is our opinion that under current law the exchange of the Old Notes for the Exchange Notes pursuant to the Exchange Offer should not be treated as an "exchange" for United States federal income tax purposes, because the Exchange Notes should not be considered to differ materially in kind or extent from the Old Notes. Rather, the Exchange Notes received by a holder should be treated as a continuation of the Old Notes in the hands of that holder. Accordingly, there should be no federal income tax consequences to holders solely as a result of the exchange of the Old Notes for Exchange Notes under the Exchange Offer.
The opinion set forth above is based upon the applicable provisions of the Internal Revenue Code of 1986, as amended, the Treasury Regulations promulgated or proposed thereunder, current positions of the Internal Revenue Service (the "IRS") contained in published
Town Sports International Holdings, Inc.
April 5, 2004
revenue rulings, revenue procedures, and announcements, existing judicial decisions and other applicable authorities, all of which are subject to change, which changes may be retroactively applied. A change in the authorities upon which our opinion is based could affect our conclusions. No tax ruling has been sought from the IRS with respect to any of the matters discussed herein. Unlike a ruling from the IRS, an opinion of counsel is not binding on the IRS. Hence, no assurance can be given that the opinion stated in this letter will not be successfully challenged by the IRS or that a court would reach the same conclusion. We express no opinion concerning any tax consequences of the Exchange Offer except as expressly set forth above.
We consent to the filing of this opinion as an exhibit to the Registration Statement, to the reference to this firm and the inclusion of our opinion in the section entitled "Certain U.S. Federal Income Tax Considerations" in the Registration Statement. In giving this consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commissions promulgated thereunder.
Yours very truly,
KIRKLAND & ELLIS LLP
EXHIBIT 10.2
FIRST AMENDMENT
FIRST AMENDMENT (this "Amendment"), dated as of January 27, 2004, among TOWN SPORTS INTERNATIONAL, INC. (the "Borrower"), the financial institutions party to the Credit Agreement referred to below (the "Lenders"), and DEUTSCHE BANK TRUST COMPANY AMERICAS, as Administrative Agent (in such capacity, the "Administrative Agent"). All capitalized terms used herein and not otherwise defined herein shall have the respective meanings provided such terms in the Credit Agreement referred to below.
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders and the Administrative Agent are parties to a Credit Agreement, dated as of April 16, 2003 (the "Credit Agreement");
WHEREAS, the parties hereto wish to amend and otherwise modify certain provisions of the Credit Agreement as herein provided; and
WHEREAS, subject to the terms and conditions of this Amendment, the parties hereto agree as follows;
NOW, THEREFORE, it is agreed:
1. Section 3.03 of the Credit Agreement is hereby amended by inserting the following new clause (i) at the end thereof:
"(i) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, to the extent that Holdco receives any cash proceeds from any incurrence of Indebtedness for borrowed money by Holdco (other than cash proceeds received from the issuance of the Holdco Notes on the First Amendment Effective Date), any asset sale by Holdco or from any Recovery Event, the Net Debt Proceeds, the Net Asset Sale Proceeds or the New Recovery Event Proceeds therefrom, as the case may be, shall be treated as if (and, notwithstanding anything to the contrary contained herein, be deemed) received by the Borrower and shall be applied as, and to the extent, required by Section 3.03(c), (d) or (e), as the case may be."
2. Sections 8.01(b) and (c) of the Credit Agreement are hereby restated in their entirety as follows:
"(b) Quarterly Financial Statements. Within 45 days after the close of each of the first three quarterly accounting periods in each fiscal year of the Borrower and Holdco, (i) the consolidated balance sheet of each of the Borrower and its Subsidiaries and Holdco and its Subsidiaries as at the end of such quarterly accounting period and the related consolidated statements of income and retained earnings (or accumulated deficit, as the case may be) and statement of cash flows for such quarterly accounting period and for the elapsed portion of the fiscal year ended with the last day of such quarterly accounting period, in each case setting forth comparative figures for the corresponding
quarterly accounting period in the prior fiscal year and comparable
budgeted figures for such quarterly accounting period as set forth in
the respective budget delivered pursuant to Section 8.01(e), all of
which shall be certified by an Authorized Financial Officer of the
Borrower or Holdco that they fairly present in all material respects in
accordance with generally accepted accounting principles the financial
condition of the Borrower and its Subsidiaries and Holdco and its
Subsidiaries as of the dates indicated and the results of their
operations for the periods indicated, subject to normal year-end audit
adjustments and the absence of footnotes, and (ii) management's
discussion and analysis of the important operational and financial
developments during such quarterly accounting period (it being
understood and agreed that (x) any such management's discussion and
analysis set forth in the Borrower's or Holdco's Form 10-Q filed with
the SEC for the respective quarterly accounting period shall satisfy
the requirements of this sub-clause (ii) so long as a copy of such Form
10-Q has been delivered to the Lenders pursuant to this Section 8.01(b)
or Section 8.01(h) and (y) in satisfying the requirements of this
Section 8.01(b), if at the time the financial statements referenced
herein are to be delivered, Holdco owns no capital stock or other
equity interests of any Person other than the Borrower and has no other
material assets or liabilities (other than pursuant to the Credit
Agreement, the Holdco Note Documents or its guaranty of the Senior
Notes), then one set of consolidated financial statements of Holdco and
its Subsidiaries may be delivered pursuant to this Section 8.01(b) so
long as any differences in the consolidated financial statements of
Holdco and its Subsidiaries from those of the Borrower and its
Subsidiaries are indicated by footnotes in the respective consolidated
financial statements.).
(c) Annual Financial Statements. Within 90 days after the close of each fiscal year of the Borrower and Holdco, (i) the consolidated balance sheet of each of the Borrower and its Subsidiaries and Holdco and its Subsidiaries as at the end of such fiscal year and the related consolidated statements of income and retained earnings (or accumulated deficit, as the case may be) and statement of cash flows for such fiscal year setting forth comparative figures for the preceding fiscal year and certified by PricewaterhouseCoopers LLP or other independent certified public accountants of recognized national standing reasonably acceptable to the Administrative Agent, together with a report of such accounting firm stating that in the course of its regular audit of the financial statements of each of the Borrower and its Subsidiaries and Holdco and its Subsidiaries, which audit was conducted in accordance with generally accepted auditing standards, such accounting firm obtained no knowledge of any Default or Event of Default relating to financial or accounting matters which has occurred and is continuing or, if in the opinion of such accounting firm such a Default or an Event of Default has occurred and is continuing, a statement as to the nature thereof, and (ii) management's discussion and analysis of the important operational and financial developments during such fiscal year (it being understood and agreed that (x) any such management's discussion and analysis set forth in the Borrower's or Holdco's Form 10-K filed with the SEC for the respective fiscal year shall satisfy the requirements of this sub-clause (ii) so long as a copy of such Form 10-K has been delivered to the Lenders pursuant to this Section 8.01(c) or Section 8.01(h) and (y) in satisfying the requirements of this Section 8.01(c), if at the time the financial statements referenced herein are to be delivered, Holdco owns no capital stock or other equity interests of any Person other than the
Borrower and has no other material assets or liabilities (other than pursuant to the Credit Agreement, the Holdco Note Documents or its guaranty of the Senior Notes), then one set of consolidated financial statements of Holdco and its Subsidiaries may be delivered pursuant to this Section 8.01(c) so long as any differences in the consolidated financial statements of Holdco and its Subsidiaries from those of the Borrower and its Subsidiaries are indicated by footnotes in the respective consolidated financial statements).
3. Section 9.03(iii) of the Credit Agreement is hereby restated in its entirety as follows:
"(iii) the Borrower may pay cash Dividends to Holdco so long as Holdco promptly uses such proceeds solely to redeem or repurchase outstanding shares of Holdco's common stock (or options to purchase such common stock) following the death, disability, retirement or termination of employment of officers, directors or employees of the Borrower or any of its Subsidiaries, provided that (x) neither the Borrower nor any of its Subsidiaries shall have any obligations in respect of such redemptions or repurchases, (y) the aggregate amount of Dividends paid by the Borrower to Holdco pursuant to this Section 9.03(iii) shall not exceed (I) $750,000 in any fiscal year of the Borrower plus (II) the aggregate amount of cash proceeds received by the Borrower in connection with the issuance of its common stock to officers, directors or employees of the Borrower and its Subsidiaries after the Effective Date and prior to the First Amendment Effective Date plus (III) the aggregate amount of cash proceeds received by the Borrower from Holdco in connection with the issuance of Holdco's common stock to officers, directors or employees of the Borrower and its Subsidiaries after the First Amendment Effective Date plus (IV) any cash proceeds received by the Borrower (or received by Holdco and contributed to the Borrower) from key man life insurance policies obtained solely for the purpose of making such redemptions or repurchases and (z) at the time of any Dividend permitted to be made pursuant to this Section 9.03(iii), no Default or Event of Default shall then exist or result therefrom;".
4. Section 9.03 of the Credit Agreement is hereby
further amended by (i) deleting the word "and" appearing at the end of clause
(iv) thereof, (ii) deleting the period appearing at the end of clause (v)
thereof and inserting the text "; and" in lieu thereof and (iii) inserting the
following new clause (vi) at the end thereof:
"(vi) the Borrower may pay cash Dividends to Holdco so long
as the proceeds thereof are promptly used by Holdco solely to pay
operating expenses incurred in the ordinary course of business
(including, without limitation, professional fees and expenses) and
other similar corporate overhead costs and expenses, provided that the
aggregate amount of all cash Dividends paid pursuant to this clause
(vi) shall not exceed $250,000 in any fiscal year of the Borrower."
5. Section 9.04(xi) of the Credit Agreement is hereby amended by inserting the text "(other than Indebtedness owed to Holdco)" immediately after the text "the Borrower and its Subsidiaries" appearing therein.
6. Section 9.05(xi) of the Credit Agreement is hereby amended by inserting the text "prior to the First Amendment Effective Date" immediately after the text "the Borrower may acquire" and "acquisition of shares of capital stock of the Borrower" appearing therein.
7. Section 9.05(xiii) of the Credit Agreement is hereby amended by inserting the text "(other than Investments in or to Holdco)" immediately after the text "not otherwise permitted by this Section 9.05" appearing therein.
8. Section 9.06 of the Credit Agreement is hereby amended by (i) deleting the word "and" appearing at the end of clause (v) thereof, (ii) deleting the period appearing at the end of clause (vi) thereof and inserting "; and" in lieu thereof and (iii) inserting the following new clause (vii) immediately following such clause (vi):
"(vii) the Borrower may enter into, and may make payments under, the Holdco Tax Sharing Agreement."
9. Section 9.11(iv) of the Credit Agreement is hereby
amended by inserting the text "(including the Holdco Tax Sharing Agreement)"
immediately after the text "any Tax Sharing Agreement" appearing in sub-clause
(y) thereof.
10. Section 10.02 of the Credit Agreement is hereby amended by inserting the text "or Holdco" immediately after the text "any Credit Party" appearing therein.
11. Section 10.07 of the Credit Agreement is hereby amended by inserting the text "or Holdco" immediately after the text "any Credit Party" appearing therein.
12. Section 10 of the Credit Agreement is hereby further
amended by (i) inserting the word "or" at the end of Section 10.10 thereof and
(ii) inserting the following new Section 10.11 immediately following such
Section 10.10:
"10.11 Holdco Guaranty. After the execution and delivery thereof, the Holdco Guaranty or any provision thereof shall cease to be in full force or effect as to Holdco, or Holdco or any Person acting for or on behalf of Holdco shall deny or disaffirm Holdco's obligations under the Holdco Guaranty or a "Holdco Event of Default" shall occur and be continuing;".
13. The definition of "BRS Investors" appearing in
Section 11.01 of the Credit Agreement is hereby amended by deleting the text
"Effective Date" appearing therein and inserting the text "First Amendment
Effective Date" in lieu thereof.
14. The definition of "Change of Control" appearing in
Section 11.01 of the Credit Agreement is hereby restated in its entirety as
follows:
"Change of Control" shall mean any of (i) prior to the date on which a Qualified IPO occurs, (x) the Management Investors, BRS, the BRS Investors and their Permissible Transferees shall in the aggregate cease to own Holdco Common Stock representing more than 50% of the common voting equity interest in Holdco's capital stock on a fully-diluted basis (assuming the exercise of all securities, exercisable, convertible or
exchangeable for or into common equity interests of Holdco) or (y) BRS,
the BRS Investors and their Permissible Transferees shall in the
aggregate cease to own Holdco Common Stock representing at least 35% of
the voting common equity interests in Holdco's capital stock on a
fully-diluted basis (assuming the exercise of all securities
exercisable, convertible or exchangeable for or into common equity
interests of Holdco), (ii) from and after the date on which a Qualified
IPO occurs, (w) the Management Investors, BRS, the BRS Investors and
their Permissible Transferees shall cease to own Holdco Common Stock
representing not less than 33% of the common voting equity interest in
Holdco's capital stock on a fully-diluted basis (assuming the exercise
of all securities, exercisable, convertible or exchangeable for or into
common equity interest of Holdco) or (x) BRS, the BRS Investors and
their Permissible Transferees shall in the aggregate cease to own
Holdco Common Stock representing at least 20% of the common voting
equity interests in Holdco's capital stock on a fully diluted basis
(assuming the exercise of all securities exercisable, convertible or
exchangeable for into common equity interests of Holdco) or (y) any
"Person" or "Group" (within the meaning of sections 13(d) and 14(d)
under the Exchange Act as in effect on the Effective Date) of Persons,
owns (beneficially or of record) a greater percentage than BRS, the BRS
Investors and their Permissible Transferees of common equity interest
in Holdco's capital stock, in each case, on a fully-diluted basis
(assuming the exercise of all securities exercisable, convertible or
exchangeable for or into common equity interests of Holdco), (iii)
Holdco shall cease to own 100% of the capital stock of the Borrower, or
(iv) a "change of control" pursuant to, and as defined in, the Senior
Note Documents or the Holdco Note Documents shall occur.
15. The definition of "Consolidated EBITDA" appearing in
Section 11.01 of the Credit Agreement is hereby amended by (i) inserting "(i)"
immediately after the text "subtracting therefrom" appearing in sub-clause (y)
thereof and (ii) inserting the following new sub-clause (y)(ii) immediately
before the semicolon appearing at the end of sub-clause (y) thereof:
" and (ii) the amount of all cash Dividends paid by the Borrower to Holdco pursuant to Section 9.03(vi) for such period to the extent not otherwise deducted in arriving at Consolidated Net Income for such period".
16. The definition of "Credit Documents" appearing in
Section 11.01 of the Credit Agreement is hereby amended by inserting the text
"the Holdco Guaranty," immediately after the text "the Subsidiaries Guaranty,"
appearing therein.
17. The definition of "Management Investors" appearing in
Section 11.01 of the Credit Agreement is hereby restated in its entirety as
follows:
"Management Investors" shall mean the directors, executive officers and senior management investors of Holdco or the Borrower party to the Stockholders Agreement on the First Amendment Effective Date or who become party thereto after the First Amendment Effective Date with the approval of the Board of Directors of Holdco.
18. The definition of "Maximum Permitted Consideration" appearing in Section 11.01 of the Credit Agreement is hereby amended by (i) deleting the text "the common stock of the Borrower" each place such text appears in clause (i) of said definition and inserting the text "the common stock of Holdco" in lieu thereof in each such place, (ii) deleting the text "the Board of Directors of the Borrower" appearing in clauses (i) and (ii) of said definition and inserting the text "the Board of Directors of Holdco" in lieu thereof in each such place and (iii) deleting the text "Qualified Preferred Stock of the Borrower" appearing in clause (ii) of said definition and inserting the text "Qualified Preferred Stock of Holdco" in lieu thereof.
19. The definition of "Permissible Transferee" appearing in Section 11.01 of the Credit Agreement is hereby amended by deleting the text "in the Borrower" each place such text appears in clause (i)(B) thereof and inserting the text "in Holdco" in lieu thereof in each such place.
20. The definition of "Qualified IPO" appearing in
Section 11.01 of the Credit Agreement is hereby restated in its entirety as
follows:
"Qualified IPO" shall mean a bona fide underwritten sale to the public of common stock of Holdco pursuant to a registration statement (other than on Form S-8 or any other form relating to securities issuable under any benefit plan of Holdco, the Borrower or any of their respective Subsidiaries) that is declared effective by the SEC and such offering results in gross cash proceeds to Holdco (exclusive of underwriter's discount and commissions and other expenses) of at least $75,000,000 and such proceeds (net of costs and expenses) are contributed by Holdco to the Borrower.
21. The definition of "Qualified Preferred Stock" appearing in Section 11.01 of the Credit Agreement is hereby restated in its entirety as follows:
"Qualified Preferred Stock" shall mean any preferred stock of the Borrower or Holdco so long as (A) in each case the terms of any such preferred stock (i) do not contain any mandatory put, redemption, repayment, sinking fund or other similar provision, (ii) do not require the cash payment of dividends, (iii) do not contain any covenants (other than financial reporting covenants), (iv) do not grant the holders thereof any voting rights except for (x) voting rights required to be granted to such holders under applicable law and (y) limited customary voting rights on fundamental matters such as mergers, consolidations, sales of all or substantially all of the assets of the Borrower or Holdco, as the case may be, or liquidations involving the Borrower or Holdco, as the case may be, and (v) are otherwise reasonably satisfactory to the Administrative Agent, and (B) in the case of any preferred stock issued by the Borrower, the only holder thereof is Holdco.
22. The definition of "Security Documents" appearing in
Section 11.01 of the Credit Agreement is hereby amended by inserting the
following text at the end thereof:
", the Holdco Pledge Agreement and the Holdco Security Agreement".
23. The definition of "Stockholders Agreement" appearing in Section 11.01 of the Credit Agreement is hereby restated in its entirety as follows:
"Stockholders Agreement" shall mean the Shareholders Agreement to be entered into on or prior to the First Amendment Effective Date by and among BRS, the BRS Investors, Farallon, Canterbury Detroit Partners, L.P., Canterbury Mezzanine Capital, L.P., Rosewood Capital, L.P., the Management Investors and each other shareholder of Holdco party thereto, as the same may be amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.
24. Section 11.01 of the Credit Agreement is hereby further amended by inserting the following new definitions in the appropriate alphabetical order:
"First Amendment" shall mean the First Amendment to this Agreement, dated as of January 27, 2004.
"First Amendment Effective Date" shall have the meaning provided in the First Amendment.
"Holdco" shall mean Town Sports International Holdings, Inc., a corporation organized under the laws of Delaware.
"Holdco Common Stock" shall mean the shares of common stock of Holdco as constituted on the First Amendment Effective Date.
"Holdco Credit Documents" shall mean and include each of the Holdco Guaranty, the Holdco Pledge Agreement and the Holdco Security Agreement.
"Holdco Event of Default" shall mean a "Holdco Event of Default" under, and as defined in, the Holdco Guaranty.
"Holdco Guaranty" shall mean the guaranty to be made by Holdco in favor of the Administrative Agent for the benefit of the Secured Creditors in accordance with the terms of the First Amendment pursuant to which Holdco shall guaranty the obligations of the Borrower owing to the Secured Creditors pursuant to the Credit Documents and the Interest Rate Protection Agreements and Other Hedging Agreements to which the Borrower is a party to, as such guaranty may be amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.
"Holdco Note Documents" shall mean the Holdco Note Indenture, the Holdco Notes and each other document or agreement relating to the issuance of the Holdco Notes.
"Holdco Note Indenture" shall mean the Indenture to be entered into between Holdco and the trustee thereunder, as the same may be amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.
"Holdco Notes" shall mean Holdco's Senior Discount Notes due 2014 to be issued pursuant to the Holdco Note Indenture.
"Holdco Pledge Agreement" shall mean the pledge agreement to be entered into between Holdco and the Collateral Agent for the benefit of the Secured Creditors in accordance with the terms of the First Amendment pursuant to which Holdco shall pledge the Collateral thereunder (including 100% of the capital stock of the Borrower) to secure its obligations under the Holdco Guaranty and the other Holdco Credit Documents to which it is a party to, as such pledge agreement may be amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.
"Holdco Security Agreement" shall mean the security agreement to be entered into between Holdco and the Collateral Agent for the benefit of the Secured Creditors in accordance with the terms of the First Amendment pursuant to which Holdco shall pledge the Collateral thereunder to secure its obligations under the Holdco Guaranty and the other Holdco Credit Documents to which it is a party to, as such security agreement may be amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.
"Holdco Tax Sharing Agreement" shall mean the Tax Sharing Agreement entered into between the Borrower and Holdco in the form delivered to the Administrative Agent and the Lenders pursuant to the First Amendment, as the same may be amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.
25. This Amendment shall become effective on the date (the "First Amendment Effective Date") when:
(i) the Borrower and the Required Lenders shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Administrative Agent at the Notice Office;
(ii) Holdco shall have issued the Holdco Notes;
(iii) Holdco shall have duly authorized, executed and delivered to the Administrative Agent counterparts of the Holdco Guaranty, the Holdco Pledge Agreement and the Holdco Security Agreement (each of which shall be in form and substance reasonably acceptable to the Administrative Agent), and shall have delivered to the Collateral Agent, as pledgee under the Holdco Pledge agreement, stock certificates representing 100% of the outstanding capital stock of the Borrower, together with executed and undated stock powers with respect thereto;
(iv) Holdco shall have taken all such other actions, and shall have executed and delivered all such further documentation (including, but not limited to, opinions of counsel, UCC-1 financing statements, officers' certificates, board of director resolutions, certified charter documents and good standing certificates), in each case as Holdco would otherwise have been required to take pursuant to Section 9.15 of the Credit Agreement if Holdco were a Domestic Subsidiary of the Borrower (and with all such actions and documentation referred to above in this clause (iv) to be in form and substance reasonably satisfactory to the Administrative Agent); and
(v) the Administrative Agent and the Lenders shall have received a true and correct copy of the Holdco Note Documents, the Stockholders Agreement and the Holdco Tax Sharing Agreement (each of which shall be in form and substance reasonably satisfactory to the Administrative Agent).
26. In order to induce the Lenders to enter into this Amendment, the Borrower hereby represents and warrants that (i) no Default or Event of Default exists on the First Amendment Effective Date, both before and after giving effect to this Amendment, and (ii) on the First Amendment Effective Date, both before and after giving effect to this Amendment, all representations and warranties contained in the Credit Agreement and in the other Credit Documents are true and correct in all material respects (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date).
27. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be delivered to the Borrower and the Administrative Agent.
28. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
29. From and after the First Amendment Effective Date, all references in the Credit Agreement and each of the other Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as modified hereby.
30. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document.
* * *
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written.
TOWN SPORTS INTERNATIONAL, INC.
By: /s/ Richard Pyle
----------------------------
Name: Richard Pyle
Title: Chief Financial Officer
|
DEUTSCHE BANK TRUST COMPANY
AMERICAS, Individually and as
Administrative Agent
By: /s/ Scottye Lindsey
----------------------------
Name: Scottye Lindsey
Title: Vice President
|
BNP PARIBAS
By: /s/ Cecile Scherer
-----------------------------
Name: Cecile Scherer
Title: Director Merchant
Banking Group
By: /s/ M. Ginkelman
-----------------------------
Name: M. Ginkelman
Title: Managing Director
|
CIT LENDING SERVICES CORPORATION
By: ____________________________
Name:
Title:
MERRILL LYNCH CAPITAL, a division of
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By: /s/ Francois Delangle
--------------------------
Name: Francois Delangle
Title: Vice President
|
EXHIBIT 10.3
TOWN SPORTS INTERNATIONAL, INC.
RESTRUCTURING AGREEMENT
This RESTRUCTURING AGREEMENT (this "Agreement") is made as of February 4, 2004, by and among Town Sports International, Inc., a New York corporation (the "Company"), Town Sports International Holdings, Inc., a Delaware corporation ("Holdings"), BRUCKMANN, ROSSER, SHERRILL & CO., L.P., a Delaware limited partnership ("BRS"), the individuals and entities listed on the BRS Affiliate Signature Pages hereto (the "BRS Affiliates" and, collectively with BRS, the "BRS Investors", and individually with BRS, each a "BRS Investor"), FARALLON CAPITAL PARTNERS, L.P., a California limited partnership ("FCP"), FARALLON CAPITAL INSTITUTIONAL PARTNERS, L.P., a California limited partnership ("FCIP"), RR CAPITAL PARTNERS, L.P., a Delaware limited partnership ("RRC"), and FARALLON CAPITAL INSTITUTIONAL PARTNERS II, L.P., a California limited partnership ("FII" and, collectively with FCP, FCIP, and RRC, the "Farallon Investors", and individually, a "Farallon Investor"), CANTERBURY DETROIT PARTNERS, L.P., a Delaware limited partnership ("Canterbury Detroit"), CANTERBURY MEZZANINE CAPITAL, L.P., a Delaware limited partnership ("Canterbury Mezzanine" and, together with Canterbury Detroit, the "Canterbury Investors", and individually, a "Canterbury Investor"), ROSEWOOD CAPITAL, L.P., a Delaware limited partnership ("Rosewood"), ROSEWOOD CAPITAL IV, L.P., a Delaware limited partnership ("Rosewood IV"), ROSEWOOD CAPITAL IV ASSOCIATES, L.P., a Delaware limited partnership ("Rosewood Associates" and, collectively with Rosewood and Rosewood IV, the "Rosewood Investors", and individually, a "Rosewood Investor"), CAPITALSOURCE HOLDINGS LLC, a Delaware limited liability company ("CapitalSource"), KEITH ALESSI ("Alessi"), PAUL ARNOLD ("Arnold"), and certain stockholders of the Company listed on the Executive Signature Page hereto (each, an "Executive", collectively, the "Executives") (the BRS Investors, the Farallon Investors, the Canterbury Investors, the Rosewood Investors, CapitalSource, Alessi, Arnold and the Executives are referred to collectively herein as the "Contributors", and individually herein as a "Contributor").
WHEREAS, the Contributors own all of the issued and outstanding capital stock of the Company;
WHEREAS, the Contributors and the Company desire to restructure the Company by creating Holdings, a holding company which shall own all of the issued and outstanding capital stock of the Company;
WHEREAS, following the restructuring of the Company, the Contributors shall own all of the issued and outstanding capital stock of Holdings on the same terms and in the same proportion as is held currently in the Company by the Contributors; and
WHEREAS, on January 20, 2004, Holdings was incorporated in the State of Delaware to effectuate such restructuring.
NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the parties hereto agree as follows.
1. CONTRIBUTION TO HOLDINGS. On the date of this
Agreement, each Contributor agrees to contribute and deliver to Holdings
certificates representing the number of shares of (a) Series A Preferred Stock,
par value $1.00 per share, of the Company (the "Company Series A Preferred"),
(b) Series B Preferred Stock, par value $1.00 per share, of the Company (the
"Company Series B Preferred"), and (c) Class A Common Stock, par value $.001 per
share, of the Company (the "Company Class A Common" and, collectively with the
Company Series A Preferred and the Company Series B Preferred, the "Company
Shares", and individually, a "Company Share"), as applicable, as specified for
each such Contributor on Schedule 1 attached hereto, endorsed in blank or
accompanied by duly executed assignment documents, and in exchange therefore,
Holdings agrees to issue and deliver to each Contributor the number of shares of
(a) Series A Preferred Stock, par value $1.00 per share, of Holdings (the
"Holdings Series A Preferred"), (b) Series B Preferred Stock, par value $1.00
per share, of Holdings (the "Holdings Series B Preferred"), and (c) Class A
Common Stock, par value $.001 per share, of Holdings (the "Holdings Class A
Common" and, collectively with the Holdings Series A Preferred and the Holdings
Series B Preferred, the "Holdings Shares", and individually, a "Holdings
Share"), as applicable, as specified for each such Contributor on Schedule 1
attached hereto (in each case, in the form of stock certificates issued by
Holdings representing such shares). The parties hereto intend that the
transactions described in this Section 1 (the "Initial Exchange") be
characterized as an exchange under Section 351(a) of the Internal Revenue Code
of 1986, as amended.
2. CONTRIBUTION TO THE COMPANY. Immediately following
the Initial Exchange, Holdings agrees to contribute and deliver to the Company
the certificates representing all of the Company Shares contributed to it
pursuant to the Initial Exchange, endorsed in blank or accompanied by duly
executed assignment documents, and in exchange therefore, the Company agrees to
(a) issue and deliver to Holdings 1,000 shares of Company Class A Common (in the
form of stock certificates issued by the Company representing such shares), and
(b) cancel on its books and records the certificates representing Company Shares
contributed to it by Holdings pursuant to this Section 2. The parties hereto
intend that the transactions described in this Section 2 (the "Second Exchange"
and, together with the Initial Exchange, the "Restructuring") be characterized
as an exchange under Section 351(a) of the Internal Revenue Code of 1986, as
amended.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) Representations and Warranties with respect to the Company. The Company represents and warrants to each of the Contributors that its statements contained in this Section 3(a) are true and correct as of the date of this Agreement.
(i) Organization of the Company. The Company is duly organized, validly existing, and in good standing under the laws of the State of New York.
(ii) Authorization of Transaction. The Company has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms and conditions. The Company need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement.
(iii) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (a) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Company is subject or any provision of its charter or bylaws, or (b) result in a breach of or constitute a default under, any agreement, contract, lease, license, instrument, or other arrangement to which the Company is a party or by which it is bound or to which any of its assets is subject.
(iv) Capital Stock and Related Matters.
(A) The authorized capital stock of the
Company consists of (i) 2,500,000 shares of Company Class A Common, of which (x)
1,247,673.29 shares are issued and outstanding and 162,759 are reserved for
issuance upon exercise of employee stock options issued pursuant to the
Company's Fourth Amended and Restated 1996 Common Stock Option Plan approved by
the board of directors of the Company, in each case, immediately prior to the
Restructuring and (y) 1,000 shares will be issued and outstanding and held by
Holdings immediately after the Restructuring, (ii) 500,000 shares of Class B
Common Stock, par value $.001 per share, none of which are issued and
outstanding immediately prior to or immediately after the Restructuring, (iii)
100,000 shares of Senior Preferred Stock, par value $1.00 per share, none of
which are issued and outstanding immediately prior to or immediately after the
Restructuring, (iv) 200,000 shares of Company Series A Preferred, (x) of which
153,636.54 shares are issued and outstanding immediately prior to the
Restructuring and (y) none of which shall be issued and outstanding immediately
after the Restructuring, and (v) 200,000 shares of Company Series B Preferred,
(x) of which 109,540.68 shares are issued and outstanding immediately prior to
the Restructuring and (y) none of which shall be issued and outstanding
immediately after the Restructuring. Immediately after the Restructuring, the
Company will not have outstanding any stock or securities convertible or
exchangeable for any shares of its capital stock or containing any profit
participation features, nor any rights or options to subscribe for or to
purchase its capital stock or any stock or securities convertible into or
exchangeable for its capital stock or any stock appreciation rights or phantom
stock plans. Immediately after the Restructuring, the Company shall not be
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its outstanding capital stock or any warrants,
options or other rights to acquire its capital stock. As of the Restructuring
and immediately thereafter, all of the outstanding shares of the Company's
capital stock shall be validly issued, fully paid and nonassessable.
(B) There are no statutory or contractual stockholders preemptive rights or rights of refusal with respect to the issuance of the Company Class A Common to Holdings pursuant to Section 2. The Company has not violated any applicable federal or state securities laws in connection with the issuance of any of its capital stock pursuant
to Section 2, and the issuance of the Company Class A Common pursuant to Section 2 does not require registration under the Securities Act of 1933, as amended (the "Securities Act"), or any applicable state securities laws. Immediately after the Restructuring, there will be no agreements between the Company's stockholders with respect to the voting, transfer or registration of the Company's capital stock.
(b) Representations and Warranties with respect to Holdings. The Company and Holdings represent and warrant, jointly and severally, to each of the Contributors that the statements contained in this Section 3(b) are true and correct as of the date of this Agreement.
(i) Organization of Holdings. Holdings is duly organized, validly existing, and in good standing under the laws of the State of Delaware.
(ii) Authorization of Transaction and Holdings Shares. Holdings has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. Holdings has (i) created the Holdings Shares by amending and restating its existing Certificate of Incorporation in the form set forth as Exhibit A attached hereto (the "Holdings Amended Certificate") and (ii) authorized the issuance of the Holdings Shares to the Contributors pursuant to Section 1. This Agreement constitutes a valid and binding obligation of Holdings, enforceable in accordance with its terms and conditions. Holdings need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement, except for certain filings related to the issuance of Holdings Shares pursuant to Section 1 to comply with the Securities Act and applicable state securities laws.
(iii) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Holdings is subject or any provision of its charter or bylaws, or (b) result in a breach of or constitute a default under, any agreement, contract, lease, license, instrument, or other arrangement to which Holdings is a party or by which it is bound or to which any of its assets is subject.
(iv) Capital Stock and Related Matters
(A) The authorized capital stock of
Holdings consists of (i) 2,500,000 shares of Holdings Class A Common, (x) none
of which are issued and outstanding immediately prior to the Restructuring and
(y) of which 1,247,673.29 shares are issued and outstanding and 131,532 shares
are reserved for issuance upon exercise of employee stock options (the "Holdings
Options") issued pursuant to Holdings' 2004 Common Stock Option Plan in the form
set forth as Exhibit B attached hereto approved by the board of directors of
Holdings, in each case, immediately after the Restructuring, (ii) 500,000 shares
of Class B Common Stock, par value $.001 per share, none of which are issued and
outstanding immediately prior to or immediately after the Restructuring, (iii)
200,000 shares of Holdings Series A Preferred, (x) none of which are issued and
outstanding immediately prior to the Restructuring and (y) of which 153,636.54
shares are issued and outstanding immediately after the Restructuring, and (iv)
200,000 shares of Holdings Series B Preferred, (x) none of which are issued and
outstanding
immediately prior to the Restructuring and (y) of which 109,540.68 shares are issued and outstanding immediately after the Restructuring. Immediately after the Restructuring, Holdings will not have outstanding any stock or securities convertible or exchangeable for any shares of its capital stock or containing any profit participation features, nor any rights or options to subscribe for or to purchase its capital stock or any stock or securities convertible into or exchangeable for its capital stock or any stock appreciation rights or phantom stock plans, except for the Holdings Options and the Holdings Series B Preferred. Immediately after the Restructuring, Holdings shall not be subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its outstanding capital stock or any warrants, options or other rights to acquire its capital stock, except for the Holdings Options and those obligations set forth in the Holdings Amended Certificate, the Stockholders Agreement, dated as of the date hereof, by and among Holdings and the Contributors in the form set forth as Exhibit C attached hereto (the "Holdings Stockholders Agreement"), and the Registration Rights Agreement, dated as of the date hereof, by and among Holdings and the Contributors in the form set forth as Exhibit D attached hereto (the "Holdings Registration Agreement"). Immediately after the Restructuring, all of the outstanding shares of Holdings' capital stock shall be validly issued, fully paid and nonassessable.
(B) There are no statutory or contractual stockholders preemptive rights or rights of refusal with respect to the issuance of the Holdings Shares to the Contributors pursuant to Section 1. Holdings has not violated any applicable federal or state securities laws in connection with the issuance of any of its capital stock pursuant to Section 1, and the issuance of the Holdings Shares pursuant to Section 1 does not require registration under the Securities Act, or any applicable state securities laws. Immediately after the Restructuring, there will be no agreements between Holding' stockholders with respect to the voting, transfer or registration of Holdings' capital stock, except for the Holdings Stockholders Agreement and the Holdings Registration Agreement.
(v) No Liabilities. As of immediately prior to
the Restructuring, Holdings does not have any liabilities or obligations,
whether accrued, absolute, contingent or otherwise, except for liabilities and
obligations relating to (a) its issuance of Senior Discount Notes due 2014 and
the documents related thereto executed by Holdings prior to the Restructuring,
(b) the Holdings Amended Certificate and (c) its franchise in the state of
Delaware.
(vi) No Litigation. There are no actions, suits, proceedings or investigations pending or, to the best of the Company's and Holdings' knowledge, any basis therefore or threat thereof against Holdings.
(vii) No Other Business. Holdings is engaged in no other business, except for its ownership of the capital stock of the Company pursuant to the Restructuring.
(c) Representations and Warranties of each Contributor. Each Contributor, severally and not jointly, for itself only and not on behalf of any other Contributor, represents
and warrants to the Company and Holdings, as to such Contributor, that the statements contained in this Section 3(c) are true and correct as of the date of this Agreement.
(i) Authorization of Transaction. This Agreement constitutes the valid and legally binding obligation of such Contributor, enforceable in accordance with its terms and conditions. Such Contributor, to the best of its knowledge, need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement.
(ii) Noncontravention. To the best of such Contributor's knowledge, neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which such Contributor is subject.
(iii) Brokers' Fees. Such Contributor has no liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Company could become liable or obligated.
(iv) Investment. Such Contributor is acquiring the Holdings Shares for such Contributor's own account and is not acquiring the Holdings Shares with a view to, or for sale in connection with, any distribution thereof within the meaning of the Securities Act.
(v) Sophistication of Contributor. Such Contributor is sophisticated in financial matters, is able to evaluate the risks and benefits of the investment in the Holdings Shares, and has determined that such investment in the Holdings Shares is suitable for such Contributor, based upon such Contributor's financial situation and needs, as well as such Contributor's other securities holdings.
(vi) Economic Risk. Such Contributor is able to bear the economic risk of such Contributor's investment in the Holdings Shares for an indefinite period of time and such Contributor understands that the Holdings Shares have not been registered under the Securities Act, and cannot be sold unless subsequently registered under the Securities Act or unless an exemption from such registration is available. Such Contributor acknowledges that each of the Holdings Shares will be subject to the provisions of the Holdings Stockholders Agreement.
(vii) Securities Law Compliance. Such Contributor:
(A) has not filed a registration statement which is the subject of a currently effective registration stop order entered pursuant to any state's securities law within the last five (5) years;
(B) has not been convicted within the last five (5) years of any felony or misdemeanor in connection with the offer, purchase, or sale of any security or any felony involving fraud or deceit, including, but not limited to, forgery, embezzlement, obtaining money under false pretenses, larceny, or conspiracy to defraud;
(C) is not currently subject to any state administrative enforcement order or judgment entered by the state securities administrator within the last five (5) years or is subject to any state's administrative enforcement order or judgment in which fraud or deceit, including, but not limited to, making untrue statements of material facts and omitting to state material facts, was found and the order or judgment was entered within the last five (5) years;
(D) is not subject to any state's administrative enforcement order or judgment which prohibits, denies or revokes the use of any exemption from registration in connection with the offer, purchase or sale of securities; and
(E) is not currently subject to any order, judgment or decree of any court of competent jurisdiction, entered within the last five (5) years, temporarily or preliminarily restraining or enjoining such party from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security or involving the making of any false filing with the state.
(viii) Information. Such Contributor has had an opportunity to ask questions and receive answers concerning the terms and conditions of the offering of Holdings Shares and has had full access to such other information concerning Holdings as such Contributor has requested. Such Contributor has reviewed, or has had an opportunity to review, the Holdings Amended Certificate and the Bylaws of Holdings, the Holdings Stockholders Agreement and the Holdings Registration Rights Agreement.
4. POST-CLOSING COVENANTS. Holdings, the Company and the Contributors agree as follows with respect to the period following the consummation of the transactions described herein.
(a) General. Each party to this Agreement will take such further action (including the execution and delivery of such further instruments and documents) as is reasonably necessary to carry out the purpose of this Agreement as any other party hereto may reasonably request, all at the sole cost and expense of such requesting party.
(b) Holdings Shares. Each Holding Share issued under this Agreement will be imprinted with such legends as are required pursuant to the terms and conditions of the Holdings Stockholders Agreement.
5. MISCELLANEOUS.
(a) Press Releases and Public Announcements. No party hereto shall issue any press release or make any public announcement relating to the subject matter of this Agreement without the prior written approval of Holdings, the Company and BRS; provided, that any party hereto may make any public disclosure it believes in good faith is required by applicable law (in which case the disclosing party will use its reasonable best efforts to advise the other parties hereto prior to making the disclosure).
(b) Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the parties named herein and their respective successors and permitted
assigns. No party hereto may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of Holdings and the Company; provided, that CapitalSource may assign this Agreement and its rights, interests and obligations hereunder to CS Equity LLC without the prior consent of Holdings and the Company, so long as CS Equity LLC is an affiliate of CapitalSource. Notwithstanding anything herein to the contrary, each of the Contributors may, in the ordinary course of its business and in accordance with applicable law, at any time assign to an affiliate of such Contributor or to one or more banks or other financial institution or entities which are not in direct competition with the Company, all or any part of the obligations under this Agreement; provided, that each of the Contributors may make any such assignment only if it is required to do so pursuant to its limited partnership agreement or limited liability operating agreement or in connection with any dissolution of such Contributor pursuant to its limited partnership agreement or limited liability operating agreement.
(c) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.
(d) Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.
(e) Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below:
To any Contributor:
As specified for each such Contributor on the books
and records of the Company.
To Holdings or the Company:
888 Seventh Avenue, 25th Floor
New York, NY 10106
Attention: Alex Alimanestianu
Facsimile No.: (212) 664-8906
with copies to (which shall not constitute notice to
Holdings or the Company):
Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street, 29th Floor
New York, NY 10022
Attention: Rice Edmonds
Facsimile No.: (212) 521-3799
and
Kirkland & Ellis LLP Citigroup Center 153 East 53rd Street New York, NY 10022-4611 Attention: Eunu Chun, Esq.
Facsimile No.: (212) 446-4900
Any party hereto may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other parties notice in the manner herein set forth.
(f) Governing Law. All questions concerning the construction, validity, and interpretation of this Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.
(g) Amendments and Waivers. This Agreement may be amended, or any provision of this Agreement may be waived upon a written approval, executed by the parties hereto. No course of dealing between or among the parties hereto shall be deemed effective to modify, amend, or discharge any part of this Agreement or any rights or obligations of any such party or such holder under or by reason of this Agreement.
(h) Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.
(i) Expenses. Each of the Contributors and Holdings and the Company will bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby.
(j) Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party hereto by virtue of the authorship of any of the provisions of this Agreement.
* * * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
TOWN SPORTS INTERNATIONAL, INC.
By: /s/ Richard Pyle
-----------------------------------
Name: Richard Pyle
Title: Chief Financial Officer
|
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
By: /s/ Richard Pyle
----------------------------------
Name: Richard Pyle
Title: Chief Financial Officer
|
BRUCKMANN, ROSSER, SHERRILL & CO., L.P.
By: BRS Partners, Limited Partnership
Its: General Partner
By: BRSE Associates, Inc.
Its: General Partner
By: /s/ Paul Kaminski
---------------------------------
Name: Paul Kaminski
Title: Secretary
|
FARALLON CAPITAL PARTNERS, L.P.
By: Farallon Partners, L.L.C.
Its: General Partner
By: /s/ Monica R. Landry
---------------------------------
Name: Monica R. Landry
Title: Managing Member
|
FARALLON CAPITAL INSTITUTIONAL
PARTNERS, L.P.
By: Farallon Partners, L.L.C.
Its: General Partner
By: /s/ Monica R. Landry
----------------------------------
Name: Monica R. Landry
Title: Managing Member
|
RR CAPITAL PARTNERS, L.P.
By: Farallon Partners, L.L.C.
Its: General Partner
By: /s/ Monica R. Landry
----------------------------------
Name: Monica R. Landry
Title: Managing Member
|
FARALLON CAPITAL INSTITUTIONAL PARTNERS II,
L.P.
By: Farallon Partners, L.L.C.
Its: General Partner
By: /s/ Monica R. Landry
----------------------------------
Name: Monica R. Landry
Title: Managing Member
|
CANTERBURY DETROIT PARTNERS, L.P.
By: Canterbury Detroit, LLC
Its: General Partner
By: /s/ Patrick Turner
----------------------------------
Name: Patrick Turner
Title: Manager
|
CANTERBURY MEZZANINE CAPITAL, L.P.
By: Canterbury Capital, LLC
Its: General Partner
By: /s/ Patrick Turner
----------------------------------
Name: Patrick Turner
Title: Manager
|
ROSEWOOD CAPITAL, L.P.
By: /s/ Kevin Reilly
----------------------------------
Name: Kevin Reilly
Title: Principal
|
ROSEWOOD CAPITAL IV, L.P.
By: /s/ Kevin Reilly
----------------------------------
Name: Kevin Reilly
Title: Principal
|
ROSEWOOD CAPITAL IV ASSOCIATES, L.P.
By: /s/ Kevin Reilly
----------------------------------
Name: Kevin Reilly
Title: Principal
|
CAPITALSOURCE HOLDINGS LLC
By: /s/ Joseph Turitz
----------------------------------
Name: Joseph Turitz
Title: General Counsel
/s/ Keith Alessi
----------------------------------
Keith Alessi
|
/s/ Paul Arnold ------------------------------- Paul Arnold |
[BRS AFFILIATE SIGNATURE PAGE]
/s/ Stephen Sherrill ------------------------------- STEPHEN SHERRILL, as Attorney-in-Fact for each of the following Investors: |
Bruce Bruckmann Elizabeth McShane Beverly Place D. Bruckmann BCB Partnership NAZ Partnership Harold O. Rosser Virgil Sherrill Stephen Sherrill Nancy Zweng Paul D. Kaminski
Merrill Lynch Pearce Fenner & Smith, Custodian for the Benefit of Paul D.
Kaminski IRA
[EXECUTIVE SIGNATURE PAGE]
/s/ Mark Smith ------------------------------------- Mark Smith /s/ Robert Giardina -------------------------------------- Robert Giardina /s/ Richard Pyle -------------------------------------- Richard Pyle /s/ Alexander Alimanestianu -------------------------------------- Alexander Alimanestianu /s/ Debbie Smith -------------------------------------- Debbie Smith /s/ Carol Cornbill -------------------------------------- Carol Cornbill /s/ Edward Trainor -------------------------------------- Edward Trainor /s/ Robert Calvo -------------------------------------- Robert Calvo /s/ Maggie Stevens -------------------------------------- Maggie Stevens /s/ Ray Dewhirst -------------------------------------- Ray Dewhirst /s/ Nina Duchaine -------------------------------------- Nina Duchaine /s/ Heinz Ritschard -------------------------------------- Heinz Ritschard |
[EXECUTIVE SIGNATURE PAGE]
/s/ Peter Bazzell -------------------------------------- Peter Bazzell /s/ Felicia Bachiccio -------------------------------------- Felicia Bachiccio |
SCHEDULE 1
CONTRIBUTED SECURITIES
CONTRIBUTOR CONTRIBUTED COMPANY SHARES ISSUED HOLDINGS SHARES
----------- -------------------------- ----------------------
Bruckmann, Rosser, Sherrill & Co., L.P. 104,330.35 Company Series A Preferred 104,330.35 Holdings Series A Preferred
504,456.01 Company Class A Common 504,456.01 Holdings Class A Common
Bruce Bruckmann 2,112.63 Company Series A Preferred 2,112.63 Holdings Series A Preferred
10,214.93 Company Class A Common 10,214.93 Holdings Class A Common
Elizabeth McShane 33.08 Company Series A Preferred 33.08 Holdings Series A Preferred
159.97 Company Class A Common 159.97 Holdings Class A Common
Beverly Place 33.08 Company Series A Preferred 33.08 Holdings Series A Preferred
159.97 Company Class A Common 159.97 Holdings Class A Common
D. Bruckmann 282.92 Company Series A Preferred 282.92 Holdings Series A Preferred
1,367.96 Company Class A Common 1,367.96 Holdings Class A Common
BCB Partnership 121.71 Company Series A Preferred 121.71 Holdings Series A Preferred
588.48 Company Class A Common 588.48 Holdings Class A Common
NAZ Partnership 58.73 Company Series A Preferred 58.73 Holdings Series A Preferred
283.97 Company Class A Common 283.97 Holdings Class A Common
Harold O. Rosser 424.44 Company Series A Preferred 424.44 Holdings Series A Preferred
2,052.23 Company Class A Common 2,052.23 Holdings Class A Common
Virgil Sherrill 1,414.59 Company Series A Preferred 1,414.59 Holdings Series A Preferred
6,839.79 Company Class A Common 6,839.79 Holdings Class A Common
Stephen Sherrill 2,178.79 Company Series A Preferred 2,178.79 Holdings Series A Preferred
|
Schedule 1, Page 1
CONTRIBUTOR CONTRIBUTED COMPANY SHARES ISSUED HOLDINGS SHARES
----------- -------------------------- ----------------------
10,534.87 Company Class A Common 10,534.87 Holdings Class A Common
Nancy Zweng 84.91 Company Series A Preferred 84.91 Holdings Series A Preferred
410.56 Company Class A Common 410.56 Holdings Class A Common
Paul D. Kaminski 238.47 Company Series A Preferred 238.47 Holdings Series A Preferred
1,153.04 Company Class A Common 1,153.04 Holdings Class A Common
Merrill Lynch Pearce Fenner & Smith Custodian
for the Benefit of Paul D. Kaminski IRA 95.39 Company Series A Preferred 95.39 Holdings Series A Preferred
461.22 Company Class A Common 461.22 Holdings Class A Common
Farallon Capital Partners, L.P. 14,365.91 Company Series A Preferred 14,365.91 Holdings Series A Preferred
94,532.02 Company Class A Common 94,532.02 Holdings Class A Common
Farallon Capital Institutional Partners, L.P. 16,418.18 Company Series A Preferred 16,418.18 Holdings Series A Preferred
108,036.59 Company Class A Common 108,036.59 Holdings Class A Common
RR Capital Partners, L.P. 2,052.27 Company Series A Preferred 2,052.27 Holdings Series A Preferred
13,504.57 Company Class A Common 13,504.57 Holdings Class A Common
Farallon Capital Institutional Partners II, L.P. 8,209.09 Company Series A Preferred 8,209.09 Holdings Series A Preferred
54,018.30 Company Class A Common 54,018.30 Holdings Class A Common
Keith Alessi 591.00 Company Series A Preferred 591.00 Holdings Series A Preferred
2,857.00 Company Class A Common 2,857.00 Holdings Class A Common
Paul Arnold 591.00 Company Series A Preferred 591.00 Holdings Series A Preferred
2,857.00 Company Class A Common 2,857.00 Holdings Class A Common
Canterbury Mezzanine Capital, L.P. 121,529.24 Company Class A Common 121,529.24 Holdings Class A Common
Canterbury Detroit Partners, L.P. 17,907.62 Company Class A Common 17,907.62 Holdings Class A Common
|
Schedule 1, Page 2
CONTRIBUTOR CONTRIBUTED COMPANY SHARES ISSUED HOLDINGS SHARES
----------- -------------------------- ----------------------
Rosewood Capital, L.P. 17,907.62 Company Class A Common 17,907.62 Holdings Class A Common
Rosewood Capital IV, L.P. 101,890.82 Company Series B Preferred 101,890.82 Holdings Series B Preferred
Rosewood Capital IV Associates, L.P. 7,649.86 Company Series B Preferred 7,649.86 Holdings Series B Preferred
CapitalSource Holdings, LLC 23,000.00 Company Class A Common 23,000.00 Holdings Class A Common
Mark Smith 66,125.00 Company Class A Common 66,125.00 Holdings Class A Common
Robert Giardina 50,651.00 Company Class A Common 50,651.00 Holdings Class A Common
Richard Pyle 42,582.00 Company Class A Common 42,582.00 Holdings Class A Common
Alexander Alimanestianu 42,011.00 Company Class A Common 42,011.00 Holdings Class A Common
Debbie Smith 15,908.00 Company Class A Common 15,908.00 Holdings Class A Common
Carol Cornbill 13,428.00 Company Class A Common 13,428.00 Holdings Class A Common
Edward Trainor 8,091.00 Company Class A Common 8,091.00 Holdings Class A Common
Robert Calvo 2,857.00 Company Class A Common 2,857.00 Holdings Class A Common
Maggie Stevens 2,274.00 Company Class A Common 2,274.00 Holdings Class A Common
Ray Dewhirst 1,749.00 Company Class A Common 1,749.00 Holdings Class A Common
Nina Duchaine 3,603.00 Company Class A Common 3,603.00 Holdings Class A Common
Heinz Ritschard 2,332.00 Company Class A Common 2,332.00 Holdings Class A Common
Peter Bazzell 1,166.00 Company Class A Common 1,166.00 Holdings Class A Common
Felicia Bochiccio 63.33 Company Class A Common 63.33 Holdings Class A Common
|
Schedule 1, Page 3
EXHIBIT A
HOLDINGS AMENDED CERTIFICATE
See attached.
Exhibit A, Page 1
EXHIBIT B
HOLDINGS STOCK OPTION PLAN
See attached.
Exhibit B, Page 1
EXHIBIT C
HOLDINGS STOCKHOLDERS AGREEMENT
See attached.
Exhibit C, Page 1
EXHIBIT D
HOLDINGS REGISTRATION AGREEMENT
See attached.
Exhibit D, Page 1
EXHIBIT 10.4
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT ("Agreement"), dated as of February 4, 2004, by and among TOWN SPORTS INTERNATIONAL HOLDINGS, INC., a Delaware corporation (the "Company"), TOWN SPORTS INTERNATIONAL, INC., a New York corporation ("TSI"), BRUCKMANN, ROSSER, SHERRILL & CO., L.P., a Delaware limited partnership ("BRS"), the individuals and entities listed on the BRS Investor Signature Pages hereto (each, a "BRS Investor", and collectively, the "BRS Investors"), FARALLON CAPITAL PARTNERS, L.P., a California limited partnership ("FCP"), FARALLON CAPITAL INSTITUTIONAL PARTNERS, L.P., a California limited partnership ("FCIP"), RR CAPITAL PARTNERS, L.P., a Delaware limited partnership ("RRC"), and FARALLON CAPITAL INSTITUTIONAL PARTNERS II, L.P., a California limited partnership ("FII" and, together with FCP, FCIP, and RRC, the "Farallon Investors", and individually, a "Farallon Investor"), CANTERBURY DETROIT PARTNERS, L.P., a Delaware limited partnership ("Canterbury Detroit"), CANTERBURY MEZZANINE CAPITAL, L.P., a Delaware limited partnership ("Canterbury Mezzanine" and, together with Canterbury Detroit, the "Canterbury Investors", and individually, a "Canterbury Investor"), ROSEWOOD CAPITAL, L.P., a Delaware limited partnership ("Rosewood"), ROSEWOOD CAPITAL IV, L.P., a Delaware limited partnership ("Rosewood IV"), ROSEWOOD CAPITAL IV ASSOCIATES, L.P., a Delaware limited partnership ("Rosewood Associates" and, collectively with Rosewood and Rosewood IV, the "Rosewood Investors", and individually, a "Rosewood Investor"), CAPITALSOURCE HOLDINGS LLC, a Delaware limited liability company ("CapitalSource"), KEITH ALESSI ("Alessi"), PAUL ARNOLD ("Arnold"), and certain stockholders of the Company listed on the Executive Signature Page hereto, including those Persons who have executed joinders to the Original Shareholders Agreement (each, an "Executive", collectively, the "Executives") (BRS, the BRS Investors, the Farallon Investors, the Canterbury Investors, the Rosewood Investors, CapitalSource, Alessi, Arnold and the Executives are referred to collectively herein, together with each of their respective Permitted Transferees (as defined herein), as the "Stockholders" and, individually as a "Stockholder"). Capitalized terms used herein but not otherwise defined shall have the meanings assigned to such terms in Section 1.
WHEREAS, the Stockholders currently own all of the issued and outstanding capital stock of TSI consisting of Class A Common Stock, par value $.001 per share (the "TSI Class A Common"), Series A Preferred Stock, par value $1.00 per share (the "TSI Series A Preferred"), and Series B Preferred Stock, par value $1.00 per share (the "TSI Series B Preferred"), as specified for each Stockholder on Schedule A attached hereto;
WHEREAS, the Stockholders are currently parties to that certain Amended and Restated Shareholders Agreement, dated as of November 13, 1998, by and among TSI and the Stockholders (the "Existing TSI Shareholders Agreement");
WHEREAS, TSI, the Company and the Stockholders have entered into a Restructuring Agreement, dated as of the date hereof (the "Restructuring Agreement"), pursuant to which TSI shall be reorganized as a wholly-owned subsidiary of the Company by having (a) each of the Stockholders contribute and deliver to the Company the shares of TSI Class A Common, TSI Series A Preferred and TSI Series B Preferred owned by each Stockholder as specified for such Stockholder on Schedule A attached hereto in exchange for all of the issued
and outstanding capital stock of the Company consisting of Class A Common Stock, par value $.001 per share (the "Class A Common"), Series A Preferred Stock, par value $1.00 per share (the "Series A Preferred"), and Series B Preferred Stock, par value $1.00 per share (the "Series B Preferred"), as specified for each Stockholder on Schedule A attached hereto, and (b) immediately following the initial Stockholder contribution, the Company contribute and deliver to TSI for cancellation the shares of TSI Class A Common, TSI Series A Preferred and TSI Series B Preferred held by it in exchange for 1,000 shares of TSI Class A Common, representing all of the issued and outstanding capital stock of TSI (collectively, the "Restructuring");
WHEREAS, in conjunction with the Restructuring, TSI and the Stockholders desire to cancel and terminate the Existing TSI Shareholders Agreement; and
WHEREAS, the Company and the Stockholders desire to enter into this Agreement for the purposes, among others, of (a) establishing the composition of the Company's Board of Directors (as in effect from time to time, the "Board"), (b) assuring continuity in the management and ownership of the Company and (c) limiting the manner and terms by which the Stockholder Shares may be transferred.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the following meanings:
"Affiliate" shall mean, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise).
"Approved Sale" means the sale of the Company, in a single
transaction or a series of related transactions, to an Unaffiliated Third Party
(a) pursuant to which such Unaffiliated Third Party proposes to acquire all of
the outstanding Common Stock (whether by merger, consolidation,
recapitalization, reorganization, purchase of the outstanding Common Stock or
otherwise) or all or substantially all of the consolidated assets of the
Company, (b) which has been approved by the Board and holders of a majority of
the outstanding BRS Shares, voting together as a single class, and (c) pursuant
to which all holders of Stockholder Shares and Preferred Shares receive at the
same time (whether in such transaction or, with respect to an asset sale, upon a
subsequent liquidation) the same form and amount of consideration (x) per share
of Common Stock (as adjusted for any consideration payable by such holders in
connection with the exercise of any Common Options) with respect to holders of
Stockholder Shares, (y) per share of Preferred Stock (which shall in no event be
less than the Liquidation Value (plus accrued and unpaid dividends)) with
respect to holders of Preferred Shares, or if any holders of Stockholder Shares
or Preferred Shares are given an option as to the form and amount of
consideration received, all such holders of Stockholder Shares or Preferred
Shares, as the case
may be, are given the same option; provided, that such consideration shall be deemed to include any other consideration paid or payable by such Unaffiliated Third Party to any holder of Stockholder Shares in connection with such transaction, or otherwise directly or indirectly related to such transaction, which is not in exchange for or attributable to securities of the Company held by such holder.
"Approved TSI Sale" means the sale of TSI, in a single
transaction or a series of related transactions, to an Unaffiliated Third Party
(a) pursuant to which such Unaffiliated Third Party proposes to acquire all of
the outstanding TSI Common Stock (whether by merger, consolidation,
recapitalization, reorganization, purchase of the outstanding Common Stock or
otherwise) or all or substantially all of the consolidated assets of TSI, (b)
which has been approved by the Board of Directors of TSI and holders of a
majority of the outstanding BRS Shares, voting together as a single class, and
(c) pursuant to which all holders of Stockholder Shares and Preferred Shares
receive at the same time (whether in such transaction or upon a subsequent
liquidation of TSI or the Company) the same form and amount of consideration (x)
per share of Common Stock (as adjusted for any consideration payable by such
holders in connection with the exercise of any Common Options) with respect to
holders of Stockholder Shares, (y) per share of Preferred Stock (which shall in
no event be less than the Liquidation Value (plus accrued and unpaid dividends))
with respect to holders of Preferred Shares, or if any holders of Stockholder
Shares or Preferred Shares are given an option as to the form and amount of
consideration received, all such holders of Stockholder Shares or Preferred
Shares, as the case may be, are given the same option; provided, that such
consideration shall be deemed to include any other consideration paid or payable
by such Unaffiliated Third Party to any holder of Stockholder Shares in
connection with such transaction, or otherwise directly or indirectly related to
such transaction.
"BRS Shares" means Stockholder Shares owned by BRS and the BRS Investors, or any of their respective Permitted Transferees.
"CapitalSource Shares" means Stockholder Shares owned by CapitalSource or any of its Permitted Transferees.
"Common Options" means, collectively, the options to purchase Class A Common (a) prior to the date hereof, granted to certain Executives pursuant to the Town Sports International, Inc. Fourth Amended and Restated 1996 Stock Option Plan and the Common Stock Option Agreements, by and between TSI and each of the Executives and transferred to Holdings pursuant to the Restructuring and the documents related thereto, and (b) on or after the date hereof, granted to certain Executives pursuant to the Town Sports International Holdings, Inc. 2004 Stock Option Plan and the Common Stock Option Agreements, by and between the Company and each of the Executives.
"Common Stock" means, collectively, the Class A Common, the Class B Common Stock, par value $.001 per share (the "Class B Common"), and any other class of common stock of the Company, or if such outstanding Common Stock is hereafter changed into or exchanged for different securities of the Company, such other securities.
"Executive Shares" means Stockholder Shares owned by the Executives or any of their respective Permitted Transferees.
"Family Group" means, with respect to an individual Stockholder, (i) such Stockholder's spouse, former spouse and descendants (whether natural or adopted), parents and their descendants, descendants of such brothers and sisters and any spouse of the foregoing individuals or (ii) any trust solely for the benefit of any of the individuals listed in clause (i) above.
"Farallon Shares" means Stockholder Shares owned by the Farallon Investors or their respective Permitted Transferees.
"Initial Public Offering" means the sale, in the initial underwritten public offering registered under the Securities Act, of shares of the Company's Common Stock where, after such offering, the Common Stock sold in such offering is subject to being traded on the NASDAQ National Market or a national securities exchange.
"Investors" means, collectively, BRS and the Farallon Investors.
"Liquidation Value" means, with respect to any share of any series of Preferred Stock, the "Liquidation Value" for such shares or series as defined and determined in accordance with the Company's Certificate of Incorporation, as in effect from time to time.
"Other Stockholders" means, with respect to a Stockholder, all Stockholders other than such Stockholder.
"Ownership Ratio" means, as to a Stockholder at the time of determination, the percentage obtained by dividing the amount of shares of Common Stock held by such Stockholder on a fully diluted basis at such time by the aggregate amount of shares of Common Stock outstanding on a fully diluted basis at such time.
"Permitted Transferees" has the meaning set forth in Section 4(c).
"Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, any other entity or a governmental entity (or any department, agency or political subdivision thereof).
"Preferred Shares" means, (i) any Preferred Stock now held or hereafter acquired by the Stockholders, and (ii) any securities issued or issuable directly or indirectly with respect to the securities described in clause (i) above by way of stock dividend, stock split, or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular shares constituting Preferred Shares, such shares will cease to be Preferred Shares when they have been sold in an Approved Sale, transferred pursuant to Section 4(a) or 4(b) hereof, or upon the consummation of an Initial Public Offering. For purposes of this Agreement, a Person will be deemed a holder of Preferred Shares whenever such Person has the rights to acquire directly or indirectly such Preferred Shares (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), whether or not such acquisition has actually been effected.
"Preferred Stock" means, collectively, the Series A Preferred, the Series B Preferred and any other class of preferred stock of the Company, or if such outstanding Preferred Stock is hereafter changed into or exchanged for different securities of the Company, such other securities.
"Public Sale" means any sale of Stockholder Shares to the public pursuant to an offering registered under the Securities Act or to the public effected through a broker, dealer or market maker pursuant to the provisions of Rule 144 under the Securities Act.
"Rosewood Shares" means Stockholder Shares owned by the Rosewood Investors or any of its Permitted Transferees.
"Securities Act" means the Securities Act of 1933, as amended from time to time.
"Stockholder Shares" means (i) any Common Stock now held or
hereafter acquired by the Stockholders, including upon conversion of any shares
of Series B Preferred, (ii) Common Stock issued or issuable upon exercise of the
Common Options, and (iii) any equity securities issued or issuable directly or
indirectly with respect to the securities referred to in clauses (i) and (ii)
above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular shares constituting Stockholder Shares,
such shares will cease to be Stockholder Shares when they have been sold or
acquired in a Public Sale or in an Approved Sale, transferred pursuant to
Section 4(a) or 4(b) hereof or upon the consummation of an Initial Public
Offering. For purposes of this Agreement, a Person will be deemed to be a holder
of Stockholder Shares whenever such Person has the right to acquire directly or
indirectly such Stockholder Shares (upon conversion or exercise in connection
with a transfer of securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), whether or not such acquisition
has actually been effected.
"Subsidiary" means, with respect to any Person, any corporation, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a partnership, association or other business entity if such Person or Persons shall be allocated a majority of partnership, association or other business entity gains or losses or shall be or control the managing director or a general partner of such partnership, association or other business entity.
"Transaction Documents" means, collectively, (i) this Agreement, (ii) the Registration Rights Agreement, dated as of the date hereof, by and among the parties hereto, (iii) the Restructuring Agreement, (iv) the Tax Sharing Agreement, dated the date hereof, by and between the Company, TSI and each of TSI's subsidiaries party thereto, and (v) the Professional Services Agreement, dated as of December 10, 1996, by and among TSI and an Affiliate of BRS, in each case, as the same may be amended, restated or modified from time to time.
"TSI Common Stock" means, collectively, the TSI Class A Common, the Class B Common Stock, par value $.001 per share, of TSI, and any other class of common stock of TSI, or if such outstanding TSI Common Stock is hereafter changed into or exchanged for different securities of TSI, such other securities.
"Unaffiliated Third Party" means any Person who, immediately prior to the contemplated transaction (i) does not own in excess of 5% of the Common Stock on a fully diluted basis (a "5% Owner"), (ii) is not controlling, controlled by or under common control with any such 5% Owner and (iii) is not the spouse or descendent (by birth or adoption) of any such 5% Owner or a trust for the benefit of such 5% Owner and/or such other Persons.
2. BOARD OF DIRECTORS.
(a) Until the provisions of this Section 2 cease to be effective, to the extent permitted by law, each Stockholder shall vote all voting securities of the Company over which such Stockholder has voting control, and shall take all other necessary or desirable actions within such Stockholder's control (whether in such Stockholder's capacity as a Stockholder, director, member of a board committee or officer of the Company or otherwise, and including, without limitation, attendance at meetings in Person or by proxy for purposes of obtaining a quorum and execution of written consents in lieu of meetings), and the Company shall take all necessary and desirable actions within its control (including, without limitation, calling special board and Stockholder meetings), so that:
(i) the authorized number of directors on the Board shall be established at six directors;
(ii) the following Persons shall be elected to the Board:
(A) for so long as BRS holds at least 10% of the Stockholder Shares held by it as of the date hereof, two (2) representatives designated by BRS determined by a vote or consent of the holders of a majority of the BRS Shares (the "BRS Directors");
(B) Mark Smith, for so long as he is then acting and duly elected Chief Executive Officer of the Company and willing and capable to serve as a director, and after such time, one individual determined by the vote or consent of Stockholders owning a majority of the Executive Shares, voting together as a single class (the "Executive Director");
(C) for so long as the Farallon Investors hold, in the aggregate, at least 10% of the aggregate number of Stockholder Shares held by them as of the date
hereof, one (1) representative designated by the Farallon Investors determined by a vote or consent of the holders of a majority of the Farallon Shares (the "Farallon Director"); and
(D) two (2) representatives designated by the holders of the Class A Common, determined by the vote or consent of the holders of a majority of the Class A Common, who shall initially be Paul N. Arnold and Keith Alessi (each, an "Independent Director").
(iii) the composition of the board of directors of TSI shall be the same as the composition of the Board and the composition of the board of directors of each of the Company's other direct or indirect Subsidiaries (a "Sub Board") shall be as determined by the Board;
(iv) the Board shall create a Compensation Committee, which shall consist of two BRS Directors and the Executive Director, which shall have the duties and functions set forth in the Company's by-laws;
(v) any committees of the Board or a Sub Board (other than the Compensation Committee) shall be created only upon the approval of a majority of the members of the Board and the composition of each such committee (if any) shall consist of at least one BRS Director;
(vi) any BRS Director, Executive Director, Farallon
Director or Independent Director shall be removed from the Board, a Sub
Board or any committee thereof (with or without cause) at the written
request of the Stockholder or Stockholders which have the right to
designate such director hereunder, but only upon such written request
and under no other circumstances (in each case, determined on the basis
of a vote or consent of the Stockholders referred to in clause (ii)(A),
(ii)(B), (ii)(C) or (ii)(D) as the case may be);
(vii) in the event that any representative designated
hereunder for any reason ceases to serve as a member of the Board or a
Sub Board or any committee thereof during such representative's term of
office, the resulting vacancy on the Board or such Sub Board or
committee shall be filled by a representative designated by the
Stockholders referred to in clause (ii)(A), (ii)(B), (ii)(C), or
(ii)(D), as the case may be; and
(b) The Company shall pay the reasonable out-of-pocket expenses incurred by each director or observer in connection with attending the meetings of the Board or any Sub Board and any committee thereof. In addition, the Company shall pay such additional compensation to directors who are not employees of the Company or any of its Subsidiaries as the Board so determines.
(c) The provisions of this Section 2 shall terminate automatically and be of no further force and effect upon the consummation of an Initial Public Offering.
(d) If any party fails to designate a representative to fill a directorship pursuant to the terms of this Section 2, the election of a Person to such directorship shall be accomplished in accordance with the Company's bylaws and applicable law (provided that such
party may subsequently remove and replace such Person). In the event that any provision of the Company's bylaws or articles of incorporation is inconsistent with any provision of this Section 2, the Stockholders shall take such action as may be necessary to amend any such provision in the Company's bylaws or certificate of incorporation to remedy such inconsistency.
(e) The Company shall give (i) each of Robert Giardina, Alexander Alimanestianu, and Richard Pyle (all of whom are Executives, each, an "Observer") (for so long as each such Observer owns at least 10% of the Stockholder Shares held by him as of the date hereof) and (ii) Canterbury Mezzanine and Canterbury Detroit (so long as each of Canterbury Mezzanine and Canterbury Detroit owns at least 10% of the Stockholder Shares held by it) written notice of each meeting of the Board, at the same time and in the same manner as notice is given to the directors, and the Company shall permit each Observer and a representative of Canterbury Mezzanine and Canterbury Detroit, taken as a group, to attend, as an observer, all such meetings unless attendance at such meeting, in the Board's reasonable judgment, would create a conflict of interest for such representative or Observer; provided, that in the case of telephonic meetings, such representative or Observer need receive only actual notice thereof at the same time and in the same manner as notice is given to the directors, and such representative or Observer shall be given the opportunity to listen to such telephonic meetings. The representative of Canterbury Mezzanine and Canterbury Detroit and each Observer shall be entitled to receive all written materials and other information (including, without limitation, copies of meeting minutes) given to directors of the Company in connection with such meetings at the same time such materials and information are given to such directors unless, in the Board's reasonable judgment, receipt of such materials would create a conflict of interest by such representative or Observer. The Company shall give written notice of any action by written consent in lieu of a meeting of directors to such representative or Observer prior to the effective date of such consent describing in reasonable detail the nature and substance of such action.
3. REPRESENTATIONS AND WARRANTIES. Each Stockholder
represents and warrants that (a) effective as of the date hereof such
Stockholder is the record owner of the number of Stockholder Shares and
Preferred Shares set forth opposite its name on Schedule A attached hereto
(assuming all such shares and options therefor have become fully vested), (b)
this Agreement has been duly authorized, executed and delivered by such
Stockholder and constitutes the valid and binding obligation of such
Stockholder, enforceable in accordance with its terms, and (c) such Stockholder
has not granted and is not a party to any proxy, voting trust or other agreement
which is inconsistent with, conflicts with or violates any provision of this
Agreement. No holder of Stockholder Shares shall grant any such proxy or become
party to any such voting trust or other agreement which is inconsistent with,
conflicts with or violates any provision of this Agreement.
4. RESTRICTIONS ON TRANSFER.
(a) Tag Along Rights. Subject to Sections 4(c) and 4(d) and other than in connection with a Public Sale or Approved Sale, at least 30 days prior to any sale, transfer, assignment, pledge or other disposal (a "Transfer") of Stockholder Shares or Preferred Shares by BRS, BRS shall deliver a written notice (the "Sale Notice") to the Company and the Other Stockholders, specifying in reasonable detail the identity of the prospective transferee(s) and the terms and conditions of the Transfer. The Other Stockholders may elect to participate in the
contemplated Transfer by delivering written notice to BRS within 15 days after delivery of the Sale Notice. If any Other Stockholders have elected to participate in such Transfer, BRS and such Other Stockholders shall be entitled to sell in the contemplated Transfer, at the same price (provided that the price of any share of Series B Preferred Transferred by any such Stockholder pursuant to this Section 4(a) shall equal 35% of the price of any share of Series A Preferred specified in the Sale Notice) and on the same terms:
(x) with respect to Stockholder Shares, a number of Stockholder Shares equal to the product of (i) the quotient determined by dividing the number of Stockholder Shares owned by such Person by the aggregate number of Stockholder Shares owned by all Stockholders participating in such Transfer and (ii) the aggregate number of Stockholder Shares to be sold in the contemplated Transfer; and
(y) (A) with respect to shares of Series A
Preferred to be so transferred by all such Stockholders, a number of shares of
Series A Preferred equal to the product of (i) the quotient determined by
dividing (1) the number of shares of Series A Preferred owned by such Person by
(2) the sum of the aggregate number of shares of Series A Preferred plus .35
times the number of shares of Series B Preferred (the "Preferred Base Amount"),
in each case owned by all Stockholders participating in such Transfer and (ii)
the aggregate number of Preferred Shares to be sold in the contemplated
Transfer;
(B) with respect to shares of Series B Preferred, a number of shares of Series B Preferred to be so Transferred by all such Stockholders if such Stockholders do not hold any share of Series A Preferred equal to the product of (1) the quotient determined by dividing (A) the number of shares of Series B Preferred owned by such Person by (2) the Preferred Base Amount and (ii) the aggregate number of Preferred Shares to be sold in the contemplated Transfer;
provided, that (1) if the Sale Notice includes a Transfer of both Stockholder
Shares and Preferred Shares and any Other Stockholder elects to participate in
such Transfer, such Other Stockholder must sell the number of Preferred Shares
calculated in accordance with clause (y) (or if such Stockholder holds a lesser
number of Preferred Shares, all Preferred Shares held by such Stockholder) and
(2) it being understood that if holders of Series B Preferred participated in
any Transfer of Preferred Shares as a result of the formulae set forth in clause
(y) above, the aggregate number of Preferred Shares so Transferred will not
equal the number of Preferred Shares specified in the Sale Notice.
(b) First Offer Rights.
(i) Subject to Sections 4(c) and 4(d) and other than in connection with a Public Sale or Approved Sale, at least thirty (30) days prior to any Transfer of Stockholder Shares by any Stockholder (other than holders of BRS Shares, Farallon Shares, or Rosewood Shares), the Stockholder making such Transfer (the "Transferring Stockholder") shall deliver a written notice (the "Transfer Notice") to the Company and the Investors specifying in reasonable detail the number of shares proposed to be transferred (the "Transfer Shares"), the proposed purchase price and the other terms and conditions of the Transfer. The Company may elect to purchase all (but not less than all)
of the Transfer Shares upon the same terms and conditions as those set
forth in the Transfer Notice, by delivering a written notice of such
election to the Transferring Stockholder within fifteen (15) days after
the Transfer Notice has been delivered to the Company. If the Company
has not elected to purchase all of the Transfer Shares, the Investors
(or their designees) may elect to purchase all (but not less than all)
of the Transfer Shares, upon the same terms and conditions as those set
forth in the Transfer Notice, by giving written notice of such election
to the Transferring Stockholder within 15 days after the Transfer
Notice has been given to the Investors. If each of the Investors elects
to purchase the Transfer Shares, the Transfer Shares to be purchased by
each Investor shall be allocated among the Investors based upon the
relative number of Stockholder Shares then held by each such Investor
unless otherwise agreed upon by the Investors. If neither the Company
nor the Investors elects to purchase all of the Transfer Shares
specified in the Transfer Notice, then the Transferring Stockholder may
transfer the Transfer Shares specified in the Transfer Notice at a
price and on terms in the aggregate not materially more favorable to
the transferee(s) thereof than specified in the Transfer Notice during
the 90-day period immediately following the date on which the Transfer
Notice has been given to the Company and the Investors. Any Transfer
Shares not transferred within such 90-day period will continue to be
subject to the provisions of this Section 4(b)(i) upon any subsequent
proposed Transfer.
(ii) Subject to Sections 4(c) and 4(d) and other than in connection with a Public Sale or Approved Sale, at least thirty (30) days prior to Transfer of any Stockholder Shares by any Rosewood Investor or any Farallon Investor, such Rosewood Investor or such Farallon Investor shall deliver written notice (any such notice, the "Farallon/Rosewood Sale Notice") to BRS specifying in reasonable detail the number of shares proposed to be transferred (the "Proposed Shares"). Upon receipt of the Farallon/Rosewood Sale Notice, BRS shall within thirty (30) days deliver a written offer to such Rosewood Investor or such Farallon Investor, as the case may be, to purchase the Proposed Shares specifying in reasonable detail the amount and type of consideration to be offered for the Proposed Shares and the other terms and conditions of such offer (the "BRS Repurchase Notice"). Upon receipt of the BRS Repurchase Notice, such Rosewood Investor or such Farallon Investor, as the case may be, shall within ten (10) days deliver to BRS a written acceptance or rejection of the offer contained in the Repurchase Notice. If such Rosewood Investor or such Farallon Investor, as the case may be, rejects the offer contained in the BRS Repurchase Notice, such Rosewood Investor or such Farallon Investor, as the case may be, may transfer the Proposed Shares specified in the applicable Farallon/Rosewood Sale Notice at a price and on terms in the aggregate materially not more favorable to the transferee(s) thereof than specified in the BRS Repurchase Notice during the 90-day period immediately following the date on which the Farallon/Rosewood Sale Notice has been given to BRS. Any Proposed Shares not transferred within such 90-day period will continue to be subject to the provisions of this Section 4(b)(ii) upon any subsequent proposed Transfer.
(iii) Any purchase by the Company and/or the Investors pursuant to this Section 4(b) shall be closed at the Company's executive offices within (x) 45 days after the Transfer Notice (in the case of purchase pursuant to Section 4(b)(i)) or (y) 30 days after the acceptance by the applicable Rosewood Investor or the applicable Farallon
Investor, as the case may be, of the offer set forth in the BRS Repurchase Notice pursuant to Section 4(b)(ii). At the closing, the purchaser or purchasers shall pay the purchase price by certified check or wire transfer of immediately available funds, and the seller or sellers shall deliver the certificate or certificates (or duly executed affidavits of lost certificates in accordance with the Certificate of Incorporation) representing the Stockholder Shares and/or Preferred Shares, as the case may be, to such purchaser or purchaser or their nominees, accompanied by duly executed stock powers.
(c) Permitted Transfers. The restrictions contained in this Section 4 shall not apply with respect to any Transfer of Stockholder Shares (or Preferred Shares, to the extent this Section 4 applies to Preferred Shares) by any Stockholder (i) in the case of an individual Stockholder, pursuant to applicable laws of descent and distribution or among such Stockholder's Family Group, (ii) in the case of holders of the BRS Shares and its Permitted Transferees, (A) among their Affiliates, partners and employees (provided that in the case of a distribution to BRS' partners, such distribution shall be made pro rata to all such partners in accordance with the terms of its agreement of limited partnership), (B) to any employee, prospective employee, director or prospective director of the Company or any Subsidiary of the Company as incentive compensation, (C) to any former or prospective employee, director or prospective director of BRS or any Affiliate of BRS or (D) to any BRS Investor or BRS, (iii) in the case of any Canterbury Investor, any Rosewood Investor, any Farallon Investor or CapitalSource and their respective Permitted Transferees, (A) among their respective Affiliates, members and partners (provided that in the case of a distribution to any Farallon Investor's, any Rosewood Investor's, any Canterbury Investor's or any CapitalSource's members or partners, such distribution shall be made pro rata to all such partners in accordance with the terms of their respective agreements of limited partnership or limited liability operating agreements) and (B) to any employee, director or prospective director of the Company or any Subsidiary of the Company as incentive compensation, (iv) in the case any Canterbury Investor or CapitalSource, in the ordinary course of its business and in accordance with applicable law, to an Affiliate of such Person or to one or more banks or other financial institutions or entities which are not then in direct competition with the Company only if such Canterbury Investor or CapitalSource is required to do so pursuant to its applicable agreement of limited partnership or limited liability operating agreement or in connection with any dissolution of such Person pursuant to its agreement of limited partnership or limited liability operating agreement, or (v) in the case of any Farallon Investor, to another Farallon Investor; provided, that in each case set forth above, the rights and restrictions contained in this Section 4 shall continue to be applicable to such Stockholder Shares or Preferred Shares, as the case may be, after any such Transfer as if such Stockholder Shares or Preferred Shares, as the case may be, were held by the transferor; and provided further, that the transferees of such Stockholder Shares or Preferred Shares, as the case may be, shall have agreed in writing to be bound by the provisions of this Agreement which affect the Stockholder Shares or Preferred Shares, as the case may be, so transferred by executing a joinder in substantially the form attached hereto as Exhibit A. All transferees permitted under this Section 4(c) are collectively referred to herein as "Permitted Transferees."
(d) Termination of Restrictions. The restrictions set forth in this Section 4 shall continue with respect to each Stockholder Share or Preferred Share until the earlier of (i) the Transfer of such Stockholder Share or Preferred Share in a Public Sale or an Approved Sale, (ii) the consummation of a an Initial Public Offering or (iii) the Transfer of such Stockholder
Share or Preferred Share (other than to another Stockholder or the Company)
pursuant to Section 4(a) or 4(b) hereof. In addition, the provisions of this
Section 4 shall terminate on the date on which BRS holds less than 10% of the
Stockholder Shares held by it as of the date hereof
5. SALE OF THE COMPANY.
(a) In the event of an Approved Sale, each Stockholder will (i) consent to and raise no objections against the Approved Sale or the process pursuant to which the Approved Sale was arranged, (ii) waive any dissenter's rights and other similar rights, and (iii) if the Approved Sale is structured as a sale of stock, each Stockholder will agree to sell its Stockholder Shares and Preferred Shares on the terms and conditions of the Approved Sale. Each Stockholder will take all reasonably necessary and desirable actions as directed by the Board and the holders of a majority of the BRS Shares in connection with the consummation of any Approved Sale, including, without limitation, executing the applicable purchase agreements, which shall include customary and reasonable representations, warranties, indemnities and contribution rights (provided that any such indemnification or contribution obligations of any Stockholder shall be limited to the total consideration received by such Stockholder in connection with such Approved Sale).
(b) If the Company or the holders of the Company's securities enter into any negotiation or transaction for which Rule 506 (or any similar rule then in effect) under the Securities Act may be available with respect to such negotiation or transaction (including a merger, consolidation or other reorganization), the Other Stockholders (other than the Canterbury Investors, the Farallon Investors, the Rosewood Investors and CapitalSource, who shall act on their own behalf) will, at the request of the Company, appoint a purchaser representative (as such term is defined in Rule 501) reasonably acceptable to the Company. If any Other Stockholder appoints a purchaser representative designated by the Company, the Company will pay the fees of such purchaser representative, but if any Other Stockholder declines to appoint the purchaser representative designated by the Company such holder will appoint another purchaser representative (reasonably acceptable to the Company), and such holder will be responsible for the fees of the purchaser representative so appointed.
(c) All Stockholders will bear their pro rata share (based upon the number of shares sold) of the reasonable costs of any sale of Stockholder Shares and Preferred Shares pursuant to an Approved Sale to the extent such costs are incurred for the benefit of all selling Stockholders and are not otherwise paid by the Company or the acquiring party. Costs incurred by any Stockholder on its own behalf will not be considered costs of the transaction hereunder.
(d) This Section 5 shall automatically terminate upon the earlier of (i) the consummation of a Initial Public Offering or (ii) the date on which BRS hold less than 20% of the Common Stock on a fully diluted basis.
6. PREEMPTIVE RIGHTS. Except for issuances of Common Stock upon exercise of any Common Options or upon conversion of the Series B Preferred, if the Company issues any equity securities or any securities containing options or rights to acquire any equity securities or any securities convertible or exchangeable for equity securities in each case, after the date hereof to any Person (other than the Executives) (the "Offeree"), the Company will offer to sell
to each Stockholder, a number of such securities ("Offered Shares") so that the
Ownership Ratio immediately after the issuance of such securities for each
Stockholder would be equal to the Ownership Ratio for such Stockholder
immediately prior to such issuance of securities. The Company shall give each
Stockholder at least 30 days prior written notice of any proposed issuance,
which notice shall disclose in reasonable detail the proposed terms and
conditions of such issuance (the "Issuance Notice"). Each Stockholder will be
entitled to purchase such securities at the same price, on the same terms, and
at the same time as the securities are issued to the Offeree by delivery of
written notice to the Company of such election within 15 days after delivery of
the Issuance Notice (the "Election Notice"); provided, that if more than one
type of security was issued, each Stockholder shall, if it exercises its rights
pursuant to this Section 6, purchase such securities in the same ratio as
issued. If any of the Stockholders have elected to purchase any Offered Shares,
the sale of such shares shall be consummated as soon as practical (but in any
event within 10 days) after the delivery of the Election Notice. In the event
any Stockholder elects not to exercise its rights pursuant to this Section 6, no
other Stockholder shall have the right to purchase the securities offered to
such Stockholder. This Section 6 will terminate automatically, and be of no
further force and effect, upon the consummation of a Initial Public Offering.
The parties hereto that were party to the Existing TSI Shareholders Agreement
hereby waive any and all rights to which such parties were entitled under
Section 6 of the Existing TSI Shareholders Agreement with respect to the
issuance of TSI Class A Common to the Company on the date hereof as part of the
Restructuring.
7. LEGEND. In addition to any legend required by any other Transaction Document, each certificate evidencing Stockholder Shares or Preferred Shares and each certificate issued in exchange for or upon the transfer of any Stockholder Shares or Preferred Shares (if such shares remain Stockholder Shares or Preferred Shares, as the case may be, as defined herein after such transfer) shall be stamped or otherwise imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON [DATE], AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDERS AGREEMENT DATED AS OF FEBRUARY 4, 2004 BY AND AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND CERTAIN OF THE COMPANY'S STOCKHOLDERS. A COPY OF SUCH STOCKHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST."
The Company shall imprint such legend on certificates evidencing Stockholder Shares or Preferred Shares outstanding prior to the date hereof. The legend set forth above shall be removed from the certificates evidencing any shares which cease to be Stockholder Shares or Preferred Shares, as the case may be.
8. TRANSFERS IN VIOLATION OF AGREEMENT. Any Transfer or attempted Transfer of any Stockholder Shares in violation of any provision of this Agreement shall be null and void, and the Company shall not record such Transfer on its books or treat any purported transferee of such Stockholder Shares as the owner of such shares for any purpose.
9. TRANSFER OF STOCKHOLDER SHARES.
(a) Stockholder Shares are transferable only pursuant to
(i) public offerings registered under the Securities Act, (ii) subject to the
provisions of Section 4 above, Rule 144, Rule 144A or Rule 701 (or any similar
rule or rules then in effect) of the Securities and Exchange Commission if such
rule is available, (iii) Section 4(c), and (iv) subject to Section 4 and Section
9(b) below, any other legally available means of Transfer.
(b) In connection with the Transfer of any Stockholder
Shares other than a Transfer described in clause (i) or (ii) of Section 9(a)
above, the holder thereof shall deliver written notice to the Company describing
in reasonable detail the Transfer or proposed Transfer, together with an opinion
of counsel reasonably acceptable to the Company to the effect that such Transfer
of Stockholder Shares may be effected without registration of such Stockholder
Shares under the Securities Act. In addition, if the holder of the Stockholder
Shares delivers to the Company an opinion of counsel that no subsequent Transfer
of such Stockholder Shares shall require registration under the Securities Act,
the Company shall promptly upon such contemplated Transfer deliver new
certificates for such Stockholder Shares which do not bear the legend set forth
in Section 6 above. If the Company is not required to deliver new certificates
for such Stockholder Shares not bearing such legend, the holder thereof shall
not Transfer the same until the prospective transferee has confirmed to the
Company in writing its agreement to be bound by the conditions contained in this
Section 9 and Section 7 above.
(c) Upon the request of a holder of Stockholder Shares, the Company shall promptly supply to such Person or its prospective transferees all information regarding the Company required to be delivered in connection with a Transfer pursuant to Rule 144A (or any similar rule or rules then in effect) of the Securities and Exchange Commission.
(d) Upon the request of any holder of Stockholder Shares, the Company shall remove the legend set forth in Section 7 above from the certificates for such holder's Stockholder Shares (or the eligible portion thereof); provided, that such Stockholder Shares have been either registered under the Securities Act or are eligible for sale pursuant to Rule 144 (or any similar rule or rules then in effect) of the Securities and Exchange Commission.
10. AMENDMENT AND WAIVER. Except as otherwise provided herein, no modification, amendment or waiver of any provision of this Agreement shall be effective against the Company or the Stockholders unless such modification, amendment or waiver is approved in writing by the Company or the holders of not less than 70% of the Stockholder Shares, respectively; provided, that no such amendment or action which materially adversely affects any one or more Stockholder(s) (whether as holders of Stockholder Shares or Preferred Shares) shall be effective against such Stockholder(s) without the prior written consent of each such Stockholder. For avoidance of doubt, an amendment to add another party to this Agreement is not an action which, in and of itself, affects any Stockholder materially adversely. The failure of
any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.
11. AFFILIATE TRANSACTIONS. The Company will not, and will not permit any of its Subsidiaries, to enter into any transaction or series of transactions after the date hereof, whether or not in the ordinary course of business with any Affiliate or 5% Owner (or any Affiliate of such 5% Owner); provided, that the foregoing shall not apply to (i) the declaration and payment of dividends approved by the Board, (ii) employment arrangements with any Executive or employees of the Company entered into in the ordinary course of business, (iii) any transactions expressly permitted or contemplated by any Transaction Document, or (iv) any transaction consented to by not less than 70% of the Stockholder Shares excluding for purposes of this clause (iv) Stockholder Shares held by such Affiliate or 5% Owner).
12. OWNERSHIP OF TSI. The Company will at all times own 100% of the issued and outstanding common voting capital stock of TSI.
13. STOCKHOLDER VOTING AT TSI. On any occasion that the Company, as stockholder of TSI, would be required to vote the TSI Common Stock owned by the Company to approve or not to approve any action to be taken by TSI as recommended by the board of directors of TSI (other than in connection with any amendment of the certificate of incorporation or bylaws of TSI (provided, that no such amendment shall change the applicable percentage stockholder vote under the Business Corporation Law of the State of New York (the "NYBCL")) or, subject to subsection 2(a)(iii) above, with respect to the election of the directors of TSI), the Board shall cause such vote to be presented to the Stockholders for their determination and the Company shall vote the TSI Common Stock in accordance with the outcome of such vote of the Stockholders, with the determination of whether such vote passes or fails to pass made in accordance with the provisions of the NYBCL; provided, that if any such vote is to consider an Approved TSI Sale, the Board shall determine how the Company shall vote the TSI Common Stock and shall not be required to present such vote to the Stockholders.
14. MISCELLANEOUS.
(a) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
(b) Entire Agreement. Except as otherwise expressly set forth herein, this Agreement and the other Transaction Documents embody the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way, including,
without limitation, the Existing TSI Shareholders Agreement which is hereby terminated in its entirety by the parties hereto and shall have no further force and effect as of the date hereof.
(c) Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by the Company and its successors and assigns and the Stockholders and any subsequent holders of Stockholder Shares and the respective successors and assigns of each of them, so long as they hold Stockholder Shares; it being understood that any transferee of Stockholder Shares or Preferred Shares pursuant to Section 4(a) or 4(b) (other than Stockholders) shall not succeed to the rights or obligations of the transferor hereunder.
(d) Counterparts. This Agreement may be executed in separate counterparts each of which shall be an original and all of which taken together shall constitute one and the same agreement.
(e) Remedies. The parties hereto shall be entitled to enforce their rights under this Agreement specifically to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that the Company and any Stockholder may in his/her/its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief (without posting a bond or other security) in order to enforce or prevent any violation of the provisions of this Agreement.
(f) Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given when delivered personally, mailed by certified or registered mail, return receipt requested and postage prepaid, or sent via a nationally recognized overnight courier, or sent via facsimile to the recipient. Such notices, demands and other communications will be sent to the address indicated below:
To the Company:
Town Sports International Holdings, Inc.
888 Seventh Avenue, 25th Floor
New York, New York 10106
Attention: Alex Alimanestianu
Facsimile No.: (212) 664-8906
With copies to (which shall not constitute notice to
the Company):
Bruckmann, Rosser, Sherrill & Co., Inc. 126 East 56th Street, 29th Floor New York, New York 10022 Attention: Rice Edmonds Facsimile No.: (212) 521-3799
Kirkland & Ellis LLP Citigroup Center 153 East 53rd Street New York, New York 10022-4611 Attention: Eunu Chun, Esq.
Facsimile No.: (212) 446-4900
To BRS or any BRS Investor:
Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street, 29th Floor
New York, New York 10022
Attention: Rice Edmonds
Facsimile No.: (212) 521-3799
With a copy to (which shall not constitute notice to
BRS or any BRS Investor):
Kirkland & Ellis LLP Citigroup Center 153 East 53rd Street New York, New York 10022-4611 Attention: Eunu Chun, Esq.
Facsimile No.: (212) 446-4900
To any Farallon Investor:
Farallon Capital Management, L.L.C.
One Maritime Plaza, Suite 1325
San Francisco, California 94111
Attention: Mark Wehrly
Facsimile No.: (415) 421-2133
With a copy to (which shall not constitute notice to
any Farallon Investor):
Richards Spears Kibbe & Orbe LLP World Financial Center, 29th Floor New York, New York 10281 Attention: Jahangier Sharifi, Esq.
Facsimile No.: (212) 530-1801
To any Rosewood Investor:
Rosewood Capital Partners, L.P.
One Maritime Plaza
Suite 1330
San Francisco, California 94111
Attention: Kyle A. Anderson
Facsimile No.: (415) 362-1192
With a copy to (which shall not constitute notice to
any Rosewood Investor):
Preston Gates & Ellis, LLP
One Maritime Plaza
Suite 2400
San Francisco, California 94111
Attention: Lawrence B. Low, Esq.
Facsimile No.: (415) 788-8819
To Canterbury Mezzanine:
Canterbury Mezzanine Capital, L.P.
600 Fifth Avenue, 23rd Floor
New York, New York 10020
Attention: Patrick N. W. Turner
Facsimile No.: (212) 332-1584
With a copy to (which shall not constitute notice to
Canterbury Mezzanine):
Loeb & Loeb LLP 345 Park Avenue New York, New York 10154 Attention: Stan Johnson, Esq.
Facsimile No.: (212) 407-4990
To Canterbury Detroit:
Canterbury Detroit Partners, L.P.
600 Fifth Avenue, 23rd Floor
New York, New York 10020
Attention: Patrick N. W. Turner
Facsimile No.: (212)332-1584
With a copy to (which shall not constitute notice to
Canterbury Detroit):
Loeb & Loeb LLP
345 Park Avenue New York, New York 10154 Attention: Stan Johnson, Esq.
Facsimile No.: (212) 407-4990
To CapitalSource:
CapitalSource Holdings LLC
4445 Willard Avenue, 12th Floor
Chevy Chase, Maryland 20815
Attention: Corporate Finance Group, Managing Director
Corporate Finance Group, General Counsel
Facsimile No.: (301) 841-2360 and (301) 841-2380
To any of the Executives, Alessi or Arnold:
c/o Town Sports International, Inc.
888 Seventh Avenue, 25th Floor
New York, New York 10106
Facsimile No.: (212) 664-8906
or such other address or to the attention of such other Person as the recipient party shall have specified by prior written notice to the sending party.
(g) Waiver of Jury Trial. Each of the parties hereto waives any right it may have to trial by jury in respect of any litigation based on, arising out of, under or in connection with this agreement or any course of conduct, course of dealing, verbal or written statement or action of any party hereto.
(h) Governing Law. All questions concerning the construction, validity and interpretation of this Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.
(i) Time is of the Essence; Computation of Time. Time is of the essence for each and every provision of this Agreement. Whenever the last day for the exercise of any privilege or the discharge of any duty hereunder shall fall upon a Saturday, Sunday, or any date on which banks in New York, New York are authorized to be closed, the party having such privilege or duty may exercise such privilege or discharge such duty on the next succeeding day which is a regular business day.
(j) Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
TOWN SPORTS INTERNATIONAL, INC.
By: /s/ Richard Pyle
----------------------------
Name: Richard Pyle
Title: Chief Financial Officer
|
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
By: /s/ Richard Pyle
----------------------------
Name: Richard Pyle
Title: Chief Financial Officer
|
BRUCKMANN, ROSSER, SHERRILL & CO., L.P.
By: BRS Partners, Limited Partnership
Its: General Partner
By: BRSE Associates, Inc.
Its: General Partner
By: /s/ Paul R. Kaminski
----------------------------
Name: Paul R. Kaminski
Title: Secretary
|
FARALLON CAPITAL PARTNERS, L.P.
By: Farallon Partners, L.L.C.
Its: General Partner
By: /s/ Monica R. Landry
----------------------------
Name: Monica R. Landry
Title: Managing Member
|
FARALLON CAPITAL INSTITUTIONAL PARTNERS, L.P.
By: Farallon Partners, L.L.C.
Its: General Partner
By: /s/ Monica R. Landry
------------------------------
Name: Monica R. Landry
Title: Managing Member
|
RR CAPITAL PARTNERS, L.P.
By: Farallon Partners, L.L.C.
Its: General Partner
By: /s/ Monica R. Landry
------------------------------
Name: Monica R. Landry
Title: Managing Member
|
FARALLON CAPITAL INSTITUTIONAL PARTNERS II,
L.P.
By: Farallon Partners, L.L.C.
Its: General Partner
By: /s/ Monica R. Landry
------------------------------
Name: Monica R. Landry
Title: Managing Member
|
CANTERBURY DETROIT PARTNERS, L.P.
By: Canterbury Detroit, LLC
Its: General Partner
By: /s/ Patrick Turner
------------------------------
Name: Patrick Turner
Title: Manager
|
CANTERBURY MEZZANINE CAPITAL, L.P.
By: Canterbury Capital, LLC
Its: General Partner
By: /s/ Patrick Turner
-----------------------------
Name: Patrick Turner
Title: Manager
|
ROSEWOOD CAPITAL, L.P.
By: /s/ Kevin Reilly
-----------------------------
Name: Kevin Reilly
Title: Principal
|
ROSEWOOD CAPITAL IV, L.P.
By: /s/ Kevin Reilly
-----------------------------
Name: Kevin Reilly
Title: Principal
|
ROSEWOOD CAPITAL IV ASSOCIATES, L.P.
By: /s/ Kevin Reilly
------------------------------
Name: Kevin Reilly
Title: Principal
|
CAPITALSOURCE HOLDINGS LLC
By: /s/ Joseph Turitz
------------------------------
Name: Joseph Turitz
Title: General Counsel
/s/ Keith Alessi
----------------------------------
KEITH ALESSI
|
/s/ Paul Arnold --------------------------------- PAUL ARNOLD |
[BRS INVESTOR SIGNATURE PAGE]
/s/ Stephen Sherrill ----------------------------------------- Stephen Sherrill, as Attorney-in-Fact for each of the following Investors: |
Bruce Bruckmann Elizabeth McShane Beverly Place D. Bruckmann BCB Partnership NAZ Partnership Harold O. Rosser Virgil Sherrill Stephen Sherrill Nancy Zweng Paul D. Kaminski
Merrill Lynch Pearce Fenner & Smith, Custodian for the Benefit of Paul D. Kaminski
IRA
[EXECUTIVE SIGNATURE PAGE]
/s/ Mark Smith -------------------------------------------- Mark Smith /s/ Robert Giardina -------------------------------------------- Robert Giardina /s/ Richard Pyle -------------------------------------------- Richard Pyle /s/ A. Alimanestianu -------------------------------------------- A. Alimanestianu /s/ Debbie Smith -------------------------------------------- Debbie Smith /s/ Carol Cornbill -------------------------------------------- Carol Cornbill /s/ Edward Trainor -------------------------------------------- Edward Trainor /s/ Robert Calvo -------------------------------------------- Robert Calvo /s/ Maggie Stevens ------------------------------------------ Maggie Stevens /s/ Ray Dewhirst -------------------------------------------- Ray Dewhirst /s/ Nina Duchaine -------------------------------------------- Nina Duchaine |
[EXECUTIVE SIGNATURE PAGE]
/s/ Heinz Ritschard -------------------------------------------- Heinz Ritschard /s/ Peter Bazzell -------------------------------------------- Peter Bazzell /s/ Felicia Bachiccio -------------------------------------------- Felicia Bachiccio |
SCHEDULE A
STOCKHOLDER SECURITIES
STOCKHOLDER STOCKHOLDER
STOCKHOLDER TSI SECURITIES COMPANY SECURITIES
--------------------------------------------- --------------------------- -------------------------
Bruckmann, Rosser, Sherrill & Co., L.P. 104,330.35 TSI Series A 104,330.35 Company
Preferred Series A Preferred
504,456.01 TSI Class A 504,456.01 Company
Common Class A Common
Bruce Bruckmann 2,112.63 TSI Series A 2,112.63 Company Series A
Preferred Preferred
10,214.93 TSI Class A 10,214.93 Company Class A
Common Common
Elizabeth McShane 33.08 TSI Series A 33.08 Company Series A
Preferred Preferred
159.97 TSI Class A 159.97 Company Class A
Common Common
Beverly Place 33.08 TSI Series A 33.08 Company Series A
Preferred Preferred
159.97 TSI Class A 159.97 Company Class A
Common Common
D. Bruckmann 282.92 TSI Series A 282.92 Company Series A
Preferred Preferred
1,367.96 TSI Class A 1,367.96 Company Class A
Common Common
BCB Partnership 121.71 TSI Series A 121.71 Company Series A
Preferred Preferred
588.48 TSI Class A 588.48 Company Class A
Common Common
NAZ Partnership 58.73 TSI Series A 58.73 Company Series A
Preferred Preferred
283.97 TSI Class A 283.97 Company Class A
Common Common
Harold O. Rosser 424.44 TSI Series A 424.44 Company Series A
Preferred Preferred
2,052.23 TSI Class A 2,052.23 Company Class A
Common Common
Virgil Sherrill 1,414.59 TSI Series A 1,414.59 Company Series A
Preferred Preferred
6,839.79 TSI Class A 6,839.79 Company Class A
Common Common
Stephen Sherrill 2,178.79 TSI Series A 2,178.79 Company Series A
Preferred Preferred
10,534.87 TSI Class A 10,534.97 Company Class A
Common Common
Nancy Zweng 84.91 TSI Series A 84.91 Company Series A
Preferred Preferred
|
Schedule A, Page 1
STOCKHOLDER STOCKHOLDER
STOCKHOLDER TSI SECURITIES COMPANY SECURITIES
--------------------------------------------- --------------------------- -------------------------
410.56 TSI Class A 410.56 Company Class A
Common Common
Paul D. Kaminski 238.47 TSI Series A 238.47 Company Series A
Preferred Preferred
1,153.04 TSI Class A 1,153.04 Company Class A
Common Common
Merrill Lynch Pearce Fenner & Smith Custodian 95.39 TSI Series A 95.39 Company Series A
for the Benefit of Paul D. Kaminski IRA Preferred Preferred
461.22 TSI Class A 461.22 Company Class A
Common Common
Farallon Capital Partners, L.P. 14,365.91 TSI Series A 14,365.91 Company Series
Preferred A Preferred
94,532.02 TSI Class A 94,532.02 Company Class A
Common Common
Farallon Capital Institutional Partners, L.P. 16,418.18 TSI Series A 16,418.18 Company Series
Preferred A Preferred
108,036.59 TSI Class A 108,036.59 Company
Common Class A Common
RR Capital Partners, L.P. 2,052.27 TSI Series A 2,052.27 Company Series A
Preferred Preferred
13,504.57 TSI Class A 13,504.57 Company Class A
Common Common
Farallon Capital Institutional Partners II, 8,209.09 TSI Series A 8,209.09 Company Series A
L.P. Preferred Preferred
54,018.30 TSI Class A 54,018.30 Company Class A
Common Common
Keith Alessi 591.00 TSI Series A 591.00 Company Series A
Preferred Preferred
2,857.00 TSI Class A 2,857.00 Company Class A
Common Common
Paul Arnold 591.00 TSI Series A 591.00 Company Series A
Preferred Preferred
2,857.00 TSI Class A 2,857.00 Company Class A
Common Common
Canterbury Mezzanine Capital, L.P. 121,529.24 TSI Class A 121,529.24 Company
Common Class A Common
Canterbury Detroit Partners, L.P. 17,907.62 TSI Class A 17,907.62 Company Class A
Common Common
Rosewood Capital, L.P. 17,907.62 TSI Class A 17,907.62 Company Class A
Common Common
Rosewood Capital IV, L.P. 101,890.82 TSI Series B 101,890.82 Company Series
Preferred B Preferred
Rosewood Capital IV Associates, L.P. 7,649.86 TSI Series B 7,649.86 Company Series B
Preferred Preferred
CapitalSource Holdings, LLC 23,000.00 TSI Class A 23,000.00 Company Class A
Common Common
|
Schedule A, Page 2
STOCKHOLDER STOCKHOLDER
STOCKHOLDER TSI SECURITIES COMPANY SECURITIES
--------------------------------------------- --------------------------- -------------------------
Mark Smith 66,125.00 TSI Class A 66,125.00 Company Class A
Common Common
Robert Giardina 50,651.00 TSI Class A 50,651.00 Company Class A
Common Common
Richard Pyle 42,582.00 TSI Class A 42,582.00 Company Class A
Common Common
Alexander Alimanestianu 42,011.00 TSI Class A 42,011.00 Company Class A
Common Common
Debbie Smith 15,908.00 TSI Class A 15,908.00 Company Class A
Common Common
Carol Cornbill 13,428.00 TSI Class A 13,428.00 Company Class A
Common Common
Edward Trainor 8,091.00 TSI Class A 8,091.00 Company Class A
Common Common
Robert Calvo 2,857.00 TSI Class A 2,857.00 Company Class A
Common Common
Maggie Stevens 2,274.00 TSI Class A 2,274.00 Company Class A
Common Common
Ray Dewhirst 1,749.00 TSI Class A 1,749.00 Company Class A
Common Common
Nina Duchaine 3,603.00 TSI Class A 3,603.00 Company Class A
Common Common
Heinz Ritschard 2,332.00 TSI Class A 2,332.00 Company Class A
Common Common
Peter Bazzell 1,166.00 TSI Class A 1,166.00 Company Class A
Common Common
Felicia Bochiccio 63.33 TSI Class A 63.33 Company Class A
Common Common
|
Schedule A, Page 3
EXHIBIT A
FORM OF JOINDER TO
STOCKHOLDERS AGREEMENT
THIS JOINDER to the Stockholders Agreement, dated as of
[________], 2004, by and among TOWN SPORTS INTERNATIONAL HOLDINGS, INC., a
Delaware corporation (the "Company"), and certain stockholders of the Company
(the "Agreement"), is made and entered into as of _____________, ____ by and
between the Company and ____________ ("Holder"). Capitalized terms used herein
but not otherwise defined shall have the meanings set forth in the Agreement.
WHEREAS, Holder has acquired certain shares of Common Stock ("Holder Stock"), and the Agreement and the Company requires Holder, as a holder of Common Stock, to become a party to the Agreement, and Holder agrees to do so in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Joinder hereby agree as follows:
1. Agreement to be Bound. Holder hereby agrees that upon execution of this Joinder, it shall become a party to the Agreement and shall be fully bound by, and subject to, all of the covenants, terms and conditions of the Agreement as though an original party thereto and shall be deemed a Stockholder [AND ______] for all purposes thereof. In addition, Holder hereby agrees that all Common Stock held by Holder shall be deemed Stockholder Shares for all purposes of the Agreement.
2. Successors and Assigns. Except as otherwise provided herein, this Joinder shall bind and inure to the benefit of and be enforceable by the Company and its successors and assigns and Holder and any subsequent holders of Holder Stock and the respective successors and assigns of each of them, so long as they hold any shares of Holder Stock.
3. Counterparts. This Joinder may be executed in separate counterparts each of which shall be an original and all of which taken together shall constitute one and the same agreement.
4. Notices. For purposes of Section 12(f) of the Agreement, all notices, demands or other communications to the Holder shall be directed to:
[Name]
[Address]
[Facsimile Number]
5. GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS JOINDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
6. Descriptive Headings. The descriptive headings of this Joinder are inserted for convenience only and do not constitute a part of this Joinder.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Joinder as of the date first above written.
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
By: ______________________________
Name:
Title:
TOWN SPORTS INTERNATIONAL, INC.
By: ______________________________
Name:
Title:
[HOLDER]
By: ______________________________
EXHIBIT 10.5
EXECUTION AGREEMENT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of February 4, 2004, by and among TOWN SPORTS INTERNATIONAL HOLDINGS, INC., a Delaware corporation (the "Company"), TOWN SPORTS INTERNATIONAL, INC., a New York corporation ("TSI"), BRUCKMANN, ROSSER, SHERRILL & CO., L.P., a Delaware limited partnership ("BRS"), the individuals and entities listed on the BRS Co-Investor Signature Pages hereto (each, a "BRS Investor", and collectively, the "BRS Investors"), FARALLON CAPITAL PARTNERS, L.P., a California limited partnership ("FCP"), FARALLON CAPITAL INSTITUTIONAL PARTNERS, L.P., a California limited partnership ("FCIP"), RR CAPITAL PARTNERS, L.P., a Delaware limited partnership ("RRC"), and FARALLON CAPITAL INSTITUTIONAL PARTNERS II, L.P., a California limited partnership (together with FCP, FCIP and RRC, "Farallon"), CANTERBURY DETROIT PARTNERS, L.P., a Delaware limited partnership ("Canterbury Detroit"), CANTERBURY MEZZANINE CAPITAL, L.P., a Delaware limited partnership ("Canterbury Mezzanine" and, together with Canterbury Detroit the "Canterbury Investors", and individually, a "Canterbury Investor") ROSEWOOD CAPITAL, L.P., a Delaware limited partnership ("Rosewood"), ROSEWOOD CAPITAL IV, L.P., a Delaware limited partnership ("Rosewood IV"), ROSEWOOD CAPITAL IV ASSOCIATES, L.P., a Delaware limited partnership ("Rosewood Associates" and, collectively with Rosewood and Rosewood IV, the "Rosewood Investors", and individually, a "Rosewood Investor"), CAPITALSOURCE HOLDINGS LLC, a Delaware limited liability company ("CapitalSource"), KEITH ALESSI ("Alessi"), PAUL ARNOLD ("Arnold"), and certain stockholders of the Company listed on the Executive Signature Pages hereto (each, an "Executive", collectively, the "Executives"). (BRS, the BRS Investors, the Farallon Investors, the Canterbury Investors, the Rosewood Investors, CapitalSource, Alessi, Arnold and the Executives are referred to collectively herein as the "Stockholders" and, individually as a "Stockholder"). Capitalized terms used herein but not otherwise defined shall have the meanings assigned to such terms in Section 1.
WHEREAS, the Stockholders currently own all of the issued and outstanding capital stock of TSI consisting of Class A Common Stock, par value $.001 per share (the "TSI Class A Common"), Series A Preferred Stock, par value $1.00 per share (the "TSI Series A Preferred"), and Series B Preferred Stock, par value $1.00 per share (the "TSI Series B Preferred");
WHEREAS, the Stockholders are currently parties to that certain Registration Rights Agreement, dated as of December 10, 1996, as amended by the First Amendment to Registration Rights Agreement, dated as of November 13, 1998, and the Second Amendment to the Registration Rights Agreement, dated as of December 27, 2001 (collectively, the "Existing TSI Registration Rights Agreement");
WHEREAS, TSI, the Company and the Stockholders have entered into a Restructuring Agreement, dated as of the date hereof (the "Restructuring Agreement"), pursuant to which TSI shall be reorganized as a wholly-owned subsidiary of the Company by having (a) each of the Stockholders contribute and deliver to the Company the shares of TSI Class A Common, TSI Series A Preferred and TSI Series B Preferred owned by each Stockholder in exchange for all of the issued and outstanding capital stock of the Company consisting of Class
A Common Stock, par value $.001 per share (the "Class A Common"), Series A Preferred Stock, par value $1.00 per share (the "Series A Preferred"), and Series B Preferred Stock, par value $1.00 per share (the "Series B Preferred"), as applicable for each Stockholder, and (b) immediately following the initial stockholder contribution, the Company contribute and deliver to TSI for cancellation the shares of TSI Class A Common, TSI Series A Preferred and TSI Series B Preferred held by it in exchange for 1,000 shares of TSI Class A Common, representing all of the issued and outstanding capital stock of TSI (collectively, the "Restructuring"); and
WHEREAS, in conjunction with the Restructuring, TSI and the Stockholders desire to cancel and terminate the Existing TSI Registration Rights Agreement and enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the following meanings.
"BRS Registrable Securities" means (i) any Common Stock issued or issuable, whether upon conversion of any shares of Series B Preferred or otherwise, to BRS and the BRS Investors on the date hereof or acquired by BRS, the BRS Investors or any of their respective affiliates or partners after the date hereof, and (ii) any shares of capital stock of the Company issued or issuable with respect to the securities referred to in clause (i) by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. For purposes of this Agreement, a Person will be deemed to be a holder of BRS Registrable Securities whenever such Person has the right to acquire directly or indirectly such BRS Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected. Such securities will cease to be BRS Registrable Securities when sold pursuant to Rule 144 or any offering registered under the Securities Act.
"Canterbury Registrable Securities" means (i) any shares of Common Stock held by a Canterbury Investor or issued or issuable, whether upon conversion of any shares of Series B Preferred or otherwise, to a Canterbury Investor, or their respective affiliates or partners on or after December 10, 1996 and (ii) any shares of capital stock of the Company issued or issuable with respect to the securities referred to in clause (i) by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. For purposes of this Agreement, a Person will be deemed to be a holder of Canterbury Registrable Securities whenever such Person has the right to acquire directly or indirectly such Canterbury Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected. Such securities will cease to be Canterbury Registrable Securities when sold pursuant to Rule 144 or any offering registered under the Securities Act.
"CapitalSource Registrable Securities" means (i) any shares of Common Stock issued or issuable to CapitalSource or its affiliates or members on or after the date hereof and (ii) any shares of capital stock of the Company issued or issuable with respect to the securities referred to in clause (i) by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. For purposes of this Agreement, a Person will be deemed to be a holder of CapitalSource Registrable Securities whenever such Person has the right to acquire directly or indirectly such CapitalSource Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected. Such securities will cease to be CapitalSource Registrable Securities when sold pursuant to Rule 144 or any offering registered under the Securities Act.
"Common Stock" means, collectively, the Class A Common, the Class B Common Stock, par value $.001 per share (the "Class B Common") of the Company, and any other class of Common Stock, or if such outstanding Common Stock is hereafter changed into or exchanged for different securities of the Company, such other securities.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Executive Registrable Securities" means (i) the Common Stock issued or issuable to the Executives, whether upon exercise of the Options granted to the Executives or otherwise, on the date hereof, or acquired by any Executive after the date hereof, in each case to the extent vested pursuant to the terms of the applicable Executive Stock Agreement and (ii) any shares of capital stock of the Company issued or issuable with respect to the securities referred to in clause (i) by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. For purposes of this Agreement, a Person will be deemed to be a holder of Executive Registrable Securities whenever such Person has the right to acquire directly or indirectly such Executive Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected. Such securities will cease to be Executive Registrable Securities when sold pursuant to Rule 144 or any offering registered under the Securities Act.
"Farallon Registrable Securities" means (i) any shares of Common Stock held by the Farallon Investors or issued or issuable to the Farallon Investors or their respective affiliates or partners on or after December 10, 1996 and (ii) any shares of capital stock of the Company issued or issuable with respect to the securities referred to in clause (i) by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. For purposes of this Agreement, a Person will be deemed to be a holder of Farallon Registrable Securities whenever such Person has the right to acquire directly or indirectly such Farallon Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected. Such securities will cease to be Farallon Registrable Securities when sold pursuant to Rule 144 or any offering registered under the Securities Act.
"IPO" means the underwritten initial public offering of Common Stock registered under the Securities Act.
"Options" means, collectively, the options to purchase Class A Common (a) prior to the date hereof, granted to certain Executives pursuant to the Town Sports International, Inc. Fourth Amended and Restated 1996 Stock Option Plan and the Common Stock Option Agreements, by and between TSI and each of the Executives and transferred to Holdings pursuant to the Restructuring and the documents related thereto, and (b) on or after the date hereof, granted to certain Executives pursuant to the Town Sports International Holdings, Inc. 2004 Stock Option Plan and the Common Stock Option Agreements, by and between the Company and each of the Executives.
"Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or other entity, or a governmental entity (or any department, agency or political subdivision thereof).
"Qualified Public Offering" means the sale, in an underwritten primary public offering of Common Stock requested under the Securities Act, of shares of Common Stock which is expected to result in net cash proceeds to the Company in an aggregate amount of not less than $30.0 million.
"Registrable Securities" means the BRS Registrable Securities, the Farallon Registrable Securities, the Rosewood Registrable Securities, the Canterbury Registrable Securities, the Executive Registrable Securities and the CapitalSource Registrable Securities.
"Registration Expenses" means all expenses incident to the Company's performance of or compliance with this Agreement, including without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, and fees and disbursements of counsel for the Company and all independent certified public accountants, underwriters (excluding discounts and commissions) and other Persons retained by the Company.
"Rosewood Registrable Securities" means (i) any shares of Common Stock issued or issuable, whether upon conversion of any shares of Series B Preferred or otherwise, to the Rosewood Investor or its affiliates or partners on or after the date hereof and (ii) any shares of capital stock of the Company issued or issuable with respect to the securities referred to in clause (i) by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. For purposes of this Agreement, a Person will be deemed to be a holder of Rosewood Registrable Securities whenever such Person has the right to acquire directly or indirectly such Rosewood Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected. Such securities will cease to be Rosewood Registrable Securities when sold pursuant to Rule 144 or any offering registered under the Securities Act.
"Rule 144" means Rule 144 under the Securities Act (or any similar rule then in force).
"Securities Act" means the Securities Act of 1933, as amended.
"Unit Offering Registration" means a registration by the Company of any of its Common Stock in connection with a registration the primary purpose of which is to register debt securities (i.e., in connection with a so-called "equity kicker").
2. DEMAND REGISTRATIONS.
(a) Requests for Registration. Subject to this Section 2,
(i) the holders of a majority of the BRS Registrable Securities may request
registration under the Securities Act of all or part of their Registrable
Securities on Form S-1 or any similar long-form registration ("Long-Form
Registrations") or on Form S-2 or S-3 or any similar short-form registration
("Short-Form Registrations"), if available, (ii) the holders of a majority of
the Farallon Registrable Securities may request Long-Form Registrations and
Short-Form Registrations, if available, and (iii) the holders of a majority of
Canterbury Registrable Securities may request Short-Form Registrations, if
available. Each request for a Demand Registration (as defined in Section 2(c))
shall specify the approximate number of Registrable Securities requested to be
registered and the anticipated per share price range for such offering. Within
ten days after receipt of any such request, the Company will give written notice
of such requested registration to all other holders of Registrable Securities
and will include (subject to the provisions of this Agreement) in such
registration, all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within 20 days after the receipt
of the Company's notice.
(b) Long-Form Registrations. The holders of a majority of BRS Registrable Securities will be entitled to request, at any time and from time to time, three (3) Long-Form Registrations in which the Company will pay all Registration Expenses. In addition, the holders of a majority of the Farallon Registrable Securities will be entitled to request one (1) Long Form Registration, if and only if, after the end of the fourth fiscal quarter following the date on which the Company consummates an IPO, the Company is not permitted under the Securities Act to use any applicable Short-Form Registration. A registration will not count as the permitted Long-Form Registration until it has become effective and unless the holders of Registrable Securities are able to register and sell at least 90% of the Registrable Securities requested to be included in such registration; it being understood and agreed that the requisite holders of Registrable Securities making a request for a Demand Registration hereunder may withdraw from such registration at any time prior to the effective date of such Demand Registration, in which case such request will not count as one of the permitted Demand Registrations for such holders, irrespective of whether or not such registration is effected.
(c) Short-Form Registrations. In addition to the Long-Form Registrations provided pursuant to Section 2(b), (i) the holders of BRS Registrable Securities will be entitled to request an unlimited number of Short-Form Registrations, (ii) the holders of Farallon Registrable Securities will be entitled to request up to three (3) Short-Form Registrations, (iii) the holders of Canterbury Registrable Securities will be entitled to request up to two (2) Short-
Form Registrations and (iv) the holders of CapitalSource Registrable Securities will be entitled to request up to one (1) Short-Form Registration, in each case, in which the Company will pay all Registration Expenses. A registration will not count as the permitted Short-Form Registration until it has become effective and unless the holder of Registrable Securities are able to register and sell 90% of the Registrable Securities requested to be included in such registration; it being understood and agreed that the requisite holders of Registrable Securities making a request for a Demand Registration hereunder may withdraw from such registration at any time prior to the effective date of such Demand Registration, in which case such request will not count as one of the permitted Demand Registrations for such holders, irrespective of whether or not such registration is effected. Demand Registrations will be Short-Form Registrations whenever the Company is permitted to use any applicable short form. After the Company has become subject to the reporting requirements of the Exchange Act, the Company will use its best efforts to make Short-Form Registrations available for the sale of Registrable Securities. All registrations requested pursuant to Sections 2(b) and 2(c) are referred to herein as "Demand Registrations."
(d) Priority on Demand Registrations. The Company will
not include in any Demand Registration any securities which are not Registrable
Securities without the prior written consent of the holders of at least a
majority of the Registrable Securities included in such registration. If a
Demand Registration is an underwritten offering and the managing underwriters
advise the Company in writing that in their opinion the number of Registrable
Securities and, if permitted hereunder, other securities requested to be
included in such offering exceeds the number of Registrable Securities and other
securities, if any, which can be sold therein without adversely affecting the
marketability of the offering, the Company will include in such registration,
(i)first, the number of Registrable Securities requested to be included in such
registration pro rata, if necessary, among the holders of Registrable Securities
based on the number of shares of Registrable Securities requested to be included
therein by each such holder and (ii) second, any other securities of the Company
requested to be included in such registration pro rata, if necessary, on the
basis of the number of shares of such other securities requested to be included
therein by each such holder. Any Persons other than holders of Registrable
Securities who participate in Demand Registrations which are not at the
Company's expense must pay their share of the Registration Expenses as provided
in Section 6 hereof.
(e) Restrictions on Demand Registrations. The Company will not be obligated to effect any Demand Registration within six months after the effective date of a previous Demand Registration.
(f) Selection of Underwriters. In the case of a Demand Registration, the holders of a majority of the Registrable Securities to be included in such Demand Registration will have the right to select the investment banker(s) and manager(s) to administer the offering, which investment banker(s) and manager(s) will be nationally recognized, subject to the Company's approval which will not be unreasonably withheld.
(g) Other Registration Rights. Except as provided in this Agreement, the Company will not grant to any Persons the right to request the Company to register any equity securities of the Company, or any securities convertible or exchangeable into or exercisable for such securities, whether on a "demand" or "piggyback" basis, without the prior written consent of the holders of a majority of the BRS Registrable Securities; provided, that no such registration
rights which are senior to those granted to the holders of the Farallon Registrable Securities, the holders of the Canterbury Registrable Securities or the holders of the Executive Registrable Securities may be granted without the prior written consent of (i) a majority of the holders of the Farallon Registrable Securities in the case of the holders of Farallon Registrable Securities, (ii) a majority of the holders of Canterbury Registrable Securities in the case of the holders of Canterbury Registrable Securities, or (iii) a majority of the holders of Executive Registrable Securities in the case of the holders of Executive Registrable Securities, respectively. For the avoidance of doubt, the granting of registration rights pari passu within any other registration rights shall not be considered "senior."
3. PIGGYBACK REGISTRATIONS.
(a) Right to Piggyback. Whenever the Company proposes to
register any of its Common Stock under the Securities Act other than pursuant to
a Demand Registration, and other than a pursuant to a registration statement on
Form S-8 or S-4 or any similar or successor form or in connection with a Unit
Offering Registration and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), the Company
will give prompt written notice to all holders of Registrable Securities of its
intention to effect such a registration and will include in such registration
all Registrable Securities with respect to which the Company has received
written requests for inclusion therein within 20 days after the receipt of the
Company's notice. Notwithstanding the foregoing, in connection only with an IPO
which is not a Qualified Public Offering, no Registrable Securities shall be
included in such registration without the prior written consent of the Company
(provided that any such consent shall permit all holders of Registrable
Securities to be included in such registration in a manner consistent with
Section 3(c)(ii) below).
(b) Piggyback Expenses. The Registration Expenses of the holders of Registrable Securities will be paid by the Company in all Piggyback Registrations.
(c) Priority on Primary Registrations. If a Piggyback Registration is an underwritten primary registration on behalf of the Company, the Company will include in such registration all securities requested to be included in such registration; provided, that if the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of the offering, the Company will include in such registration first, the securities the Company proposes to sell, and then (i) in the case of an IPO which is a Qualified Public Offering (x) second, the Canterbury Registrable Securities requested to be included in such registration, (y) third the other Registrable Securities requested to be included in such registration pro rata among the holders of such Registrable Securities on the basis of the number of shares requested to be included therein by each such holder, and (z) fourth, other securities, if any, requested to be included is such registration, or (ii)in all other instances, (x) second, the Registrable Securities requested to be included in such registration, pro rata among the holders of such Registrable Securities on the basis of the number of shares of Registrable Securities requested to be included therein by each such holder, and (y)third, other securities, if any, requested to be included in such registration.
(d) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Company's securities (which registration was consented to pursuant to
Section 2(g) above), the Company will include in such registration all
securities requested to be included in such registration; provided, that if the
managing underwriters advise the Company in writing that in their opinion the
number of securities requested to be included in such registration exceeds the
number which can be sold in such offering without adversely affecting the
marketability of the offering, the Company will include in such registration (i)
first, the securities (other than Registrable Securities) requested to be
included therein by the holders requesting such registration, (ii) second, the
Registrable Securities requested to be included in such registration, pro rata
among the holders of such Registrable Securities on the basis of the number of
shares of Registrable Securities requested to be included therein by each such
holder, and (iii) third, other securities requested to be included in such
registration.
(e) Selection of Underwriters. If any Piggyback Registration is an underwritten offering, the investment banker(s) and manager(s) for the offering will be selected by the Company.
(f) Other Registrations. If the Company has previously filed a registration statement with respect to Registrable Securities pursuant to this Section 3, and if such previous registration has not been withdrawn or abandoned, the Company will not file or cause to be effected any other registration of any of its equity securities or securities convertible or exchangeable into or exercisable for its equity securities under the Securities Act (except on Forms S-4 or S-8 or any similar or successor forms or in connection with a Unit Offering Registration), whether on its own behalf or at the request of any holder or holders of such securities, until a period of at least six months has elapsed from the effective date of such previous registration.
(g) If requested by a majority of the holders of Executive Registrable Securities, the Company hereby agrees that, in connection with an IPO, it shall use its commercially reasonable efforts to prepare and file a registration statement on Form S-8 or any successor form (and any required reoffer prospectus in connection therewith) covering the Executive Registrable Securities eligible to be registered on such form, and use its commercially reasonable efforts to maintain the effectiveness of such registration statement.
4. HOLDBACK AGREEMENTS.
(a) Each holder of Registrable Securities (other than the BRS Investors) agrees not to effect any public sale or distribution (including sales pursuant to Rule 144) of equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to and the 90-day period beginning on the effective date of any Demand Registration or Piggyback Registration for a public offering to be underwritten on a firm commitment basis in which Registrable Securities are included (except as part of such underwritten registration), unless the underwriters managing the registered public offering request otherwise, in which case, each holder of Registrable Securities (other than the BRS Investors) agrees to be bound by a holdback of up to a 180 day period beginning the effective date of any such Demand Registration or Piggyback Registration.
(b) The Company agrees (i) not to effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to and during the 180-day period beginning on the effective date of any underwritten Demand Registration or Piggyback Registration (except as part of such underwritten registration, or pursuant to registrations on Forms S-4 or S-8 or any similar or successor forms or in connection with a Unit Offering Registration), unless the underwriters managing the registered public offering otherwise agree, and (ii) to cause each holder of at least 5% (on a fully diluted basis) of its Common Stock, or any securities convertible into or exchangeable or exercisable for Common Stock, purchased from the Company at any time after the date of this Agreement (other than in a registered public offering) to agree not to effect any public sale or distribution (including sales pursuant to Rule 144) of any such securities during such period (except as part of such underwritten registration, if otherwise permitted), unless the underwriters managing the registered public offering otherwise agree.
5. REGISTRATION PROCEDURES. Whenever the holders of Registrable Securities have requested that any Registrable Securities be registered pursuant to this Agreement, the Company will use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company will as expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company will furnish to the counsel selected by the holders of a majority of the Registrable Securities covered by such registration statement copies of all such documents proposed to be filed);
(b) prepare and file with the Securities and Exchange Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than nine months and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement;
(c) if requested by the holders of a majority of the BRS Registrable Securities in connection with any Demand Registration requested by such holders, use its commercially reasonable efforts to cause to be included in such registration Common Stock having an aggregate value (based on the mid-point of the proposed offering price range specified in the registration statement used to offer such securities) of up to $30 million, to be offered in a primary offering of the Company's securities contemporaneously with such offering of Registrable Securities;
(d) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as
such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller;
(e) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller (provided that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subsection, (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process (i.e., service of process which is not limited solely to securities law violations) in any such jurisdiction);
(f) notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company will promptly prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading;
(g) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed and, if not so listed, to be listed on the National Association of Securities Dealers Automated Quotations National Market System ("NASDAQ") and, if listed on the NASDAQ, use its best efforts to secure designation of all such Registrable Securities covered by such registration statement as a NASDAQ "national market system security" within the meaning of Rule 11Aa2-1 of the Securities and Exchange Commission or, failing that, to secure NASDAQ authorization for such Registrable Securities and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such Registrable Securities with the National Association of Securities Dealers;
(h) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement;
(i) enter into such customary agreements (including underwriting agreements in customary form) and take all such other actions as the holders of a majority of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including, without limitation, effecting a stock split or a combination of shares);
(j) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement;
(k) otherwise use its best efforts to comply with all applicable rules and regulations of the Securities and Exchange Commission, and make available to its security holders, as soon as reasonably practicable, an earning statement covering the period of at least twelve months beginning with the first day of the Company's first full calendar quarter after the effective date of the registration statement, which earning statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(l) permit any holder of Registrable Securities which holder, in its sole and exclusive judgment, might be deemed to be an underwriter or a controlling person of the Company, to participate in the preparation of such registration or comparable statement and to require the insertion therein of material, furnished to the Company in writing, which in the reasonable judgment of such holder and its counsel should be included;
(m) in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any common stock included in such registration statement for sale in any jurisdiction, the Company will use its reasonable best efforts promptly to obtain the withdrawal of such order;
(n) use its best efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the sellers thereof to consummate the disposition of such Registrable Securities; and
(o) obtain a "cold comfort" letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by "cold comfort" letters as the holders of a majority of the Registrable Securities being sold reasonably request.
If any such registration or comparable statement refers to any holder by name or otherwise as the holder of any securities of the Company and if, in its sole and exclusive judgment, such holder is or might be deemed to be a controlling person of the Company, such holder shall have the right to require (i)the insertion therein of language, in form and substance satisfactory to such holder and presented to the Company in writing, to the effect that the holding by such holder of such securities is not to be construed as a recommendation by such holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such holder will assist in meeting any future financial requirements of the Company, or (ii)in the event that such reference to such holder by name or otherwise is not required by the Securities Act or any similar Federal statute then in force, the deletion of the reference to such holder; provided, that with respect to this clause (ii) such holder shall furnish to the Company an opinion of counsel to such effect, which opinion and counsel shall be reasonably satisfactory to the Company.
6. REGISTRATION EXPENSES.
(a) All Registration Expenses will be borne by the Company.
(b) Unless otherwise agreed to in writing by the Company, in connection with each Demand Registration and each Piggyback Registration, the Company will reimburse the holders of Registrable Securities covered by such registration for the reasonable fees and disbursements of one counsel chosen by the holders of a majority of the Registrable Securities.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify, to the extent permitted by law, each holder of Registrable Securities, its partners, members, officers and directors and each Person who controls such holder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses arising out of or based upon any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse such holder, partners, members, director, officer or controlling person for any legal or other expenses reasonably incurred by such holder, partner, member, director, officer or controlling person in connection with the investigation or defense of such loss, claim, damage, liability or expense, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly for use therein or by such holder's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such holder with a sufficient number of copies of the same. In connection with an underwritten offering, the Company will indemnify such underwriters, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of Registrable Securities.
(b) In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder will furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the extent permitted by law, will indemnify the Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of material fact relating to such holder and provided by such holder to the Company or the Company's agent contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished in writing by such holder; provided, that the obligation to indemnify will be individual to each holder and will be limited to the net amount of proceeds received by such holder from the sale of Registrable Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will
(i) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification (provided that failure to give such
notice shall not affect the right of such Person to indemnification hereunder)
and (ii) unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist with
respect to
such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim.
(d) The indemnification provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and will survive the transfer of securities. The Company also agrees to make such provisions, as are reasonably requested by any indemnified party, for contribution to such party in the event the Company's indemnification is unavailable for any reason.
8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may participate in any registration hereunder which is underwritten unless such Person (a) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements and (b) completes and executes all customary questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements; provided, that no holder of Registrable Securities included in any underwritten registration shall be required to make any representations or warranties to the Company or the underwriters other than representations and warranties regarding such holder and such holder's intended method of distribution.
9. RULE 144 REPORTING. With a view to making available to the holders of Registrable Securities the benefits of certain rules and regulations of the Securities and Exchange Commission which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to:
(a) make and keep current public information available, within the meaning of Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times after it has become subject to the reporting requirements of the Exchange Act;
(b) file with the Securities and Exchange Commission, in a timely manner, all reports and other documents required of the Company under the Securities Act and Exchange Act (after it has become subject to such reporting requirements); and
(c) so long as any party hereto owns any Registrable
Securities, furnish to such Person forthwith upon request, a written statement
by the Company as to its compliance with the reporting requirements of said Rule
144 (at any time commencing 90 days after the effective date of the first
registration filed by the Company for an offering of its securities to the
general public), the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements); a copy of the most recent
annual or quarterly report of the
Company; and such other reports and documents as such Person may reasonably request in availing itself of any rule or regulation of the Securities and Exchange Commission allowing it to sell any such securities without registration.
10. NOTICES. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given when delivered personally, mailed by certified or registered mail, return receipt requested and postage prepaid, or sent via a nationally recognized overnight courier, or sent via facsimile to the recipient. Such notices, demands and other communications will be sent to the address indicated below:
To the Company:
Town Sports International Holdings, Inc.
888 Seventh Avenue, Suite 1801
New York, New York 10106
Attention: Alex Alimanestianu
Facsimile No.: (212) 664-8906
With copies to:
Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street, 29th Floor
New York, New York 10022
Attention: Rice Edmonds
Facsimile No.: (212) 521-3799
Kirkland & Ellis LLP
Citigroup Center
153 East 53rd Street
New York, New York 10022-4611
Attention: Eunu Chun, Esq.
Facsimile No.: (212) 446-4900
To BRS or any BRS Investor:
c/o Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street, 29th Floor
New York, New York 10022
Attention: Rice Edmonds
Facsimile No.: (212) 521-3799
With a copy to (which shall not constitute notice to BRS or any BRS Investor):
Kirkland & Ellis LLP Citigroup Center 153 East 53rd Street New York, New York 10022-4611 Attention: Eunu Chun, Esq.
Facsimile No.: (212) 446-4900
To any Farallon Investor:
c/o Farallon Capital Management, L.L.C.
One Maritime Plaza, Suite 1325
San Francisco, California 94111
Attention: Mark Wehrly
Facsimile No.: (415)421-2133
With a copy to (which shall not constitute notice to any Farallon Investor):
Richards Spears Kibbe & Orbe LLP World Financial Center, 29th Floor New York, New York 10281 Attention: Jahangier Sharifi, Esq.
Facsimile No.: (212) 530-1801
To any Rosewood Investor:
Rosewood Capital Partners, L.P.
One Maritime Plaza
Suite 1330
San Francisco, California 94111
Attention: Kyle A. Anderson
Facsimile No.: (415) 362-1192
With a copy to (which shall not constitute notice to any Rosewood Investor):
Preston Gates & Ellis, LLP
One Maritime Plaza
Suite 2400
San Francisco, California 94111
Attention: Lawrence B. Low, Esq.
Facsimile No.: (415) 788-8819
To Canterbury Mezzanine:
Canterbury Mezzanine Capital, L.P.
600 Fifth Avenue, 23rd Floor
New York, New York 10020
Attention: Patrick N.W. Turner
Facsimile No.: (212)332-1584
With a copy to (which shall not constitute notice to Canterbury Mezzanine:
Loeb & Loeb LLP 345 Park Avenue New York, New York 10154 Attention: Stan Johnson, Esq.
Facsimile No.: (212) 407-4990
To Canterbury Detroit:
Canterbury Detroit Partners, L.P.
600 Fifth Avenue, 23rd Floor
New York, New York 10020
Attention: Patrick N.W. Turner
Facsimile No.: (212)332-1584
With a copy to (which shall not constitute notice to Canterbury Detroit):
Loeb & Loeb LLP 345 Park Avenue New York, New York 10154 Attention: Stan Johnson, Esq.
Facsimile No.: (212) 407-4990
To CapitalSource:
CapitalSource Holdings LLC
4445 Willard Avenue, 12th Floor
Chevy Chase, Maryland 20815
Attention: Corporate Finance Group, Managing Director
Corporate Finance Group, General Counsel
Facsimile No.: (301) 841-2360 and (301) 841-2380
To any of the Executives Alessi, or Arnold:
c/o Town Sports International, Inc.
888 Seventh Avenue, 25th Floor
New York, New York 10106
Facsimile No.: (212) 664-8906
or such other address or to the attention of such other Person as the recipient party shall have specified by prior written notice to the sending party.
11. MISCELLANEOUS.
(a) No Inconsistent Agreements. The Company will not enter into any agreement which is inconsistent with or violates the rights granted to the holders of Registrable Securities in this Agreement.
(b) Remedies. Any Person having rights under any provision of this Agreement will be entitled to enforce such rights specifically to recover damages caused by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or other security) for specific performance and for other injunctive relief in order to enforce or prevent violation of the provisions of this Agreement.
(c) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may be amended or waived only upon the prior written consent of the Company and holders of at least 70% of the Registrable Securities; provided, no amendment or waiver which materially and adversely affects the holders of (i) BRS Registrable Securities, (ii) Farallon Registrable Securities, (iii) Canterbury Registrable Securities, (iv) CapitalSource Registrable Securities or (v) Executive Registrable Securities, shall be effective against such holders of (i) BRS Registrable Securities, (ii) Farallon Registrable Securities, (iii) Canterbury Registrable Securities, (iv) CapitalSource Registrable Securities or (v) Executive Registrable Securities unless such amendment is approved by the holders of a majority of (i) BRS Registrable Securities, (ii) Farallon Registrable Securities, (iii) Canterbury Registrable Securities, (iv) CapitalSource Registrable Securities or (iv) Executive Registrable Securities, respectively, so affected. The amendment of this Agreement to add a party hereto and to grant such party registration rights pro rata with the existing parties to this Agreement shall not be deemed an amendment that "materially and adversely affects" any class of Registrable Securities.
(d) Successors and Assigns. All covenants and agreements in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. In addition, whether or not any express assignment has been made, the provisions of this Agreement which are for the benefit of purchasers or holders of Registrable Securities are also for the benefit of, and enforceable by, any subsequent holder of Registrable Securities.
(e) Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.
(f) Counterparts. This Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same Agreement.
(g) Waiver of Jury Trial. Each of the parties hereto waives any right it may have to trial by jury in respect of any litigation based on, arising out of, under or in connection with this Agreement or any course of conduct, course of dealing, verbal or written statement or action of any party hereto.
(h) Governing Law. All questions concerning the construction, validity and interpretation of this Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.
(i) Time is of the Essence; Computation of Time. Time is of the essence for each and every provision of this Agreement. Whenever the last day for the exercise of any privilege or the discharge of any duty hereunder shall fall upon a Saturday, Sunday, or any date on which banks in New York, New York are authorized to be closed, the party having such privilege or duty may exercise such privilege or discharge such duty on the next succeeding day which is a regular business day.
(j) Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.
(k) Entire Agreement. This Agreement embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supercedes and preempts any prior understandings, agreements, or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way including, without limitation, the Existing TSI Registration Rights Agreement which is hereby terminated in its entirety by the parties hereto and shall have no further force and effect as of the date hereof.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
TOWN SPORTS INTERNATIONAL, INC.
By: /s/ Richard Pyle
------------------------------------
Name: Richard Pyle
Title: Chief Financial Officer
|
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
By: /s/ Richard Pyle
------------------------------------
Name: Richard Pyle
Title: Chief Financial Officer
|
BRUCKMANN, ROSSER, SHERRILL & CO., L.P.
By: BRS Partners, Limited Partnership
Its: General Partner
By: BRSE Associates, Inc.
Its: General Partner
By: /s/ Paul Kaminski
------------------------------------
Name: Paul Kaminski
Title: Secretary
|
FARALLON CAPITAL PARTNERS, L.P.
By: Farallon Partners, L.L.C.
Its: General Partner
By: /s/ Monica R. Landry
------------------------------------
Name: Monica R. Landry
Title: Manager
|
FARALLON CAPITAL INSTITUTIONAL
PARTNERS, L.P.
By: Farallon Partners, L.L.C.
Its: General Partner
By: /s/ Monica R. Landry
------------------------------------
Name: Monica R. Landry
Title: Managing Member
|
RR CAPITAL PARTNERS, L.P.
By: Farallon Partners, L.L.C.
Its: General Partner
By: /s/ Monica R. Landry
------------------------------------
Name: Monica R. Landry
Title: Managing Member
|
FARALLON CAPITAL INSTITUTIONAL
PARTNERS II, L.P.
By: Farallon Partners, L.L.C.
Its: General Partner
By: /s/ Monica R. Landry
------------------------------------
Name: Monica R. Landry
Title: Managing Member
|
CANTERBURY DETROIT PARTNERS, L.P.
By: Canterbury Detroit, LLC
Its: General Partner
By: /s/ Patrick Turner
------------------------------------
Name: Patrick Turner
Title: Manager
|
CANTERBURY MEZZANINE CAPITAL, L.P.
By: Canterbury Capital, LLC
Its: General Partner
By: /s/ Patrick Turner
------------------------------------
Name: Patrick Turner
Title: Manager
|
ROSEWOOD CAPITAL, L.P.
By: /s/ Kevin Reilly
------------------------------------
Name: Kevin Reilly
Title: Principal
|
ROSEWOOD CAPITAL IV, L.P.
By: /s/ Kevin Reilly
------------------------------------
Name: Kevin Reilly
Title: Principal
|
ROSEWOOD CAPITAL IV ASSOCIATES, L.P.
By: /s/ Kevin Reilly
------------------------------------
Name: Kevin Reilly
Title: Principal
|
CAPITALSOURCE HOLDINGS LLC
By: /s/ Joseph Turitz
------------------------------------
Name: Joseph Turitz
Title: General Counsel
/s/ Keith Alessi
----------------------------------------
Keith Alessi
|
/s/ Paul Arnold ---------------------------------------- Paul Arnold |
[BRS INVESTOR SIGNATURE PAGE]
/s/ Stephen Sherrill ---------------------------------------- STEPHEN SHERRILL, as Attorney-in-Fact for each of the following Investors: |
Bruce Bruckmann Elizabeth McShane Beverly Place D. Bruckmann BCB Partnership NAZ Partnership Harold O. Rosser Virgil Sherrill Stephen Sherrill Nancy Zweng Paul D. Kaminski
Merrill Lynch Pearce Fenner & Smith, Custodian for the Benefit of Paul D.
Kaminski IRA
[EXECUTIVE SIGNATURE PAGE]
/s/ Mark Smith ----------------------------------------- MARK SMITH /s/ Robert Giardina ----------------------------------------- ROBERT GIARDINA /s/ Richard Pyle ----------------------------------------- RICHARD PYLE /s/ Alexander Alimanestianu ----------------------------------------- ALEXANDER ALIMANESTIANU /s/ Debbie Smith ----------------------------------------- DEBBIE SMITH /s/ Carol Cornbill ----------------------------------------- CAROL CORNBILL /s/ Edward Trainor ----------------------------------------- EDWARD TRAINOR /s/ Robert Calvo ----------------------------------------- ROBERT CALVO /s/ Maggie Stevens ----------------------------------------- MAGGIE STEVENS /s/ Ray Dewhirst ----------------------------------------- RAY DEWHIRST /s/ Nina Duchaine ----------------------------------------- NINA DUCHAINE |
[EXECUTIVE SIGNATURE PAGE]
/s/ Heinz Ritschard ------------------------------------------ HEINZ RITSCHARD /s/ Peter Bazzell ------------------------------------------ PETER BAZZELL /s/ Felicia Bachiccio ------------------------------------------ FELICIA BACHICCIO |
EXHIBIT 10.6
EXECUTION AGREEMENT
TAX SHARING AGREEMENT
This Tax Sharing Agreement (the "Agreement"), dated as of February 4, 2004, is made by and among Town Sports International Holdings, Inc., a Delaware corporation ("Holdings"), Town Sports International, Inc., a New York corporation ("TSI"), and the other signatories to this Agreement (the "Subsidiaries").
WHEREAS, Holdings is the common parent corporation of an affiliated group of corporations within the meaning of Section 1504(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, TSI is a member of the affiliated group of which Holdings is the common parent corporation, and each of the Subsidiaries is a wholly-owned subsidiary of TSI; and
WHEREAS, Holdings, TSI and the Subsidiaries will file consolidated income tax returns as required by Section 1501 of the Code and similar laws of other jurisdictions; and
WHEREAS, Holdings, TSI and the Subsidiaries desire to agree upon a method for determining the financial consequences to each party resulting from the filing of a consolidated income tax return; and
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereby agree as follows:
1. DEFINITIONS.
(a) For purposes of this Agreement, the terms set forth below shall have the following meanings.
(i) "Alternative Minimum Tax" shall mean the tax imposed by Section 55(a) of the Code.
(ii) "Consolidated Federal Tax Liability" shall mean, with respect to any taxable year, the Alternative Minimum Tax and Regular Tax to be actually paid by the Holdings Group with respect to such taxable year (without taking into account any carry-backs of tax attributes from later taxable years).
(iii) The "Federal Tax Liability" of any Subgroup shall mean, with respect to any taxable year, the sum of the Subgroup's liability for Regular Tax and for Alternative Minimum Tax for such taxable year, and any interest, penalties, and other additions to such taxes for such taxable year, computed as if the Subgroup were not part of the Holdings Group, but rather were a separate affiliated group of corporations filing a consolidated United States federal income tax return pursuant to Section 1501 of the Code. Such computation shall be made (A) without regard to the income, deductions (including net operating loss and capital loss deductions) and credits in any year of any member of the Holdings Group which is not a member of the Subgroup, (B) with regard to net operating loss and capital loss carry-forwards from earlier years (but not carry-backs from later years) of the Subgroup, (C) with regard to the
minimum tax credits of the Subgroup and (D) as though the highest rate of tax specified in subsection (b) of Section 11 of the Code were the only Regular Tax rate applicable to the Subgroup.
(iv) "Holdings Group" shall mean Holdings, TSI and the Subsidiaries and any other corporation that, from time to time, joins with Holdings in the filing of a consolidated United States federal income tax return.
(v) "Regular Tax" shall mean the tax imposed by Section 11 of the Code.
(vi) "Subgroup" shall be comprised of any member of the Holdings Group (other than Holdings) and its direct corporate subsidiaries that would be eligible, from time to time, to join with such member in the filing of a consolidated United States federal income tax return if such member were not a member of the Holdings Group.
(vii) "Subgroup Additional Tax Amount" shall mean the excess of (A) the sum of a Subgroup's Federal Tax Liability for the period beginning when such Subgroup entered the Holdings Group and ending in the taxable year at issue over (B) the sum of such Subgroup's Subgroup Payment for the period beginning when such Subgroup entered the Holdings Group and ending in the taxable year at issue.
(viii) "Subgroup Parent" means the corporation that is the controlling member of a Subgroup. In the case of a Subgroup that consists of a single corporation, Subgroup Parent means that corporation.
(b) For all purposes of this Agreement, unless the context otherwise requires, the definitions of terms not defined herein shall be determined by reference to applicable law.
2. UNITED STATES FEDERAL INCOME TAXES.
(a) References. All references in this Section 2 to taxes or matters related to taxes are references to United States federal income taxes and related United States federal income tax matters.
(b) Tax Sharing.
(i) With respect to any taxable year of each Subgroup, each Subgroup Parent shall pay to Holdings an amount equal to the lesser of (A) the Subgroup's Federal Tax Liability or (B) the amount equal to the product of the Consolidated Federal Tax Liability for such Taxable year and a fraction (1) the numerator of which is the taxable income of such Subgroup for such taxable year (or zero, if such taxable income is negative), where the taxable income is calculated on the basis of the assumption that such Subgroup had filed separate federal income tax returns for such taxable year and all prior years and (II) the denominator of which is the sum of the taxable income for such taxable year of each Subgroup of the Holdings Group which has positive taxable income for such taxable year, where taxable income of a Subgroup of the Holdings Group is calculated on the basis of the assumption that such Subgroup had filed a separate federal income tax return for such taxable year and all prior taxable years. The actual
amount of tax required to be paid by any Subgroup pursuant to the preceding sentence is hereinafter referred to as the "Subgroup Payment."
(ii) In the event that the Consolidated Federal Tax
Liability for any taxable year exceeds the sum of the Subgroup Payments of the
Subgroups for such year (such excess hereinafter referred to as the "Additional
Tax Amount"), Holdings may collect from each Subgroup an amount equal to the
lesser of (A) the Subgroup Additional Tax Amount of such Subgroup and (B) an
amount equal to the product of the Additional Tax Amount and a fraction (I) the
numerator of which is the Subgroup Additional Tax Amount of such Subgroup and
(II) the denominator of which is the sum of the Subgroup Additional Tax Amounts
for all Subgroups.
(c) Estimated Payments. Not later than thirty days prior to each date on which an estimated federal income tax installment is due (a "Tax Payment Date"), Holdings shall determine, and notify each Subgroup Parent of, (i) the amount of the applicable required installment of the required annual payment of the Holdings Group under Section 6655(d) of the Code and (ii) the amount of such required installment calculated solely by reference to the Subgroup consistent with the methodology under Section 2(b) of this Agreement (the "Subgroup Estimated Payment"). Each Subgroup Parent shall then pay to Holdings, on (but no earlier than) the date which is three business days prior to such Tax Payment Date, the Subgroup Estimated Payment thus determined.
(d) Payment of Taxes at Year-End.
(i) Holdings shall determine, and notify each Subgroup Parent of, the Subgroup Payment within 60 days following the end of the taxable year for which the payment is to be made. On (but no earlier than) the date which is three business days prior to the last date prescribed by law for payment of the consolidated United States federal income tax liability of the Holdings Group for such year, each Subgroup Parent shall pay to Holdings an amount equal to the excess, if any, of the Subgroup Payment over the total Subgroup Estimated Payments with respect to such taxable year. A similar rule shall apply to the extent the amount of the Subgroup Payment determined within the 60-day period specified in this clause (i) is adjusted at or prior to the time at which the consolidated federal income tax return for such year is filed.
(ii) If, as a result of the operation of Section 2(c), the aggregate amount of the Subgroup Payments for a Subgroup for a given taxable year is greater than the applicable Subgroup Payment, then Holdings shall promptly remit the excess to such Subgroup Parent. A similar rule shall apply to the extent the amount of the Subgroup Payment determined within the 60-day period specified in clause (i) of this Section 2(d) is adjusted at or prior to the time at which the consolidated federal income tax return for such year is filed. If Holdings shall fail to remit such excess, the applicable Subgroup Parent may offset such excess against any future payments due from such Subgroup Parent to Holdings under this Agreement (such right to offset not limiting any other rights a Subgroup Parent may have as a result of such failure).
(e) Treatment of Adjustments. If any adjustment (including an adjustment resulting in a refund of tax) is made in a tax return of the Holdings Group after the filing thereof, in which income or loss of any Subgroup is included, then at the time the adjustment is agreed to by Holdings or becomes final and nonappealable as a matter of law, the Subgroup Parent shall pay
to Holdings or Holdings shall pay to the Subgroup Parent, as the case may be, the difference between all payments actually made under Sections 2(b)-2(d) with respect to the taxable year covered by such tax return and all payments that would have been made under Sections 2(b)-2(d) taking such adjustment into account, together with any penalties and interest actually paid or received.
(f) Treatment of Refunds. If the Holdings Group carries back a net operating loss or capital loss generated by any Subgroup on a stand-alone basis and thereby obtains a refund of a prior year's tax, or otherwise receives a refund of a prior year's tax, Holdings shall pay such refund to the Subgroup Parent from which such refund originates.
(g) Preparation of Returns. So long as the Holdings Group elects to file consolidated federal income tax returns as permitted by Section 1501 of the Code, Holdings shall prepare and timely file such returns and any other returns, documents or statements required to be filed with the Internal Revenue Service (the "IRS") with respect to the determination of the federal income tax liability of the Holdings Group. Each member of the Holdings Group appoints Holdings as its agent, as long as such corporation is a member of the Holdings Group, for purposes of filing such consolidated federal income tax returns, making any election or application, or taking any action in connection therewith on behalf of the members of the Holdings Group. Each member of the Holdings Group consents to the filing of such returns and the making of such elections and application.
(h) Cooperation. Holdings, TSI and each Subsidiary shall cooperate in the filing of any consolidated federal income tax returns for the Holdings Group by maintaining such books and records and providing such information as may be necessary or useful in the filing of such returns and executing any documents and taking any actions which Holdings or any member of the Holdings Group may reasonably request in connection therewith. Holdings and each member of the Holdings Group will provide one another with such information concerning such returns and the application of this Agreement as Holdings or such member may reasonably request. Holdings shall preserve all records relating to taxes for which any Subgroup Parent is liable hereunder until the expiration of the applicable statute of limitations and shall make such records available to such Subgroup Parent upon the Subgroup Parent's reasonable request.
(i) No Application to Other Federal Taxes. Without limitation of the other provisions of this Agreement, any United States taxes, other than those imposed by Sections 11 and 55 of the Code, for which the Holdings Group may become liable shall not be subject to this Agreement.
(j) Payment of Tax; Indemnification. Holdings will timely pay or discharge, or cause to be timely paid or discharged, the consolidated federal income tax liability of the Holdings Group for each taxable year of the Holdings Group. Holdings will defend, indemnify and hold harmless each member of the Holdings Group from and against all liability relating to federal income taxes (including interest, penalties and additions to tax), and all costs and expenses described in paragraph 4 hereof, for each taxable year except to the extent that a Subgroup Parent within the Holdings Group has agreed to make a payment in respect of such liability under the provisions of this Agreement which payment has not been made.
3. STATE AND LOCAL TAXES. If any tax based on or measured by net income imposed by any state or local government for any taxable period is determined by combining or consolidating all or part of the income, losses, properties, payrolls, sales or other attributes of any Subgroup with those of Holdings, whether or not a combined or consolidated return is filed with such state or local government, the applicable Subgroup Parent shall make payments to Holdings in satisfaction of such state or local tax, and Holdings shall make payments to the Subgroup Parent with respect to such tax, according to the same general sharing provisions as described above in Sections 2(b) through 2(e). If any refund is received from any such state or local government, such refund shall be paid to the Subgroup Parent according to the same general sharing provisions as described above in Sections 2(e) and 2(f).
4. TERM. The term of this Agreement shall commence as of the date hereof, for the taxable year including the date hereof and for which a consolidated federal income tax return for the Holdings Group is filed. This Agreement shall expire with respect to any member of the Holdings Group upon the date on which it shall cease to be a subsidiary corporation includible in a consolidated return of the Holdings Group for United States federal income tax purposes; provided, however, that all rights and obligations arising hereunder with respect to a taxable period ended at or prior to expiration shall survive until they are fully effectuated or performed.
5. SUCCESSORS. This agreement shall be binding on and inure to the benefit of any successor, by merger, acquisition of assets or otherwise, to any of the parties hereto (including but not limited to any successor of Holdings or any member of the Holdings Group succeeding to the tax attributes of such party under Section 381 of the Code), to the same extent as if such successor had been an original party hereto. If any corporation other than the members of the Holdings Group as of the date hereof joins with Holdings in the filing of a consolidated United States federal income tax return after the date hereof, then Holdings shall cause such corporation to sign a joinder agreement and become bound by the terms hereof.
6. AUTHORIZATION, ETC. Each of the parties hereto hereby represents and warrants that it has the power and authority to execute, deliver and perform this Agreement, that this Agreement has been duly authorized by all necessary corporate action on the part of such party, that this Agreement constitutes a legal, valid and binding obligation of each such party and that the execution, delivery and performance of this Agreement by such party does not contravene or conflict with any provision of law or of its charter or bylaws or any agreement, instrument or order binding on such party.
7. SECTION CAPTIONS. Section captions used in this Agreement are for convenience and reference only and shall not affect the construction of this Agreement.
8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO LAWS AND PRINCIPLES RELATING TO CONFLICTS OF LAW.
9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement.
10. WAIVERS AND AMENDMENTS. This Agreement shall not be waived, amended or otherwise modified except in writing, duly executed by all of the parties hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this Tax Sharing Agreement to be executed by a duly authorized officer as of the date first above written.
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
By: /s/ Richard Pyle
---------------------------------
Name: Richard Pyle
Title: Chief Financial Officer
|
TOWN SPORTS INTERNATIONAL, INC.
By: /s/ Richard Pyle
---------------------------------
Name: Richard Pyle
Title: Chief Financial Officer
|
TSI ALEXANDRIA, LLC,
TSI ALLSTON, INC.,
TSI ANDOVER, INC.,
TSI ARDMORE, LLC,
TSI ARTHRO-FITNESS SERVICES, INC.,
TSI ASTORIA, INC.
TSI BATTERY PARK, INC.,
TSI BETHESDA, LLC,
TSI BROADWAY, INC.,
TSI 217 BROADWAY, INC.,
TSI BROOKLYN BELT, INC.,
TSI BRUNSWICK, INC.,
TSI BULFINCH, INC.,
TSI CASH MANAGEMENT, INC.,
TSI CENTRAL SQUARE, INC.,
TSI CENTREVILLE, LLC,
TSI CHERRY HILL, LLC,
TSI CHEVY CHASE, INC.,
TSI CLARENDON, LLC,
TSI COBBLE HILL, INC.,
TSI COLONIA, LLC,
TSI COMMACK, INC.,
TSI CONNECTICUT AVENUE, INC.,
By: /s/ Richard Pyle
---------------------------
Name: Richard Pyle
Title: Chief Financial Officer
|
TSI COPLEY, INC.,
TSI COURT STREET, INC.,
TSI CROTON, INC.,
TSI DANBURY, INC.,
TSI DANVERS, INC.,
TSI DOWNTOWN CROSSING, INC.,
TSI DUPONT CIRCLE, INC.,
TSI DUPONT II, INC.,
TSI EAST CAMBRIDGE, INC.,
TSI EAST MEADOW, INC.,
TSI EAST 23, INC.,
TSI EAST 31, INC.,
TSI EAST 34, INC.,
TSI EAST 36, INC.
TSI EAST 41, INC.,
TSI EAST 51, INC.,
TSI EAST 59, INC.,
TSI EAST 76, INC.,
TSI EAST 86, INC.,
TSI EAST 91, INC.,
TSI F STREET, INC.,
TSI FAIRFAX, LLC,
TSI FENWAY, INC.,
TSI FIFTH AVENUE, INC.,
TSI FIRST AVENUE, INC.,
TSI FOREST HILLS, INC.,
TSI FORT LEE, LLC,
TSI FRAMINGHAM, INC.,
TSI FRANKLIN (MA), INC.,
TSI FRANKLIN PARK, LLC,
TSI FREEHOLD, LLC,
TSI GALLERY PLACE, INC.,
TSI GARDEN CITY, INC.,
TSI GERMANTOWN, LLC,
TSI GARDEN CITY, INC.,
TSI GERMANTOWN, LLC,
TSI GLOVER, INC.,
TSI GRAND CENTRAL, INC.,
TSI GREAT NECK, INC.,
TSI GREENWICH, INC.,
TSI HERALD, INC.,
By: /s/ Richard Pyle
-----------------------------
Name: Richard Pyle
Title: Chief Financial Officer
|
TSI HIGHPOINT, LLC,
TSI HOBOKEN, LLC,
TSI HOLDINGS (CIP), INC.,
TSI HOLDINGS (DC), INC.,
TSI HOLDINGS (IP), LLC,
TSI HOLDINGS (MA), INC.,
TSI HOLDINGS (MD), INC.,
TSI HOLDINGS (NJ), INC.,
TSI HOLDINGS (PA), INC.,
TSI HOLDINGS (VA), INC.,
TSI HUNTINGTON, INC.,
TSI INSURANCE, INC.,
TSI INTERNATIONAL, INC.,
TSI IRVING PLACE, INC.,
TSI JERSEY CITY, LLC,
TSI K STREET, INC.,
TSI LARCHMONT, INC.,
TSI LEXINGTON (MA), INC.,
TSI LINCOLN, INC.,
TSI LIVINGSTON, LLC,
TSI LONG BEACH, INC.,
TSI LYNNFIELD, INC.,
TSI M STREET, INC.,
TSI MADISON, INC.,
TSI MAHWAH, LLC,
TSI MAMARONECK, INC. ,
TSI MARKET STREET, LLC,
TSI MARLBORO, LLC
TSI MATAWAN, LLC,
TSI MONTCLAIR, LLC,
TSI MURRAY HILL, INC.,
TSI NANUET, INC.,
TSI NASHUA, LLC,
TSI NATICK, INC.,
TSI NEWARK, LLC,
TSI NEWBURY STREET, INC.,
TSI NORTH BETHESDA, LLC,
TSI NORWALK, INC.,
TSI OCEANSIDE, INC.,
TSI OLD BRIDGE, LLC,
TSI PARSIPPANY, LLC,
By: /s/ Richard Pyle
-------------------------------
Name: Richard Pyle
Title: Chief Financial Officer
|
TSI PLAINSBORO, LLC,
TSI PRINCETON, LLC,
TSI RAMSEY, LLC,
TSI READE STREET, INC.,
TSI RIDGEWOOD, LLC,
TSI RITTENHOUSE, LLC,
TSI RODIN PLACE, LLC,
TSI RYE, INC.,
TSI SCARSDALE, INC.,
TSI SEAPORT, INC.,
TSI SHERIDAN, INC.,
TSI SILVER SPRING, LLC,
TSI SOCIETY HILL, LLC,
TSI SOHO, INC.,
TSI SOMERSET, LLC,
TSI SOUTH PARK SLOPE, INC.,
TSI SPRINGFIELD, LLC,
TSI STAMFORD DOWNTOWN, INC.,
TSI STAMFORD POST, INC.,
TSI STAMFORD RINKS, INC.,
TSI STATEN ISLAND, INC.,
TSI STERLING, LLC,
TSI SUPPLEMENTS, INC.,
TSI SYOSSET, INC.,
TSI WALL STREET, INC.,
TSI WALTHAM, LLC,
TSI WASHINGTON, INC.,
TSI WATER STREET, INC.,
TSI WELLESLEY, INC.,
TSI WEST CALDWELL, LLC,
TSI WEST NEWTON, INC.,
TSI WEST NYACK, INC.,
TSI WEST SPRINGFIELD, LLC ,
TSI WEST 14, INC.,
TSI WEST 16, INC.,
TSI WEST 23, INC.,
TSI WEST 38, INC.,
TSI WEST 41, INC.,
TSI WEST 44, INC.,
TSI WEST 48, INC.,
TSI WEST 52, INC.,
By: /s/ Richard Pyle
------------------------------
Name: Richard Pyle
Title: Chief Financial Officer
|
TSI WEST 73, INC.,
TSI WEST 76, INC.,
TSI WEST 80, INC.,
TSI WEST 94, INC.,
TSI WEST 125, INC.,
TSI WESTPORT, INC.,
TSI WESTWOOD, LLC,
TSI WEYMOUTH, INC.,
TSI WHITE PLAINS, INC.,
TSI WHITESTONE, INC.,
TSI WOODMORE, INC.
By: /s/ Richard Pyle ------------------------------ Name: Richard Pyle Title: Chief Financial Officer |
EXHIBIT 10.7
FINAL
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
2004 COMMON STOCK OPTION PLAN
ARTICLE I
Purpose of Plan
The 2004 Common Stock Option Plan (the "Plan") of TOWN SPORTS INTERNATIONAL HOLDINGS, INC., a Delaware corporation (the "Company"), adopted by the board of directors of the Company on February 4, 2004, for executive and other key employees of the Company and its Subsidiaries, is intended to advance the best interests of the Company by providing those persons who have a substantial responsibility for its management and growth with additional incentives by allowing them to acquire an ownership interest in the Company and thereby encouraging them to contribute to the success of the Company and to remain in its employ. The availability and offering of stock options under the Plan also increases the Company's ability to attract and retain individuals of exceptional managerial talent upon whom, in large measure, the sustained progress, growth and profitability of the Company depends. The Plan is a compensatory benefit plan within the meaning of Rule 701 of the Securities Act (as defined below) and, unless and until the Common Stock is publicly traded, the issuance of the options and the Common Stock pursuant to the Plan is intended to qualify for the exemption from registration under the Securities Act provided by such Rule 701.
ARTICLE II
Definitions
For purposes of the Plan, except where the context clearly indicates otherwise, the following terms shall have the meanings set forth below:
"Board" shall mean the board of directors of the Company.
"Business Day-" means any day other than a Saturday or Sunday or a day on which commercial banks are required or authorized to close in New York, New York.
"Cause" means any of the following with respect to the Participant: (i) a material breach of the Participant's covenants under this Agreement or any other agreement with the Company or its Subsidiaries (including, without limitation, the Option Agreement, the Stockholders Agreement and the Registration Rights Agreement) not cured within 15 days after delivery of written notice of such breach by the Company; (ii) the commission by the Participant of a felony, a crime involving moral turpitude or other act causing material harm to the standing and reputation of the Company or any of its Subsidiaries; (iii) the Participant's repeated and deliberate failure to comply with the lawful and reasonable written directives of the Board; or (iv) theft or embezzlement of a material amount of money or property of the Company or any of its Subsidiaries, perpetration of fraud, or participation in a fraud, on the Company or any of its Subsidiaries.
"Certificate of Incorporation" means the Company's Certificate of Incorporation as in effect as of the date of adoption hereof, as the same may be amended, restated or modified from time to time.
"Code" means the Internal Revenue Code of 1986, as amended, and any successor statute.
"Committee" shall mean the compensation committee of the Board which may be designated by the Board to administer the Plan or, if for any reason the Board has not designated such a committee, the Board. The Committee, if other than the Board, shall be composed of two or more directors as appointed from time to time by the Board.
"Common Stock" means the Company's Class A Common Stock, par value $0.001 per share (the "Class A Common"), and the Company's Class B Common Stock, par value $0.001 per share (the "Class B Common"), or if such outstanding Common Stock is hereafter changed into or exchanged for different securities of the Company, such other securities.
"Disability" means the inability, due to illness, accident, injury, physical or mental incapacity or other disability, of the Participant to carry out his duties and obligations to the Company or to participate actively in the management of the Company or a Subsidiary of the Company for a period of at least 90 consecutive days or for shorter periods aggregating at least 120 days (whether or not consecutive)during any twelve-month period, as determined by the Board in good faith.
"Executive Stock Agreement" has the meaning set forth in
Section 6.2 hereof.
"Fair Market Value" means, as of any date of determination,
(i) for each share of Common Stock, the average of the closing per share prices
of the sales of the Common Stock on all securities exchanges on which the Common
Stock may at the time be listed, or, if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day the Common Stock is
not so listed, the average of the representative bid and asked per share prices
quoted in the NASDAQ National Market System as of 4:00 P.M., New York time, or,
if on any day the Common Stock is not quoted in the NASDAQ National Market
System, the average of the highest bid and lowest asked per share prices on such
day in the domestic over-the-counter market as reported by the NASDAQ National
Quotation Bureau, Incorporated, or any similar successor organization, in each
such case averaged over a period of 21 trading days consisting of the day as of
which the Fair Market Value is being determined and the 20 consecutive trading
days prior to such day. If at any time the Common Stock is not so listed on any
securities exchange or quoted in the NASDAQ National Market System or the
domestic over-the-counter market, the Fair Market Value will be the fair value
of the Common Stock as determined in good faith by the Board and set forth in a
written notice to the Participant; provided, that if the Participant objects to
such determination in writing within 10 days of receipt of such determination
from the Board, the Fair Market Value shall be determined by an independent
investment banking firm mutually selected by the Board and the Participant; and
the costs of such investment banking firm shall be borne by
the party whose determination is farthest from the determination of such investment banking firm.
"Option Agreement" has the meaning set forth in Section 6.2 hereof.
"Option Shares" means, collectively, (i) all shares of Class A Common issued or issuable upon the exercise of an Option, and (ii) any shares of the Company's capital stock issued with respect to the shares of Common Stock set forth in clause (i) by way of merger, consolidation, reclassification, stock split, reverse stock split, stock dividend or other recapitalization. Option Shares shall continue to be Option Shares in the hands of any holder other than the Participant to whom the related Options were granted (including, without limitation, any Permitted Transferee of such Participant), except for the Company, any Person specified in the related Option Agreement or any transferee in an underwritten public offering registered under the Securities Act. Except as otherwise provided herein, each other holder of Option Shares will succeed to the rights and obligations attributable to the Participant as a holder of Option Shares hereunder.
"Options" shall have the meaning set forth in Article IV hereof.
"Participant" shall mean any executive or other key employee of the Company who has been selected to participate in the Plan by the Committee or the Board.
"Permitted Transferee" means, as to any Person, the "Permitted Transferees" (as defined in the Stockholders Agreement) of such Person.
"Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.
"Registration Rights Agreement" means the Registration Rights Agreement, dated as of February 4, 2004 by and among the Company and certain stockholders of the Company, from time to time party thereto, as the same may be amended, restated or modified from time to time.
"Securities Act" means the Securities Act of 1933, as amended.
"Stockholders Agreement" means the Stockholders Agreement dated as of February 4, 2004 by and among the Company and certain stockholders of the Company from time to time party thereto, as the same may be amended, restated or modified from time to time.
"Subsidiary" means, with respect to any Person, any corporation, partnership, limited liability company association or other business entity of which (i) if a corporation or a limited liability company, a majority of the total voting power of securities entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a partnership, association or other business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a partnership, association or other business entity if such Person or Persons shall be allocated a majority of partnership, association or other business entity gains or losses or shall be or control the managing director or general partner of such partnership, association or other business entity.
ARTICLE III
Administration
The Plan shall be administered by the Committee; provided,
that if for any reason the Committee shall not have been appointed by the Board,
all authority and duties of the Committee under the Plan shall be vested in and
exercised by the Board. Subject to the limitations of the Plan, the Committee
shall have the sole and complete authority to: (i) select Participants, (ii)
grant Options to Participants in such forms and amounts as it shall determine,
(iii) impose such limitations, restrictions and conditions upon such Options as
it shall deem appropriate, (iv) interpret the Plan and adopt, amend and rescind
administrative guidelines and other rules and regulations relating to the Plan,
(v) correct any defect or omission or reconcile any inconsistency in the Plan or
in any Option granted hereunder, and (vi) make all other determinations and take
all other actions necessary or advisable for the implementation and
administration of the Plan. The Committee's determinations on matters within its
authority shall be conclusive and binding upon the Participants, the Company and
all other Persons. All expenses associated with the administration of the Plan
shall be borne by the Company. The Committee may, as approved by the Board and
to the extent permissible by law, delegate any of its authority hereunder to
such persons as it deems appropriate.
ARTICLE IV
Limitation on Aggregate Shares
The number of shares of Common Stock with respect to which options may be granted under the Plan (the "Options") and which may be issued upon the exercise thereof shall not exceed, in the aggregate 162,759 shares; provided, that (i) the type and the aggregate number of shares which may be subject to Options shall be subject to adjustment in accordance with the provisions of Section 6.9 below, and (ii) to the extent any Options expire unexercised or are canceled, terminated or forfeited in any manner without the issuance of Common Stock thereunder, or if any Options are exercised and the shares of Common Stock issued thereunder are repurchased by the Company, such shares shall again be available under the Plan. The 162,759 shares of Common Stock available under the Plan may be either authorized and unissued shares, treasury shares or a combination thereof, as the Committee shall determine.
ARTICLE V
Awards
Section 5.1 Options. The Committee may grant Options to Participants in accordance with this Article V.
Section 5.2 Form of Option. Options granted under this Plan may be
"nonqualified" stock options or "incentive stock options" within the meaning of
Section 422 of the Code or any successor provision as specified by the
Committee; provided, than no incentive stock option may be granted to any Person
who owns more than 10% of the combined voting power of all classes of capital
stock of the Company (a "Ten Percent Holder") except subject to the limitations
set forth in Sections 5.3, 5.4, and 5.7 below and such other statutory
requirements as the Committee determines may be applicable.
Section 5.3 Exercise Price. The Option exercise price per share of Common Stock (the "Exercise Price") shall be fixed by the Committee.
Section 5.4 Exercisability; Vesting. Options shall be exercisable (i) at such time or times as the Committee shall determine at or subsequent to grant, and (ii) only to the extent such Options shall have vested; provided, that any Option intended to be an incentive stock option shall be treated as such only to the extent that the aggregate Fair Market Value of the Common Stock (determined as of the date of the Option grant) with respect to which incentive stock options (but not non-qualified options) are exercisable for the first time by any Participant during any calendar year (under all stock option plans of the Company and its Subsidiaries) does not exceed $100,000. Unless otherwise specified in the Option Agreement or as determined by the Committee, Options will vest on the ninth anniversary of the date of such grant. Any Options which shall have so vested are referred to as "Vested Options", and any Options which have not vested are referred to as the "Unvested Options". In addition, Options shall vest on an accelerated or decelerated basis as the Committee shall determine as specified in any Option Agreement.
Section 5.5 Exercise Procedure. Options shall be exercised in whole or in part by written notice to the Company (to the attention of the Company's Secretary) accompanied by a statement of the Participant that the Participant has read and has been afforded an opportunity to ask questions of management of the Company regarding all financial and other information provided to the participant regarding the Company together with payment in full of an amount (the "Option Price")equal to the product of (i) the applicable Exercise Price for the applicable Options multiplied by (ii) the number of Option Shares to be acquired. Payment of the Exercise Price may be made (i) in cash (including certified check, bank draft or money order or the equivalent thereof acceptable to the Company), (ii) if approved by the Committee prior to exercise (in the case of an incentive stock option, if approved by the Committee in the grant), by delivery of a full recourse promissory note of the Participant bearing interest at a rate not less than the applicable federal rate determined pursuant to Section 1274 of the Code as of the date of purchase or exercise, (iii) by the delivery of shares of Common Stock valued at their Fair Market Value as of the date of exercise as provided in Section 5.6 below, or (iv) in a combination of the foregoing. Unless otherwise specified in the Option grant or as determined by the Committee, no Option may be exercised for a fraction of a share of Common Stock.
Section 5.6 Exchange of Previously Acquired Stock. The Committee, in its discretion and subject to such conditions as the Committee may determine, may permit the Exercise Price for the shares being acquired to be paid, in full or in part, by the delivery to the Company of a number of shares of Common Stock having an aggregate Fair Market Value as of the date of exercise equal to the Exercise Price for the shares being acquired. In the case of incentive stock
options, the Committee shall specify in the Option grant whether the option holder may satisfy the Exercise Price with respect to shares of Common Stock purchased upon exercise of such Option by delivering to the Company shares of previously acquired Common Stock.
Section 5.7 Terms of Options. The Committee shall determine the term of each Option, which term shall in no event exceed ten (10) years from the date of grant. Notwithstanding the foregoing, any Option granted to any Ten Percent Holder shall expire no later than five (5) years from the date on which such Option was granted. In addition, each Option shall be subject to early termination in accordance with Section 6.6 below.
ARTICLE VI
General Provisions
Section 6.1 Conditions and Limitations on Exercise. Options may be made exercisable in one or more installments, upon the happening of certain events, upon the passage of a specified period of time, upon the fulfillment of certain conditions or upon the achievement by the Company of certain performance goals, and subject to such other terms and conditions as the Committee shall decide in each case when the Options are granted.
Section 6.2 Written Agreement. Each Option granted hereunder to a Participant shall be embodied in a written agreement (an "Option Agreement") which shall be signed by the Participant and by the Chairman, the President or the Chief Financial Officer of the Company for and in the name and on behalf of the Company and shall be subject to the terms and conditions of the Plan prescribed in the Option Agreement. In addition, each Participant shall also be required, to the extent not already a party thereto, to execute a joinder to the Stockholders Agreement and the Registration Rights Agreement, and an executive stock agreement (an "Executive Stock Agreement"), which shall collectively provide, among other things, (i) the right of the Company and such other Persons as the Committee shall designate ("Designees") to repurchase from each Participant, and such Participant's transferees, all shares of Common Stock issued or issuable to such Participant on the exercise of an Option in the event of such Participant's termination of employment, (ii) rights of first refusal granted to the Company and Designees, (iii) holdback and other registration right restrictions in the event of a public registration of any equity securities of the Company and (iv) any other terms and conditions which the Committee shall deem necessary and desirable.
Section 6.3 Listing, Registration and Compliance with Laws and Regulations. Options shall be subject to the requirement that if at any time the Committee shall determine, in its discretion, that the listing, registration or qualification of the shares subject to the Options upon any securities exchange or under any state or federal securities or other law or regulation, or the consent or approval of any governmental regulatory body, is reasonably required as a condition to or in connection with the granting of the Options or the issuance or purchase of shares thereunder, no Options may be granted or exercised, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. The holders of such Options shall supply the Company with such certificates, representations and information as the Company shall request and shall otherwise cooperate with the Company in obtaining such listing, registration,
qualification, consent or approval. In the case of officers and other Persons subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, the Committee may at any time impose any limitations upon the exercise of an Option that, in the Committee's discretion, are necessary or desirable in order to comply with such Section 16(b) and the rules and regulations thereunder. To the extent specified in any Option Agreement, if the Company, as part of an offering of securities or otherwise, finds it desirable because of federal or state regulatory requirements to reduce the period during which any Options may be exercised, the Committee, may, in its discretion and without the Participant's consent, so reduce such period on not less than fifteen (15) days written notice to the holders thereof.
Section 6.4 Nontransferability. Options may not be transferred other than by will or the laws of descent and distribution and, during the lifetime of the Participant to whom they were granted, may be exercised only by such Participant (or his legal guardian or legal representative). In the event of the death of a Participant, exercise of Options granted hereunder shall be made only: (i)by the executor or administrator of the estate of the deceased Participant or the Person or Persons to whom the deceased Participant's rights under the Option shall pass by will or the laws of descent and distribution (provided that each beneficiary shall execute and deliver such instruments, documents, agreements or undertakings as the Company shall request); and (ii)to the extent that the deceased Participant was entitled thereto at the date of such Participant's death, unless otherwise provided by the Committee in such Participant's Option Agreement.
Section 6.5 Expiration of Options.
(a) Normal Expiration. In no event shall any part of any Option be exercisable after the date of expiration thereof (the "Expiration Date"), as determined by the Committee pursuant to Section 5.7 above.
(b) Early Expiration Upon Termination of Employment. Except as otherwise provided by the Committee in the applicable Option Agreement pursuant to which Options are granted to any Participant, any portion of a Participant's Option that was not vested and exercisable on the date of the termination of such Participant's employment shall expire and be forfeited as of such date, and any portion of a Participant's Option that was vested and exercisable on the date of the termination of such Participant's employment shall expire and be forfeited 90 days after such date.
Section 6.6 Withholding Tax Requirements. It shall be a condition of the exercise of any Option that the Participant exercising the Option make appropriate payment or other provision acceptable to the Company with respect to any withholding tax requirement arising from such exercise. The amount of withholding tax required, if any, with respect to any Option exercise (the "Withholding Amount") shall be reasonably determined by the Treasurer or other appropriate officer of the Company, and the Participant shall furnish such information as such officer requires to make such determination. If the Company determines that withholding tax is required with respect to any Option exercise, the Company shall notify the Participant of the Withholding Amount, and the Participant shall pay to the Company an amount not less than the Withholding Amount. In lieu of making such payment, the Participant may elect to pay the Withholding Amount by either (i) delivering to the Company a number of Option Shares having an aggregate Fair Market Value as of the "measurement date" (as hereinafter defined) not less
than the Withholding Amount or (ii) directing the Company to withhold (and not
to deliver or issue to the Participant) a number of Option Shares otherwise
issuable upon the exercise of the Option having an aggregate Fair Market Value
as of the measurement date not less than the Withholding Amount. In addition, if
the Committee approves, a Participant may elect pursuant to the prior sentence
to deliver or direct the withholding of Option Shares having an aggregate Fair
Market Value in excess of the minimum Withholding Amount but not in excess of
the Participant's applicable highest marginal combined federal income and state
income tax rate, as estimated in good faith by such Participant. Any fractional
share interests resulting from the delivery or withholding of Option Shares to
meet withholding tax requirements shall be settled in cash. All amounts paid to
or withheld by the Company and the value of all Option Shares delivered to or
withheld by the Company pursuant to this Section 6.6 shall be deposited in
accordance with applicable law by the Company as withholding tax for the
Participant's account. If the Treasurer or other appropriate officer of the
Company determines that no withholding tax is required with respect to the
exercise of any Option (because such Option is an incentive stock option or
otherwise), but subsequently it is determined that the exercise resulted in
taxable income as to which withholding is required (as a result of a disposition
of shares or otherwise), the Participant shall promptly, upon being notified of
the withholding requirement, pay to the Company by means acceptable to the
Company the amount required to be withheld; and at its election the Company may
condition any transfer of shares issued upon exercise of an incentive stock
option upon receipt of such payment. The term "measurement date" as used in this
Section 6.6 shall mean the date on which any taxable income resulting from the
exercise of an Option is determined under applicable federal income tax law.
Section 6.7 Notification of Inquiries and Agreements. Each Participant
and each permitted transferee shall notify the Company in writing within ten
(10) days after the date such Participant or permitted transferee (i) first
obtains knowledge of any Internal Revenue Service inquiry, audit, assertion,
determination, investigation, or question relating in any manner to the value of
Options granted hereunder; (ii) includes or agrees (including, without
limitation, in any settlement, closing or other similar agreement)to include in
gross income with respect to any Option granted under this Plan (A) any amount
in excess of the amount reported on Form 1099 or Form W-2 to such Participant by
the Company, or (B) if no such Form was received, any amount; and (iii)
exercises, sells, disposes of, or otherwise transfers an Option acquired
pursuant to this Plan. Upon request, a Participant or permitted transferee shall
provide to the Company any information or document relating to any event
described in the preceding sentence which the Company (in its sole
discretion)requires in order to calculate and substantiate any change in the
Company's tax liability as a result of such event.
Section 6.8 Adjustments. Except as otherwise provided in any Option Agreement, in the event of a reorganization, recapitalization, stock dividend or stock split, or combination or other change in the shares of Common Stock, the Board or the Committee may or may not, in its discretion, make such adjustments in the number and type of shares authorized by the Plan, the number and type of shares covered by outstanding Options and the Exercise Prices specified therein as may be determined to be appropriate and equitable. The issuance by the Company of shares of stock of any class, or options or securities exercisable or convertible into shares of stock of any class, for cash or property, or for labor or services either upon direct sale, or upon the exercise of rights or warrants to subscribe therefor, or upon exercise or conversion of other
securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock then subject to any Options.
Section 6.9 Employment. Nothing contained in this Plan or in any Option Agreement shall interfere with or limit in any way the right of the Company to terminate any Participant's employment at any time (with or without Cause), nor confer upon any Participant any right to continue in the employ of the Company for any period of time or to continue his present (or any other) rate of compensation, and except as otherwise provided under this Plan or by the Committee in the Option Agreement, in the event of any Participant's termination of employment (including, but not limited to, the termination by the Company without Cause) any portion of such Participant's Option that was not previously vested and exercisable shall expire and be forfeited as of the date of such termination. No employee shall have a right to be selected as a Participant or, having been so selected, to be selected again as a Participant.
Section 6.10 No Rights as Stockholder. No Participant by reason of holding any Option shall have rights as a stockholder with respect to shares of Common Stock subject to Options prior to the date of exercise of such Options and payment in full of the Exercise Price.
Section 6.11 Amendment, Suspension and Termination of Plan. The Board or the Committee may suspend or terminate the Plan or any portion thereof at any time and may amend it from time to time in such respects as the Board or the Committee may deem advisable; provided that no such amendment shall be made without stockholder approval to the extent such approval is required by law, agreement or the rules of any exchange upon which the Common Stock is listed, and no such amendment, suspension or termination shall impair the rights of any Participant under outstanding Options without the consent of such Participant unless Participants holding a majority of the aggregate number of Options (based upon the number of Option Shares to be obtained upon exercise) granted by the Company pursuant to this Plan consent to such amendment in writing and such amendment affects all holders similarly. No Options shall be granted hereunder after the tenth anniversary of the adoption of the Plan.
Section 6.12 Amendment, Modification and Cancellation of Outstanding Options. The Committee may amend or modify any Option in any manner to the extent that the Committee would have had the authority under the Plan initially to grant such Option; provided, that no such amendment or modification shall impair the rights of any Participant under any Option without the consent of such Participant unless Participants holding a majority of the aggregate number of Options (based upon the number of Option Shares to be obtained upon exercise) granted by the Company pursuant to this Plan consent to such amendment in writing and such amendment affects all holders similarly. With the Participant's consent, the Committee may cancel any Option and issue a new Option to such Participant.
Section 6.13 Indemnification. In addition to such other rights of indemnification as they may have as members of the Board or the Committee, the members of the Board shall be indemnified by the Company against all costs and expenses reasonably incurred by them in connection with any action, suit or proceeding to which they or any of them may be party by reason of any action taken or failure to act under or in connection with the Plan or any Option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them
in satisfaction of a judgment in any such action, suit or proceeding; provided, that (i) any such Board member shall be entitled to the indemnification rights set forth in this Section 6.13 only if such member has acted in good faith and in a manner that such member reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe that such conduct was unlawful, and (ii) upon the institution of any such action, suit or proceeding a Board member shall give the Company written notice thereof and an opportunity, at its own expense, to handle and defend the same before such Board member undertakes to handle and defend it on his own behalf.
* * * * *
EXHIBIT 10.8
PLEDGE AGREEMENT
between
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
and
DEUTSCHE BANK TRUST COMPANY AMERICAS,
as PLEDGEE
Dated as of February 4, 2004
PLEDGE AGREEMENT
PLEDGE AGREEMENT (as amended, modified or supplemented from time to time, this "Agreement"), dated as of February 4, 2004, between Town Sports International Holdings, Inc., a Delaware corporation (the "Pledgor"), and Deutsche Bank Trust Company Americas, as collateral agent (together with any successor collateral agent, the "Pledgee"), for the benefit of the Secured Creditors (as defined below). Except as otherwise defined herein, all capitalized terms used herein and defined in the Credit Agreement (as defined below) shall be used herein as therein defined.
W I T N E S S E T H :
WHEREAS, Town Sports International, Inc. (the "Borrower"), the lenders from time to time party thereto (the "Lenders"), and Deutsche Bank Trust Company Americas, as administrative agent (together with any successor administrative agent, the "Administrative Agent"), have entered into a Credit Agreement, dated as of April 16, 2003 (as amended, modified or supplemented from time to time, the "Credit Agreement"), providing for the making of Loans to, and the issuance of, and participation in, Letters of Credit for the account of, the Borrower, all as contemplated therein (the Lenders, each Issuing Lender, the Administrative Agent and the Pledgee are herein called the "Lender Creditors");
WHEREAS, pursuant to the Holdco Guaranty, the Pledgor has guaranteed the payment and performance when due of all Guaranteed Obligations as described therein;
WHEREAS, the Borrower and/or one or more of its Subsidiaries may have entered into, or may at any time and from time to time after the date hereof enter into, one or more Interest Rate Protection Agreements or Other Hedging Agreements with one or more Lender Creditors or any affiliate thereof (each such Lender Creditor or affiliate, even if the respective Lender Creditor subsequently ceases to be a Lender under the Credit Agreement for any reason, together with such Lender Creditor's or affiliate's successors and assigns, if any, collectively, the "Other Creditors" and, together with the Lender Creditors, the "Secured Creditors");
WHEREAS, it is a condition precedent to the First Amendment Effective Date that the Pledgor shall have executed and delivered to the Pledgee this Agreement; and
WHEREAS, the Pledgor will obtain benefits from the incurrence of Loans by the Borrower and the issuance of Letters of Credit for the account of the Borrower under the Credit Agreement and the entering into by the Borrower and/or one or more of its Subsidiaries of Interest Rate Protection Agreements or Other Hedging Agreements and, accordingly, desires to enter into this Agreement in order to satisfy the conditions described in the preceding recital;
NOW, THEREFORE, in consideration of the foregoing and other benefits accruing to the Pledgor, the receipt and sufficiency of which are hereby acknowledged, the Pledgor hereby makes the following representations and warranties to the Pledgee for the benefit of the
Secured Creditors and hereby covenants and agrees with the Pledgee for the benefit of the Secured Creditors as follows:
1. SECURITY FOR OBLIGATIONS. This Agreement is made by the Pledgor for the benefit of the Secured Creditors to secure:
(i) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations, liabilities and indebtedness (including, without limitation, principal, premium, interest, reimbursement obligations (both actual and contingent) under Letters of Credit, fees, costs, and indemnities (including in each case, without limitation, all interest that accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency, reorganization or similar proceeding of the Pledgor or any Subsidiary thereof at the rate provided for in the respective documentation, whether or not a claim for post-petition interest is allowed in any such proceeding) of the Pledgor to the Lender Creditors, whether now existing or hereafter incurred under, arising out of, or in connection with, the Credit Agreement and the other Credit Documents to which the Pledgor is a party (including all such obligations, liabilities and indebtedness of the Pledgor under the Holdco Guaranty) and the due performance and compliance by the Pledgor with all of the terms, conditions and agreements contained in the Credit Agreement and in such other Credit Documents (all such obligations, liabilities and indebtedness under this clause (i), except to the extent consisting of obligations, liabilities or indebtedness with respect to Interest Rate Protection Agreements or Other Hedging Agreements, being herein collectively called the "Credit Document Obligations");
(ii) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations, liabilities and indebtedness (including, in each case, without limitation, all interest that accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency, reorganization or similar proceeding of the Pledgor or any of its Subsidiaries at the rate provided for in the respective documentation, whether or not a claim for post-petition interest is allowed in any such proceeding) owing by the Pledgor to the Other Creditors under, or with respect to (including all such obligations, liabilities and indebtedness of the Pledgor under the Holdco Guaranty), each Interest Rate Protection Agreement and Other Hedging Agreement, whether such Interest Rate Protection Agreement or Other Hedging Agreement is now in existence or hereafter arising and the due performance and compliance by the Pledgor with all of the terms, conditions and agreements contained therein (all such obligations, liabilities and indebtedness described in this clause (ii) being herein collectively called the "Other Obligations");
(iii) any and all sums advanced by the Pledgee in order to preserve the Collateral (as hereinafter defined) or preserve its security interest in the Collateral;
(iv) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations or liabilities of the Pledgor referred to in clauses (i) and (ii) above, after an Event of Default shall have occurred and be continuing, the reasonable expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing
of or realizing on the Collateral, or of any exercise by the Pledgee of its rights hereunder, together with reasonable attorneys' fees and court costs; and
(v) all amounts paid by any Secured Creditor as to which such Secured Creditor has the right to reimbursement under Section 11 of this Agreement;
all such obligations, liabilities, sums and expenses set forth in clauses (i) through (v) of this Section 1 being herein collectively called the "Obligations," it being acknowledged and agreed that the "Obligations" shall include extensions of credit of the types described above, whether outstanding on the date of this Agreement or extended from time to time after the date of this Agreement.
2. DEFINITIONS. (a) Reference to singular terms shall include the plural and vice versa.
(b) The following capitalized terms used herein shall have the definitions specified below:
"Administrative Agent" shall have the meaning set forth in the recitals hereto.
"Adverse Claim" shall have the meaning given such term in
Section 8-102(a)(1) of the UCC.
"Agreement" shall have the meaning set forth in the first paragraph hereof.
"Borrower" shall have the meaning set forth in the recitals hereto.
"Certificated Security" shall have the meaning given such term in Section 8-102(a)(4) of the UCC.
"Clearing Corporation" shall have the meaning given such term in Section 8-102(a)(5) of the UCC.
"Collateral" shall have the meaning set forth in Section 3.1 hereof.
"Collateral Accounts" shall mean any and all accounts established and maintained by the Pledgee in the name of the Pledgor to which Collateral may be credited.
"Credit Agreement" shall have the meaning set forth in the recitals hereto.
"Credit Document Obligations" shall have the meaning set forth in Section 1(i) hereof.
"Equity Interest" of any Person shall mean any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interest in (however designated) equity of such Person, including, without limitation, any common stock, preferred stock, any limited or general partnership interest and any limited liability company membership interest.
"Event of Default" shall mean any Event of Default (or similar term) under, and as defined in, the Credit Agreement or in any Interest Rate Protection Agreement or Other Hedging Agreement entered into with an Other Creditor and shall in any event include, without limitation, any payment default on any of the Obligations after the expiration of any applicable grace period.
"Exempted Foreign Entity" shall mean any Foreign Subsidiary of the Pledgor that is treated as a corporation or an association taxable as a corporation for U.S. Federal income tax purposes.
"Financial Asset" shall have the meaning given such term in
Section 8-102(a)(9) of the UCC.
"Foreign Subsidiary" shall have the meaning provided in the Credit Agreement.
"Indemnitees" shall have the meaning set forth in Section 11 hereof.
"Instrument" shall have the meaning given such term in Section 9-102(a)(47) of the UCC.
"Investment Property" shall have the meaning given such term in Section 9-102(a)(49) of the UCC.
"Lender Creditors" shall have the meaning set forth in the recitals hereto.
"Lenders" shall have the meaning set forth in the recitals hereto.
"Limited Liability Company Assets" shall mean all assets, whether tangible or intangible and whether real, personal or mixed (including, without limitation, all limited liability company capital and interest in other limited liability companies), at any time owned by the Pledgor or represented by any Limited Liability Company Interest.
"Limited Liability Company Interests" shall mean the entire limited liability company membership interest at any time owned by the Pledgor in any limited liability company.
"Location" of the Pledgor shall mean the Pledgor's "location" as determined pursuant to Section 9-307 of the UCC.
"Non-Voting Equity Interests" shall mean all Equity Interests of any Foreign Subsidiary of the Pledgor which are not Voting Equity Interests.
"Notes" shall mean all promissory notes from time to time issued to, or held by, the Pledgor.
"Obligations" shall have the meaning set forth in Section 1 hereof.
"Other Creditors" shall have the meaning set forth in the recitals hereto.
"Other Obligations" shall have the meaning set forth in
Section 1(ii) hereof.
"Partnership Assets" shall mean all assets, whether tangible or intangible and whether real, personal or mixed (including, without limitation, all partnership capital and interest in other partnerships), at any time owned or represented by any Partnership Interest.
"Partnership Interest" shall mean the entire general partnership interest or limited partnership interest at any time owned by the Pledgor in any general partnership or limited partnership.
"Person" means any individual, partnership, joint venture, firm, corporation, association, limited liability company, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof.
"Pledged Notes" shall have the meaning set forth in Section 3.5 hereof.
"Pledgee" shall have the meaning set forth in the first paragraph hereof.
"Pledgor" shall have the meaning set forth in the first paragraph hereof.
"Proceeds" shall have the meaning given such term in Section 9-102(a)(64) of the UCC and, in any event, shall also include, but not be limited to, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Pledgee or the Pledgor from time to time with respect to any of the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to the Pledgor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any Person acting under color of governmental authority) and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral.
"Registered Organization" shall mean a "registered organization" as such term is defined in Section 9-102 (a) (70) of the UCC.
"Required Lenders" shall have the meaning given such term in the Credit Agreement.
"Required Secured Creditors" shall have the meaning provided in the Holdco Security Agreement.
"Secured Creditors" shall have the meaning set forth in the recitals hereto.
"Secured Debt Agreements" shall mean and include (x) this Agreement, (y) the other Credit Documents and (z) the Interest Rate Protection Agreements and Other Hedging Agreements entered into with any Other Creditor.
"Securities Account" shall have the meaning given such term in
Section 8-501(a) of the UCC.
"Securities Act" shall mean the Securities Act of 1933, as amended, as in effect from time to time.
"Securities Intermediary" shall have the meaning given such term in Section 8-102(14) of the UCC.
"Security" and "Securities" shall have the meaning given such term in Section 8-102(a)(15) of the UCC and shall in any event also include all Stock and all Notes.
"Security Entitlement" shall have the meaning given such term in Section 8-102(a)(17) of the UCC.
"Stock" shall mean all of the issued and outstanding shares of capital stock at any time owned by the Pledgor of any corporation.
"Subsidiary" means, as to any Person, (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person and/or one or more Subsidiaries of such Person and (ii) any partnership, limited liability company, association, joint venture or other entity in which such Person and/or one or more Subsidiaries of such Person has more than a 50% equity interest at the time.
"Termination Date" shall have the meaning set forth in Section 20 hereof.
"Transmitting Utility" shall mean a "transmitting utility" as such term is defined in Section 9-102(a)(80) of the UCC.
"UCC" shall mean the Uniform Commercial Code as in effect in the State of New York from time to time; provided that all references herein to specific sections or subsections of the UCC are references to such sections or subsections, as the case may be, of the Uniform Commercial Code as in effect in the State of New York on the date hereof.
"Uncertificated Security" shall have the meaning given such term in Section 8-102(a)(18) of the UCC.
"Voting Equity Interests" of any Foreign Subsidiary of the Pledgor shall mean all classes of Equity Interests of such Foreign Subsidiary entitled to vote.
3. PLEDGE OF SECURITIES, ETC.3.1 Pledge. To secure the Obligations now or hereafter owed or to be performed by the Pledgor, the Pledgor does hereby grant, pledge and assign to the Pledgee for the benefit of the Secured Creditors, and does hereby create a continuing security interest in favor of the Pledgee for the benefit of the Secured Creditors in, all of its right, title and interest in and to the following, whether now existing or hereafter from time to time acquired (collectively, the "Collateral"):
(a) each of the Collateral Accounts, including any and all assets of whatever type or kind deposited by the Pledgor in each such Collateral Account, whether now owned or hereafter acquired, existing or arising, including, without limitation, all Financial Assets, Investment Property, monies, checks, drafts, Instruments, Securities or interests therein of any type or nature deposited or required by the Credit Agreement or any other Secured Debt Agreement to be deposited in each such Collateral Account, and all investments and all certificates and other Instruments (including depository receipts, if any) from time to time representing or evidencing the same, and all dividends, interest, distributions, cash and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing;
(b) all Securities owned or held by the Pledgor from time to time and all options and warrants owned by the Pledgor from time to time to purchase Securities;
(c) all Limited Liability Company Interests owned by the Pledgor from time to time and all of its right, title and interest in each limited liability company to which each such interest relates, whether now existing or hereafter acquired, including, without limitation, to the fullest extent permitted under the terms and provisions of the documents and agreements governing such Limited Liability Company Interests and applicable law:
(A) all the capital thereof and its interest in all profits, losses, Limited Liability Company Assets and other distributions to which the Pledgor shall at any time be entitled in respect of such Limited Liability Company Interests;
(B) all other payments due or to become due to the Pledgor in respect of Limited Liability Company Interests, whether under any limited liability company agreement or otherwise, whether as contractual obligations, damages, insurance proceeds or otherwise;
(C) all of its claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under any limited liability company agreement or operating agreement, or at law or otherwise in respect of such Limited Liability Company Interests;
(D) all present and future claims, if any, of the Pledgor against any such limited liability company for monies loaned or advanced, for services rendered or otherwise;
(E) all of the Pledgor's rights under any limited liability company agreement or operating agreement or at law to exercise and enforce every right, power, remedy, authority, option and privilege of the Pledgor relating to such Limited Liability Company Interests, including any power to terminate, cancel or modify any limited liability company agreement or operating agreement, to execute any instruments and to take any and all other action on behalf of and in the name of any of the Pledgor in respect of such Limited Liability Company Interests and any such limited liability company, to make determinations, to exercise any election (including, but not limited to, election of remedies) or option
or to give or receive any notice, consent, amendment, waiver or approval, together with full power and authority to demand, receive, enforce, collect or receipt for any of the foregoing or for any Limited Liability Company Asset, to enforce or execute any checks, or other instruments or orders, to file any claims and to take any action in connection with any of the foregoing; and
(F) all other property hereafter delivered in substitution for or in addition to any of the foregoing, all certificates and instruments representing or evidencing such other property and all cash, securities, interest, dividends, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all thereof;
(d) all Partnership Interests owned by the Pledgor from time to time and all of its right, title and interest in each partnership to which each such interest relates, whether now existing or hereafter acquired, including, without limitation, to the fullest extent permitted under the terms and provisions of the documents and agreements governing such Partnership Interests and applicable law:
(A) all the capital thereof and its interest in all profits, losses, Partnership Assets and other distributions to which the Pledgor shall at any time be entitled in respect of such Partnership Interests;
(B) all other payments due or to become due to the Pledgor in respect of Partnership Interests, whether under any partnership agreement or otherwise, whether as contractual obligations, damages, insurance proceeds or otherwise;
(C) all of its claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under any partnership agreement or operating agreement, or at law or otherwise in respect of such Partnership Interests;
(D) all present and future claims, if any, of the Pledgor against any such partnership for monies loaned or advanced, for services rendered or otherwise;
(E) all of the Pledgor's rights under any partnership agreement or operating agreement or at law to exercise and enforce every right, power, remedy, authority, option and privilege of the Pledgor relating to such Partnership Interests, including any power to terminate, cancel or modify any partnership agreement or operating agreement, to execute any instruments and to take any and all other action on behalf of and in the name of any of the Pledgor in respect of such Partnership Interests and any such partnership, to make determinations, to exercise any election (including, but not limited to, election of remedies) or option or to give or receive any notice, consent, amendment, waiver or approval, together with full power and authority to demand, receive, enforce, collect or receipt for any of the foregoing or for any Partnership Asset, to enforce or execute any
checks, or other instruments or orders, to file any claims and to take any action in connection with any of the foregoing; and
(F) all other property hereafter delivered in substitution for or in addition to any of the foregoing, all certificates and instruments representing or evidencing such other property and all cash, securities, interest, dividends, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all thereof;
(e) all Security Entitlements owned by the Pledgor from time to time in any and all of the foregoing;
(f) all Financial Assets and Investment Property owned by the Pledgor from time to time; and
(g) all Proceeds of any and all of the foregoing;
provided that (x) except in the circumstances and to the extent provided by
Section 8.13 of the Credit Agreement and determined as if such Section 8.13 was
applicable to the Pledgor (in which case this clause (x) shall no longer be
applicable), the Pledgor shall not be required at any time to pledge hereunder
more than 65% of the total combined voting power of all classes of Voting Equity
Interests of any Exempted Foreign Entity and (y) the Pledgor shall be required
to pledge hereunder 100% of the Non-Voting Equity Interests of each Exempted
Foreign Entity at any time and from time to time acquired by the Pledgor, which
Non-Voting Equity Interests shall not be subject to the limitations described in
preceding clause (x).
3.2 Procedures. (a) To the extent that the Pledgor at any time or from time to time owns, acquires or obtains any right, title or interest in any Collateral, such Collateral shall automatically (and without the taking of any action by the Pledgor) be pledged pursuant to Section 3.1 of this Agreement and, in addition thereto, the Pledgor shall (to the extent provided below) take the following actions as set forth below (as promptly as practicable and, in any event, within 10 Business Days after it obtains such Collateral) for the benefit of the Pledgee and the other Secured Creditors:
(i) with respect to a Certificated Security (other than a Certificated Security credited on the books of a Clearing Corporation or Securities Intermediary), the Pledgor shall deliver such Certificated Security to the Pledgee, indorsed to the Pledgee or indorsed in blank;
(ii) with respect to an Uncertificated Security (other than an Uncertificated Security credited on the books of a Clearing Corporation or Securities Intermediary), the Pledgor shall cause the issuer of such Uncertificated Security (or, in the case of an issuer that is not a Subsidiary of the Pledgor, will use its reasonable efforts to cause such issuer) to duly authorize and execute, and deliver to the Pledgee, an agreement for the benefit of the Pledgee and the other Secured Creditors substantially in the form of Annex H hereto (appropriately completed to the reasonable satisfaction of the Pledgee and with such modifications, if any, as shall be reasonably satisfactory to the Pledgee) pursuant to
which such issuer agrees to comply with any and all instructions originated by the Pledgee without further consent by the registered owner and not to comply with instructions regarding such Uncertificated Security originated by any other Person other than a court of competent jurisdiction;
(iii) with respect to a Certificated Security, Uncertificated Security, Partnership Interest or Limited Liability Company Interest credited on the books of a Clearing Corporation or Securities Intermediary (including a Federal Reserve Bank, Participants Trust Company or The Depository Trust Company), the Pledgor shall promptly notify the Pledgee thereof and shall promptly take all actions required (x) to comply with the applicable rules of such Clearing Corporation or Securities Intermediary and (y) to perfect the security interest of the Pledgee under applicable law (including, in any event, under Sections 9-314(a) and (c), 9-106 and 8-106(d) of the UCC). The Pledgor further agrees to take such actions as the Pledgee deems reasonably necessary or desirable to effect the foregoing;
(iv) with respect to a Partnership Interest or a Limited Liability Company Interest (other than a Partnership Interest or Limited Liability Company Interest credited on the books of a Clearing Corporation or Securities Intermediary), (x) if such Partnership Interest or Limited Liability Company Interest is represented by a certificate and is a Security for purposes of the UCC, the procedure set forth in Section 3.2(a)(i) hereof, and (y) if such Partnership Interest or Limited Liability Company Interest is not represented by a certificate or is not a Security for purposes of the UCC, the procedure set forth in Section 3.2(a)(ii) hereof;
(v) with respect to any Note, delivery of such Note to the Pledgee, indorsed to the Pledgee or indorsed in blank; and
(vi) with respect to cash proceeds from any of the Collateral described in Section 3.1 hereof for which the Pledgee is entitled to retain pursuant to the terms of this Agreement, (i) establishment by the Pledgee of a cash account in the name of the Pledgor over which the Pledgee shall have "exclusive and absolute control" and dominion (and no withdrawals or transfers may be made therefrom by any Person except with the prior written consent of the Pledgee) and (ii) deposit of such cash in such cash account.
(b) In addition to the actions required to be taken pursuant to Section 3.2(a) hereof, the Pledgor shall take the following additional actions with respect to the Securities and Collateral:
(i) with respect to all Collateral of the Pledgor whereby or with respect to which the Pledgee may obtain "control" thereof within the meaning of Section 8-106 of the UCC (or under any provision of the UCC as same may be amended or supplemented from time to time, or under the laws of any relevant State other than the State of New York), the Pledgor shall take all actions as may be reasonably requested from time to time by the Pledgee so that "control" of such Collateral is obtained and at all times held by the Pledgee; and
(ii) the Pledgor shall from time to time cause appropriate financing statements (on Form UCC-1 or other appropriate form) under the Uniform Commercial Code as in effect in the various relevant States, covering all Collateral hereunder (with the form of such financing statements to be satisfactory to the Pledgee), to be filed in the relevant filing offices so that at all times the Pledgee has a security interest in all Investment Property and other Collateral which is perfected by the filing of such financing statements (in each case to the maximum extent perfection by filing may be obtained under the laws of the relevant States, including, without limitation, Section 9-312(a) of the UCC).
3.3 Subsequently Acquired Collateral. If the Pledgor shall
acquire (by purchase, stock dividend or similar distribution or otherwise) any
additional Collateral at any time or from time to time after the date hereof,
such Collateral shall automatically (and without any further action being
required to be taken) be subject to the pledge and security interests created
pursuant to Section 3.1 hereof and, furthermore, the Pledgor will promptly
thereafter take (or cause to be taken) all action with respect to such
Collateral in accordance with the procedures set forth in Section 3.2 hereof,
and will promptly thereafter deliver to the Pledgee (i) a certificate executed
by an authorized officer of the Pledgor describing such Collateral and
certifying that the same has been duly pledged in favor of the Pledgee (for the
benefit of the Secured Creditors) hereunder and (ii) such supplements to Annexes
A through G hereto as are reasonably necessary to cause such annexes to be
complete and accurate at such time. Without limiting the foregoing, the Pledgor
shall be required to pledge hereunder the Equity Interests of any Exempted
Foreign Entity at any time and from time to time after the date hereof acquired
by the Pledgor, provided that (x) except in the circumstances and to the extent
provided by Section 8.13 of the Credit Agreement and determined as if such
Section 8.13 was applicable to the Pledgor, the Pledgor shall not be required at
any time to pledge hereunder more than 65% of the total combined voting power of
all classes of Voting Equity Interests of any Exempted Foreign Entity and (y)
the Pledgor shall be required to pledge hereunder 100% of the Non-Voting Equity
Interests of each Exempted Foreign Entity at any time and from time to time
acquired by the Pledgor.
3.4 Transfer Taxes. Each pledge of Collateral under Section 3.1 or Section 3.3 hereof shall be accompanied by any transfer tax stamps required in connection with the pledge of such Collateral.
3.5 Definition of Pledged Notes. All Notes at any time pledged or required to be pledged hereunder are hereinafter called the "Pledged Notes."
3.6 Certain Representations and Warranties Regarding the Collateral. The Pledgor represents and warrants that on the date hereof: (i) the exact legal name of the Pledgor, the type of organization of the Pledgor, whether or not the Pledgor is a Registered Organization, the jurisdiction of organization of the Pledgor, the Pledgor's Location, the organizational identification number (if any) of the Pledgor, and whether or not the Pledgor is a Transmitting Utility, is listed on Annex A hereto; (ii) each Subsidiary of the Pledgor, and the direct ownership thereof, is listed in Annex B hereto; (iii) the Stock (and any warrants or options to purchase Stock) held by the Pledgor consists of the number and type of shares of the stock (or warrants or options to purchase any stock) of the corporations as described in Annex C hereto; (iv) such Stock constitutes that percentage of the issued and outstanding capital stock of the issuing
corporation as is set forth in Annex C hereto; (v) the Notes held by the Pledgor consist of the promissory notes described in Annex D hereto where the Pledgor is listed as the lender; (vi) the Limited Liability Company Interests held by the Pledgor consist of the number and type of interests of the Persons described in Annex E hereto; (vii) each such Limited Liability Company Interest constitutes that percentage of the issued and outstanding equity interest of the issuing Person as set forth in Annex E hereto; (viii) the Partnership Interests held by the Pledgor consist of the number and type of interests of the Persons described in Annex F hereto; (ix) each such Partnership Interest constitutes that percentage or portion of the entire partnership interest of the Partnership as set forth in Annex F hereto; (x) the exact address of the chief executive office of the Pledgor is listed on Annex G hereto; (xi) the Pledgor has complied with the respective procedure set forth in Section 3.2(a) hereof with respect to each item of Collateral described in Annexes B through F hereto; and (xi) on the date hereof, the Pledgor owns no other Securities, Stock, Notes, Limited Liability Company Interests or Partnership Interests.
4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. If and to the extent necessary to enable the Pledgee to perfect its security interest in any of the Collateral or to exercise any of its remedies hereunder, the Pledgee shall have the right to appoint one or more sub-agents for the purpose of retaining physical possession of the Collateral, which may be held (in the discretion of the Pledgee) in the name of the Pledgor, endorsed or assigned in blank or in favor of the Pledgee or any nominee or nominees of the Pledgee or a sub-agent appointed by the Pledgee.
5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until there shall have occurred and be continuing an Event of Default, the Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Collateral owned by it, and to give consents, waivers or ratifications in respect thereof; provided that, in each case, no vote shall be cast or any consent, waiver or ratification given or any action taken or omitted to be taken which would violate, result in a breach of any covenant contained in, or be inconsistent with any of the terms of any Secured Debt Agreement, or which could reasonably be expected to have the effect of impairing the value of the Collateral or any part thereof or the position or interests of the Pledgee or any other Secured Creditor in the Collateral, unless expressly permitted by the terms of the Secured Debt Agreements. All such rights of the Pledgor to vote and to give consents, waivers and ratifications shall cease in case an Event of Default has occurred and is continuing, and Section 7 hereof shall become applicable.
6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless and until there shall have occurred and be continuing an Event of Default, all cash dividends, cash distributions, cash Proceeds and other cash amounts payable in respect of the Collateral shall be paid to the Pledgor, provided, that all cash dividends payable in respect of the Pledged Stock which are reasonably determined by the Pledgee to represent in whole or in part an extraordinary, liquidating or other distribution in return of capital shall be paid, to the extent so determined to represent an extraordinary, liquidating or other distribution in return of capital, to the Pledgee and retained by it as part of the Collateral. The Pledgee shall be entitled to receive directly, and to retain as part of the Collateral:
(i) all other or additional stock, notes, certificates, limited liability company interests, partnership interests, instruments or other securities or property (including, but
not limited to, cash dividends other than as set forth above) paid or distributed by way of dividend or otherwise in respect of the Collateral;
(ii) all other or additional stock, notes, certificates, limited liability company interests, partnership interests, instruments or other securities or property (including, but not limited to, cash but only if an Event of Default then exists) paid or distributed in respect of the Collateral by way of stock-split, spin-off, split-up, reclassification, combination of shares or similar rearrangement; and
(iii) all other or additional stock, notes, certificates, limited liability company interests, partnership interests, instruments or other securities or property (including, but not limited to, cash but only if an Event of Default then exists) which may be paid in respect of the Collateral by reason of any consolidation, merger, exchange of stock, conveyance of assets, liquidation or similar corporate or other reorganization.
All dividends, distributions or other payments which are received by the Pledgor contrary to the provisions of this Section 6 and Section 7 hereof shall be received in trust for the benefit of the Pledgee, shall be segregated from other property or funds of the Pledgor and shall be forthwith paid over to the Pledgee as Collateral in the same form as so received (with any necessary endorsement).
7. REMEDIES IN CASE OF AN EVENT OF DEFAULT. If there shall have occurred and be continuing an Event of Default, then and in every such case, the Pledgee shall be entitled to exercise all of the rights, powers and remedies (whether vested in it by this Agreement, any other Secured Debt Agreement or by law) for the protection and enforcement of its rights in respect of the Collateral, and the Pledgee shall be entitled to exercise all the rights and remedies of a secured party under the UCC as in effect in any relevant jurisdiction and also shall be entitled, without limitation, to exercise the following rights, which the Pledgor hereby agrees to be commercially reasonable:
(i) to receive all amounts payable in respect of the Collateral otherwise payable under Section 6 hereof to the Pledgor;
(ii) to transfer all or any part of the Collateral into the Pledgee's name or the name of its nominee or nominees;
(iii) to accelerate any Pledged Note which may be accelerated in accordance with its terms, and take any other lawful action to collect upon any Pledged Note (including, without limitation, to make any demand for payment thereon);
(iv) to vote all or any part of the Collateral (whether or not transferred into the name of the Pledgee) and give all consents, waivers and ratifications in respect of the Collateral and otherwise act with respect thereto as though it were the outright owner thereof (the Pledgor hereby irrevocably constituting and appointing the Pledgee the proxy and attorney-in-fact of the Pledgor, with full power of substitution to do so);
(v) at any time and from time to time to sell, assign and deliver, or grant options to purchase, all or any part of the Collateral, or any interest therein, at any public or private sale, without demand of performance, advertisement or, notice of intention to sell or of the time or place of sale or adjournment thereof or to redeem or otherwise (all of which are hereby waived by the Pledgor), for cash, on credit or for other property, for immediate or future delivery without any assumption of credit risk, and for such price or prices and on such terms as the Pledgee in its absolute discretion may determine, provided that at least 10 days' written notice of the time and place of any such sale shall be given to -------- the Pledgor. The Pledgee shall not be obligated to make any such sale of Collateral regardless of whether any such notice of sale has theretofore been given. The Pledgor hereby waives and releases to the fullest extent permitted by law any right or equity of redemption with respect to the Collateral, whether before or after sale hereunder, and all rights, if any, of marshalling the Collateral and any other security or the Obligations or otherwise. At any such sale, unless prohibited by applicable law, the Pledgee on behalf of the Secured Creditors may bid for and purchase all or any part of the Collateral so sold free from any such right or equity of redemption. Neither the Pledgee nor any other Secured Creditor shall be liable for failure to collect or realize upon any or all of the Collateral or for any delay in so doing nor shall any of them be under any obligation to take any action whatsoever with regard thereto; and
(vi) to set-off any and all Collateral against any and all Obligations, and to withdraw any and all cash or other Collateral from any and all Collateral Accounts and to apply such cash and other Collateral to the payment of any and all Obligations.
8. REMEDIES, CUMULATIVE, ETC. Each and every right, power and remedy of the Pledgee provided for in this Agreement or in any other Secured Debt Agreement, or now or hereafter existing at law or in equity or by statute shall be cumulative and concurrent and shall be in addition to every other such right, power or remedy. The exercise or beginning of the exercise by the Pledgee or any other Secured Creditor of any one or more of the rights, powers or remedies provided for in this Agreement or any other Secured Debt Agreement or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by the Pledgee or any other Secured Creditor of all such other rights, powers or remedies, and no failure or delay on the part of the Pledgee or any other Secured Creditor to exercise any such right, power or remedy shall operate as a waiver thereof. No notice to or demand on the Pledgor in any case shall entitle it to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Pledgee or any other Secured Creditor to any other or further action in any circumstances without notice or demand. The Secured Creditors agree that this Agreement may be enforced only by the action of the Pledgee, in each case, acting upon the instructions of the Required Secured Creditors, and that no other Secured Creditor shall have any right individually to seek to enforce or to enforce this Agreement or to realize upon the security to be granted hereby, it being understood and agreed that such rights and remedies may be exercised by the Pledgee for the benefit of the Secured Creditors upon the terms of this Agreement and the Security Agreement.
9. APPLICATION OF PROCEEDS. (a) All monies collected by the Pledgee upon any sale or other disposition of the Collateral pursuant to the terms of this Agreement,
together with all other monies received by the Pledgee hereunder, shall be applied in the manner provided in the Holdco Security Agreement.
(b) It is understood and agreed that the Pledgor shall remain liable with respect to its Obligations to the extent of any deficiency between the amount of the proceeds of the Collateral pledged by it hereunder and the aggregate amount of such Obligations.
10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by the Pledgee hereunder (whether by virtue of the power of sale herein granted, pursuant to judicial process or otherwise), the receipt of the Pledgee or the officer making such sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold, and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Pledgee or such officer or be answerable in any way for the misapplication or nonapplication thereof.
11. INDEMNITY. The Pledgor agrees (i) to indemnify and hold
harmless the Pledgee and each other Secured Creditor (in their capacity as such)
and their respective successors, assigns, employees, advisors, agents and
affiliates (individually an "Indemnitee," and collectively, the "Indemnitees")
from and against any and all claims, demands, losses, judgments and liabilities
(including liabilities for penalties) of whatsoever kind or nature, and (ii) to
reimburse each Indemnitee for all reasonable costs and expenses, including
reasonable attorneys' fees, in each case arising out of or resulting from this
Agreement or the exercise by any Indemnitee of any right or remedy granted to it
hereunder (but excluding any claims, demands, losses, judgments and liabilities
or expenses to the extent incurred by reason of gross negligence or willful
misconduct of such Indemnitee (as determined by a court of competent
jurisdiction in a final and non-appealable decision)). In no event shall the
Pledgee be liable, in the absence of gross negligence or willful misconduct on
its part, for any matter or thing in connection with this Agreement other than
to account for monies actually received by it in accordance with the terms
hereof. If and to the extent that the obligations of the Pledgor under this
Section 11 are unenforceable for any reason, the Pledgor hereby agrees to make
the maximum contribution to the payment and satisfaction of such obligations
which is permissible under applicable law. The indemnity obligations of the
Pledgor contained in this Section 11 shall continue in full force and effect
notwithstanding the full payment of all the Notes issued under the Credit
Agreement, the termination of all Interest Rate Protection Agreements and Other
Hedging Agreements and Letters of Credit, and the payment of all other
Obligations and notwithstanding the discharge thereof.
12. PLEDGEE NOT A PARTNER OR LIMITED LIABILITY COMPANY MEMBER.
(a) Nothing herein shall be construed to make the Pledgee or any other Secured
Creditor liable as a member of any limited liability company or as a partner of
any partnership and neither the Pledgee nor any other Secured Creditor by virtue
of this Agreement or otherwise (except as referred to in the following sentence)
shall have any of the duties, obligations or liabilities of a member of any
limited liability company or as a partner in any partnership. The parties hereto
expressly agree that, unless the Pledgee shall become the absolute owner of
Collateral consisting of a Limited Liability Company Interest or a Partnership
Interest pursuant hereto and is admitted as a member or partner of the
respective Limited Liability Company or
Partnership, this Agreement shall not be construed as creating a partnership or joint venture among the Pledgee, any other Secured Creditor, the Pledgor and/or any other Person.
(b) Except as provided in the last sentence of paragraph
(a) of this Section 12, the Pledgee, by accepting this Agreement, did not intend
to become a member of any limited liability company or a partner of any
partnership or otherwise be deemed to be a co-venturer with respect to the
Pledgor, any limited liability company, partnership and/or any other Person
either before or after an Event of Default shall have occurred. The Pledgee
shall have only those powers set forth herein and the Secured Creditors shall
assume none of the duties, obligations or liabilities of a member of any limited
liability company or as a partner of any partnership or the Pledgor except as
provided in the last sentence of paragraph (a) of this Section 12.
(c) The Pledgee and the other Secured Creditors shall not be obligated to perform or discharge any obligation of the Pledgor as a result of the pledge hereby effected.
(d) The acceptance by the Pledgee of this Agreement, with all the rights, powers, privileges and authority so created, shall not at any time or in any event obligate the Pledgee or any other Secured Creditor to appear in or defend any action or proceeding relating to the Collateral to which it is not a party, or to take any action hereunder or thereunder, or to expend any money or incur any expenses or perform or discharge any obligation, duty or liability under the Collateral.
13. FURTHER ASSURANCES; POWER-OF-ATTORNEY. (a) The Pledgor agrees that it will join with the Pledgee in executing and, at the Pledgor's own expense, file and refile under the UCC or other applicable law such financing statements, continuation statements and other documents, in form reasonably acceptable to the Pledgee, in such offices as the Pledgee may deem reasonably necessary and wherever required by law in order to perfect and preserve the Pledgee's security interest in the Collateral and hereby authorizes the Pledgee to file financing statements and amendments thereto relative to all or any part of the Collateral without the signature of the Pledgor where permitted by law, and agrees to do such further acts and things and to execute and deliver to the Pledgee such additional conveyances, assignments, agreements and instruments as the Pledgee may reasonably require or deem reasonably necessary to carry into effect the purposes of this Agreement or to further assure and confirm unto the Pledgee its rights, powers and remedies hereunder.
(b) The Pledgor hereby appoints the Pledgee the Pledgor's attorney-in-fact with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, to act from time to time solely after the occurrence and during the continuance of an Event of Default, in the Pledgee's reasonable discretion, to take any action and to execute any instrument which the Pledgee may deem reasonably necessary or advisable to accomplish the purposes of this Agreement, which appointment as attorney is coupled with an interest.
14. THE PLEDGEE AS COLLATERAL AGENT. The Pledgee will hold in accordance with this Agreement all items of the Collateral at any time received under this Agreement. It is expressly understood and agreed by each Secured Creditor that by accepting the benefits of this Agreement, each such Secured Creditor acknowledges and agrees that the obligations of the Pledgee as holder of the Collateral and interests therein and with respect to the
disposition thereof, and otherwise under this Agreement, are only those expressly set forth in this Agreement and in Section 12 of the Credit Agreement. The Pledgee shall act hereunder on the terms and conditions set forth herein and in Section 12 of the Credit Agreement.
15. TRANSFER BY THE PLEDGOR. The Pledgor will not sell or otherwise dispose of, grant any option with respect to, or mortgage, pledge or otherwise encumber any of the Collateral or any interest therein.
16. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLEDGOR.
(a) The Pledgor represents, warrants and covenants that:
(i) it is the legal, beneficial and record owner of, and has good and marketable title to, all of its Collateral consisting of one or more Securities, Partnership Interests and Limited Liability Company Interests and that it has sufficient interest in all of its Collateral in which a security interest is purported to be created hereunder for such security interest to attach (subject, in each case, to no pledge, lien, mortgage, hypothecation, security interest, charge, option, Adverse Claim or other encumbrance whatsoever, except the liens and security interests created by this Agreement);
(ii) it has full power, authority and legal right to pledge all the Collateral pledged by it pursuant to this Agreement;
(iii) this Agreement has been duly authorized, executed and delivered by the Pledgor and constitutes a legal, valid and binding obligation of the Pledgor enforceable against the Pledgor in accordance with its terms, except to the extent that the enforceability hereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law);
(iv) except to the extent already obtained or made, no consent of any other party (including, without limitation, any stockholder, partner, member or creditor of the Pledgor or any of its Subsidiaries) and no consent, license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required to be obtained by the Pledgor in connection with (a) the execution, delivery or performance of this Agreement, (b) the validity or enforceability of this Agreement, (c) the perfection or enforceability of the Pledgee's security interest in the Collateral or (d) except for compliance with or as may be required by applicable securities laws, the exercise by the Pledgee of any of its rights or remedies provided herein;
(v) the execution, delivery and performance of this Agreement will not violate any provision of any applicable law or regulation or of any order, judgment, writ, award or decree of any court, arbitrator or governmental authority, domestic or foreign, applicable to the Pledgor, or of the certificate or articles of incorporation, or by-laws of the Pledgor, or of any securities issued by the Pledgor or any of its Subsidiaries, or of any
mortgage, deed of trust, indenture, lease, loan agreement, credit agreement or other material contract, agreement or instrument or undertaking to which the Pledgor or any of its Subsidiaries is a party or which purports to be binding upon the Pledgor or any of its Subsidiaries or upon any of their respective assets and will not result in the creation or imposition of (or the obligation to create or impose) any lien or encumbrance on any of the assets of the Pledgor or any of its Subsidiaries except as contemplated by this Agreement;
(vi) all of the Collateral (consisting of Securities, Limited Liability Company Interests or Partnership Interests) has been duly and validly issued and acquired, is fully paid and non-assessable and is subject to no options to purchase or similar rights;
(vii) each of the Pledged Notes constitutes, or when executed by the obligor thereof will constitute, the legal, valid and binding obligation of such obligor, enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law);
(viii) the pledge and collateral assignment and possession by the Pledgee of the Collateral consisting of Certificated Securities and Pledged Notes pursuant to this Agreement creates a valid and perfected first priority security interest in such Certificated Securities and Pledged Notes, and the proceeds thereof, subject to no prior Lien or encumbrance or to any agreement purporting to grant to any third party a Lien or encumbrance on the property or assets of the Pledgor which would include the Securities and the Pledgee is entitled to all the rights, priorities and benefits afforded by the UCC or other relevant law as enacted in any relevant jurisdiction to perfect security interests in respect of such Collateral; and
(ix) "control" (as defined in Section 8-106 of the UCC) has been obtained by the Pledgee over all Collateral consisting of Securities (including, Notes which are Securities) with respect to which such "control" may be obtained pursuant to Section 8-106 of the UCC.
(b) The Pledgor covenants and agrees that it will defend the Pledgee's right, title and security interest in and to the Securities and the proceeds thereof against the claims and demands of all persons whomsoever; and the Pledgor covenants and agrees that it will have like title to and right to pledge any other property at any time hereafter pledged to the Pledgee as Collateral hereunder and will likewise defend the right thereto and security interest therein of the Pledgee and the other Secured Creditors
(c) The Pledgor covenants and agrees that it will take no action which would violate any of the terms of any Secured Debt Agreement.
17. LEGAL NAMES; TYPE OF ORGANIZATION (AND WHETHER A REGISTERED ORGANIZATION AND/OR A TRANSMITTING UTILITY); JURISDICTION OF ORGANIZATION; LOCATION; ORGANIZATIONAL IDENTIFICATION NUMBERS;
CHANGES THERETO; ETC. The exact legal name of the Pledgor, the type of organization of the Pledgor, whether or not the Pledgor is a Registered Organization, the jurisdiction of organization of the Pledgor, the Pledgor's Location, the organizational identification number (if any) of the Pledgor, and whether or not the Pledgor is a Transmitting Utility, is listed on Annex A hereto for the Pledgor. The Pledgor shall not change its legal name, its type of organization (including without limitation its status as (x) a Registered Organization, in the case of each Registered Organization or (y) a Transmitting Utility or a Person which is not a Transmitting Utility, as the case may be), its jurisdiction of organization, its Location or its organizational identification number (if any) from that listed on Annex A hereto for the Pledgor or those that may have been established after the date of this Agreement in accordance with the immediately succeeding sentence of this Section 17. The Pledgor shall not change its legal name, its type of organization, its status as a Registered Organization (in the case of a Registered Organization), its status as a Transmitting Utility or as a Person which is not a Transmitting Utility, as the case may be, its jurisdiction of organization, its Location, or its organizational identification number (if any), except that any such changes shall be permitted (so long as not in violation of the applicable requirements of the Secured Debt Agreements and so long as same do not involve (x) a Registered Organization ceasing to constitute same or (y) the Pledgor changing its jurisdiction of organization or Location from the United States or a State thereof to a jurisdiction of organization or Location, as the case may be, outside the United States or a State thereof) if (i) it shall have given to the Pledgee not less than 15 days' prior written notice of each change to the information listed on Annex A (as adjusted for any subsequent changes thereto previously made in accordance with this sentence), together with a supplement to Annex A which shall correct all information contained therein for the Pledgor, and (ii) in connection with such respective change or changes, it shall have taken all action reasonably requested by the Pledgee to maintain the security interests of the Pledgee in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. In addition, to the extent that the Pledgor does not have an organizational identification number on the date hereof and later obtains one, the Pledgor shall promptly thereafter notify the Pledgee of such organizational identification number and shall take all actions reasonably satisfactory to the Pledgee to the extent necessary to maintain the security interest of the Pledgee in the Collateral intended to be granted hereby fully perfected and in full force and effect.
18. PLEDGOR'S OBLIGATIONS ABSOLUTE, ETC. Prior to the Termination Date, the obligations of the Pledgor under this Agreement shall be absolute and unconditional and shall remain in full force and effect without regard to, and shall not be released, suspended, discharged, terminated or otherwise affected by any circumstance or occurrence whatsoever, including, without limitation: (i) any renewal, extension, amendment or modification of or addition or supplement to or deletion from any Secured Debt Agreement or any other instrument or agreement referred to therein, or any assignment or transfer of any thereof (except to the extent that any such modification expressly and directly relates to the Pledgor's obligations under this Agreement); (ii) any waiver, consent, extension, indulgence or other action or inaction under or in respect of any such agreement or instrument including, without limitation, this Agreement; (iii) any furnishing of any additional security to the Pledgee or its assignee or any acceptance thereof or any security by the Pledgee or its assignee; (iv) any limitation on any party's liability or obligations under any such instrument or agreement or any invalidity or unenforceability, in whole or in part, of any such instrument or agreement or any term thereof; or
(v) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to the Pledgor or any Subsidiary of the Pledgor, or any action taken with respect to this Agreement by any trustee or receiver, or by any court, in any such proceeding, whether or not the Pledgor shall have notice or knowledge of any of the foregoing.
19. REGISTRATION, ETC. (a) If there shall have occurred and be continuing an Event of Default then, and in every such case, upon receipt by the Pledgor from the Pledgee a written request or requests that the Pledgor cause any registration, qualification or compliance under any Federal or state securities law or laws to be effected with respect to all or any part of the Securities, Limited Liability Company Interests or Partnership Interests of, or owned by, the Pledgor, the Pledgor as soon as practicable and at its expense will cause such registration to be declared effected (and be kept effective) and will cause such qualification and compliance to be declared effected (and be kept effective) as may be so requested and as would permit or facilitate the sale and distribution of such Collateral, including, without limitation, registration under the Securities Act, as then in effect (or any similar statute then in effect), appropriate qualifications under applicable blue sky or other state securities laws and appropriate compliance with any other governmental requirements; provided, that the Pledgee shall furnish to the Pledgor such information regarding the Pledgee as the Pledgor may reasonably request in writing and as shall be required in connection with any such registration, qualification or compliance. The Pledgor will cause the Pledgee to be kept reasonably advised in writing as to the progress of each such registration, qualification or compliance and as to the completion thereof, will furnish to the Pledgee such number of prospectuses, offering circulars or other documents incident thereto as the Pledgee from time to time may reasonably request, and will indemnify the Pledgee, each other Secured Creditor and all others participating in the distribution of such Collateral against all claims, losses, damages and liabilities caused by any untrue statement (or alleged untrue statement) of a material fact contained therein (or in any related registration statement, notification or the like) or by any omission (or alleged omission) to state therein (or in any related registration statement, notification or the like) a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same may have been caused by an untrue statement or omission based upon information furnished in writing to the Pledgor by the Pledgee or such other Secured Creditor expressly for use therein.
(b) If at any time when the Pledgee shall determine to
exercise its right to sell all or any part of the Collateral consisting of
Securities, Limited Liability Company Interests or Partnership Interests
pursuant to Section 7 hereof, and the Collateral or the part thereof to be sold
shall not, for any reason whatsoever, be effectively registered under the
Securities Act, as then in effect, the Pledgee may, in its sole and absolute
discretion, sell such Collateral, as the case may be, or part thereof by private
sale in such manner and under such circumstances as the Pledgee may deem
reasonably necessary or advisable in order that such sale may legally be
effected without such registration. Without limiting the generality of the
foregoing, in any such event the Pledgee, in its sole and absolute discretion
(i) may proceed to make such private sale notwithstanding that a registration
statement for the purpose of registering such Collateral or part thereof shall
have been filed under such Securities Act, (ii) may approach and negotiate with
a single possible purchaser to effect such sale, and (iii) may restrict such
sale to a purchaser who will represent and agree that such purchaser is
purchasing for its own account, for investment, and not with a view to the
distribution or sale of such Collateral or part thereof. In the event of
any such sale, the Pledgee shall incur no responsibility or liability for selling all or any part of the Collateral at a price which the Pledgee, in its sole and absolute discretion, in good faith deems reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might be realized if the sale were deferred until after registration as aforesaid.
20. TERMINATION; RELEASE. (a) After the Termination Date, this Agreement and the security interest created by hereby shall automatically terminate (provided that all indemnities set forth herein including, without limitation, in Section 11 hereof shall survive any such termination), and the Pledgee, at the request and expense of the Pledgor, will execute and deliver to the Pledgor a proper instrument or instruments acknowledging the satisfaction and termination of this Agreement, and will duly assign, transfer and deliver to the Pledgor (without recourse and without any representation or warranty) such of the Collateral as has not theretofore been sold or otherwise applied or released pursuant to this Agreement, together with any monies at the time held by the Pledgee or any of its sub-agents hereunder and, with respect to any Collateral consisting of an Uncertificated Security, a Partnership Interest or a Limited Liability Company Interest (other than an Uncertificated Security, Partnership Interest or Limited Liability Company Interest credited on the books of a Clearing Corporation or Securities Intermediary), a termination of the agreement relating thereto executed and delivered by the issuer of such Uncertificated Security pursuant to Section 3.2(a)(ii) or by the respective partnership or limited liability company pursuant to Section 3.2(a)(iv)(2). As used in this Agreement, "Termination Date" shall mean the date upon which the Total Revolving Loan Commitment under the Credit Agreement has been terminated and all Interest Rate Protection Agreements and Other Hedging Agreements entered into with any Other Creditors have been terminated, no Note under the Credit Agreement is outstanding and all Loans there under have been repaid in full, all Letters of Credit issued under the Credit Agreement have been terminated, and all other Obligations then due and payable have been paid in full in cash in accordance with the terms thereof.
(b) In the event that any part of the Collateral is sold or otherwise disposed of, in connection with a sale or other disposition permitted by the Secured Debt Agreements (other than a sale or other disposition to the Pledgor or any Subsidiary thereof) or is otherwise released with the consent of the Required Secured Creditors and the proceeds of such other sale or disposition or from such release are applied in accordance with the provisions of the Secured Debt Agreements to the extent required to be so applied, the Pledgee, at the request and expense of the Pledgor, will duly assign, transfer and deliver to the Pledgor (without recourse and without any representation or warranty) such of the Collateral (and releases therefore) as is then being (or has been) so sold or released and has not theretofore been released pursuant to this Agreement.
(c) At any time that the Pledgor desires that the Pledgee
assign, transfer and deliver Collateral (and releases therefore) as provided in
Section 20(a) or (b) hereof, the Pledgor shall deliver to the Pledgee a
certificate signed by an authorized officer of the Pledgor stating that the
release of the respective Collateral is permitted pursuant to such Section 20(a)
or (b).
(d) The Pledgee shall have no liability whatsoever to any other Secured Creditor as the result of any release of Collateral by it in accordance with this Section 20.
21. NOTICES, ETC. All notices and communications hereunder shall be in writing and sent or delivered by mail, telegraph, telex, telecopy, cable or overnight courier service and all such notices and communications shall, when mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, be effective when deposited in the mails, delivered to the telegraph company, cable company or overnight courier, as the case may be, or sent by telex or telecopier, except that notices and communications to the Pledgee or the Pledgor shall not be effective until received by the Pledgee or the Pledgor, as the case may be. All such notices and other communications shall be in writing and addressed as follows:
(a) if to the Pledgor, at:
888 Seventh Avenue
25th Floor
New York, New York 10106
Attention: Richard Pyle
Telephone No.: (212) 246-6700
Telecopier No.: (212) 664-8906
(b) if to the Pledgee, at:
60 Wall Street
New York, New York 10005
Attention: Carin Keegan
Telephone No.: (212) 250-6083
Telecopier No.: (212) 250-5690
(c) if to any Lender Creditor, at such address as such Lender Creditor shall have specified in the Credit Agreement;
(d) if to any Other Creditor, at such address as such Other Creditor shall have specified in writing to the Pledgor and the Pledgee;
(e) or at such other address or addressed to such other individual as shall have been furnished in writing by any Person described above to the party required to give notice hereunder.
22. WAIVER; AMENDMENT. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever except in accordance with the requirements specified in the Holdco Security Agreement.
23. MISCELLANEOUS. This Agreement shall and shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of and be enforceable by each of the parties hereto and their respective successors and assigns, provided that the Pledgor may not assign any of its rights or obligations hereunder.
24. HEADINGS DESCRIPTIVE. The headings of the several Sections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement.
25. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE WHICH ARE LOCATED IN THE COUNTY OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE PLEDGOR HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE PLEDGOR HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK PERSONAL JURISDICTION OVER THE PLEDGOR, AND AGREES NOT TO PLEAD OR CLAIM IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN ANY OF THE AFORESAID COURTS THAT ANY SUCH COURT LACKS PERSONAL JURISDICTION OVER THE PLEDGOR. THE PLEDGOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ANY THE PLEDGOR AT ITS ADDRESS FOR NOTICES AS PROVIDED IN SECTION 21 ABOVE, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. THE PLEDGOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT THAT SUCH SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE PLEDGEE UNDER THIS AGREEMENT, OR ANY SECURED CREDITOR, TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE PLEDGOR IN ANY OTHER JURISDICTION.
(b) THE PLEDGOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
26. PLEDGOR'S DUTIES. It is expressly agreed, anything herein contained to the contrary notwithstanding, that the Pledgor shall remain liable to perform all of the obligations, if any, assumed by it with respect to the Collateral and the Pledgee shall not have any obligations or liabilities with respect to any Collateral by reason of or arising out of this Agreement, nor shall the Pledgee be required or obligated in any manner to perform or fulfill any of the obligations of the Pledgor under or with respect to any Collateral.
27. COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Pledgor and the Pledgee.
28. SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
29. RECOURSE. This Agreement is made with full recourse to the Pledgor and pursuant to and upon all the representations, warranties, covenants and agreements on the part of the Pledgor contained herein and in the other Secured Debt Agreements and otherwise in writing in connection herewith or therewith.
* * * *
IN WITNESS WHEREOF, the Pledgor and the Pledgee have caused this Agreement to be executed by their duly elected officers duly authorized as of the date first above written.
TOWN SPORTS INTERNATIONAL HOLDINGS,
INC., as Pledgor
By: /s/ Richard Pyle
_________________________________
Name: Richard Pyle
Title: Chief Financial Officer
|
Accepted and Agreed to:
Deutsche Bank Trust Company Americas,
as Collateral Agent
By: /s/ Scottye Lindsey
_______________________________
Name: Scottye Lindsey
Title: Vice President
|
ANNEX A
to
PLEDGE AGREEMENT
SCHEDULE OF LEGAL NAMES, TYPE OF ORGANIZATION
(AND WHETHER A REGISTERED ORGANIZATION AND/OR
A TRANSMITTING UTILITY), JURISDICTION OF ORGANIZATION,
LOCATION AND ORGANIZATIONAL IDENTIFICATION NUMBERS
Type of
Organization
(or, if the
Pledgor is an Registered
Individual, so Organization? Jurisdiction of
Exact Legal Name of the Pledgor indicate) (Yes/No) Organization
------------------------------- -------------- ------------- ---------------
Town Sports International
Holdings, Inc. Corporation Yes Delaware
Pledgor's Organization Transmitting
Pledgor's Location (for purposes Identification Number Utility?
of NY UCC Section 9-307) (or, if none, so indicate) (Yes/No)
-------------------------------- -------------------------- ------------
Delaware 3754592 No
|
ANNEX B
to
PLEDGE AGREEMENT
SCHEDULE OF SUBSIDIARIES
Jurisdiction of
Entity Ownership Organization
------------------------------- ---------------------------------------- ---------------
Town Sports International, Inc. Town Sports International Holdings, Inc. Delaware
|
ANNEX C
to
PLEDGE AGREEMENT
SCHEDULE OF STOCK
1. TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
Sub-clause of
Section 3.2(a)
Type of Number of Certificate Percentage of Pledge
Name of Issuing Corporation Shares Shares No. Owned Agreement
------------------------------- ------- --------- ----------- ---------- --------------
Town Sports International, Inc. Common 1,000 CA-47 100% 3.2(a)(i)
|
ANNEX D
to
PLEDGE AGREEMENT
SCHEDULE OF NOTES
None.
ANNEX E
to
PLEDGE AGREEMENT
SCHEDULE OF LIMITED LIABILITY COMPANY INTERESTS
None.
ANNEX F
to
PLEDGE AGREEMENT
SCHEDULE OF PARTNERSHIP INTERESTS
None.
ANNEX G
to
PLEDGE AGREEMENT
SCHEDULE OF CHIEF EXECUTIVE OFFICE
888 Seventh Avenue
25th Floor
New York, NY 10106
ANNEX H
to
PLEDGE AGREEMENT
Form of Agreement Regarding Uncertificated Securities, Limited Liability Company Interests and Partnership Interests
AGREEMENT (as amended, modified or supplemented from time to
time, this "Agreement"), dated as of ___________, among the undersigned pledgor
(the "Pledgor"), Deutsche Bank Trust Company Americas, not in its individual
capacity but solely as Collateral Agent (the "Pledgee"), and __________, as the
issuer of the [Uncertificated Securities] [Limited Liability Company Interests]
[Partnership Interests] (defined below) (the "Issuer").
W I T N E S S E T H :
WHEREAS, the Pledgor and the Pledgee have entered into a
Pledge Agreement, dated as of February 4, 2004 (as amended, modified or
supplemented from time to time, the "Pledge Agreement"), under which, among
other things, in order to secure the payment of the Obligations (as defined in
the Pledge Agreement), the Pledgor will pledge to the Pledgee for the benefit of
the Secured Creditors (as defined in the Pledge Agreement), and grant a security
interest in favor of the Pledgee for the benefit of the Secured Creditors in,
all of the right, title and interest of the Pledgor in and to any and [all
"uncertificated securities" (as defined in Section 8-102(a)(18) of the Uniform
Commercial Code, as adopted in the State of New York) ("Uncertificated
Securities")] [Partnership Interests (as defined in the Pledge Agreement)]
[Limited Liability Company Interests (as defined in the Pledge Agreement)]
issued from time to time by the Issuer, whether now existing or hereafter from
time to time acquired by the Pledgor (with all of such [Uncertificated
Securities] [Partnership Interests] [Limited Liability Company Interests] being
herein collectively called the "Issuer Pledged Interests"); and
WHEREAS, the Pledgor desires the Issuer to enter into this Agreement in order to protect the security interest of the Pledgee under the Pledge Agreement in the Issuer Pledged Interests, to vest in the Pledgee control of the Issuer Pledged Interests and to provide for the rights of the parties under this Agreement;
NOW THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. The Pledgor hereby irrevocably authorizes and directs the Issuer, and the Issuer hereby agrees, to comply with any and all instructions and orders originated by the Pledgee (and its permitted successors and assigns) not in contravention of the Pledge Agreement regarding any and all of the Issuer Pledged Interests without the further consent by the registered owner (including the Pledgor), and, after receiving a notice from the Pledgee stating that an "Event of Default" has occurred and is continuing, not to comply with any instructions or orders regarding any or all of the Issuer Pledged Interests originated by any person or entity other than the Pledgee (and its permitted successors and assigns) or a court of competent jurisdiction.
ANNEX H
2. The Issuer hereby certifies that (i) no notice of any security interest, lien or other encumbrance or claim affecting the Issuer Pledged Interests (other than the security interest of the Pledgee) has been received by it, and (ii) the security interest of the Pledgee in the Issuer Pledged Interests has been registered in the books and records of the Issuer.
3. The Issuer hereby represents and warrants that (i) the pledge by the Pledgor of, and the granting by the Pledgor of a security interest in, the Issuer Pledged Interests to the Pledgee, for the benefit of the Secured Creditors, does not violate the charter, by-laws, partnership agreement, membership agreement or any other agreement governing the Issuer or the Issuer Pledged Interests, and (ii) the Issuer Pledged Interests are fully paid and nonassessable.
4. All notices, statements of accounts, reports, prospectuses, financial statements and other communications to be sent to the Pledgor by the Issuer in respect of the Issuer will also be sent to the Pledgee at the following address:
60 Wall Street New York, New York 10005 Attention: Carin Keegan Telephone No.: (212) 250-6083 Telecopier No.: (212) 250-5690
5. Until the Pledgee shall have delivered written notice to the Issuer that all of the Obligations have been paid in full (other than contingent indemnification obligations which are not then due and payable) and this Agreement is terminated, the Issuer will, upon receiving notice from the Pledgee stating that an "Event of Default" has occurred and is continuing, send any and all redemptions, distributions, interest or other payments in respect of the Issuer Pledged Interests from the Issuer for the account of the Pledgor only by wire transfers to the following address:
6. Except as expressly provided otherwise in Sections 4 and 5 above, all notices shall be sent or delivered by mail, telegraph, telex, telecopy, cable or overnight courier service and all such notices and communications shall, when mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, be effective when deposited in the mails, delivered to the telegraph company, cable company or overnight courier, as the case may be, or sent by telex or telecopier, except that notices and communications to the Pledgee, the Pledgor or the Issuer shall not be effective until received by the Pledgee, the Pledgor or the Issuer, as the case may be. All notices and other communications shall be in writing and addressed as follows:
ANNEX H
(a) if to the Pledgor, at:
Telecopier No.:
(b) if to the Pledgee, at:
60 Wall Street New York, New York 10005 Attention: Carin Keegan Telephone No.: (212) 250-6083 Telecopier No.: (212) 250-5690
(c) if to the Issuer, at:
or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder. As used in this
Section 6, "Business Day" means any day other than a Saturday, Sunday, or other
day in which banks in New York are authorized to remain closed.
7. This Agreement shall be binding upon the successors and assigns of the Pledgor and the Issuer and shall inure to the benefit of and be enforceable by the Pledgee and its successors and assigns. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one instrument. In the event that any provision of this Agreement shall prove to be invalid or unenforceable, such provision shall be deemed to be severable from the other provisions of this Agreement which shall remain binding on all parties hereto. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in the manner whatsoever except in writing signed by the Pledgee, the Issuer and the Pledgor.
8. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its principles of conflict of laws.
ANNEX H
IN WITNESS WHEREOF, the Pledgor, the Pledgee and the Issuer have caused this Agreement to be executed by their duly elected officers duly authorized as of the date first above written.
TOWN SPORTS INTERNATIONAL HOLDINGS,
INC.,
as Pledgor
By /s/ Richard Pyle ------------------------------------ Name: Richard Pyle Title: Chief Financial Officer |
DEUTSCHE BANK TRUST COMPANY
AMERICAS,
not in its individual capacity but
solely as Collateral Agent and
Pledgee
By /s/ Scottye Lindsey ------------------------------------ Name: Scottye Lindsey Title: Vice President |
[_______________________________], as Issuer
By ________________________________ Name:
Title:
Table of Contents
Page
----
1. SECURITY FOR OBLIGATIONS................................................................................ 2
2. DEFINITIONS............................................................................................. 3
3. PLEDGE OF SECURITIES, ETC............................................................................... 6
3.1 Pledge......................................................................................... 6
3.2 Procedures..................................................................................... 9
3.3 Subsequently Acquired Collateral............................................................... 11
3.4 Transfer Taxes................................................................................. 11
3.5 Definition of Pledged Notes.................................................................... 11
3.6 Certain Representations and Warranties Regarding the Collateral................................ 11
4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC............................................................ 12
5. VOTING, ETC., WHILE NO EVENT OF DEFAULT................................................................. 12
6. DIVIDENDS AND OTHER DISTRIBUTIONS....................................................................... 12
7. REMEDIES IN CASE OF AN EVENT OF DEFAULT................................................................. 13
8. REMEDIES, CUMULATIVE, ETC............................................................................... 14
9. APPLICATION OF PROCEEDS................................................................................. 14
10. PURCHASERS OF COLLATERAL................................................................................ 15
11. INDEMNITY............................................................................................... 15
12. PLEDGEE NOT A PARTNER OR LIMITED LIABILITY COMPANY MEMBER............................................... 15
13. FURTHER ASSURANCES; POWER-OF-ATTORNEY................................................................... 16
14. THE PLEDGEE AS COLLATERAL AGENT......................................................................... 16
15. TRANSFER BY THE PLEDGOR................................................................................. 17
16. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLEDGOR................................................ 17
17. LEGAL NAMES; TYPE OF ORGANIZATION (AND WHETHER A REGISTERED ORGANIZATION AND/OR A TRANSMITTING
UTILITY); JURISDICTION OF ORGANIZATION; LOCATION; ORGANIZATIONAL IDENTIFICATION NUMBERS; CHANGES
THERETO; ETC. .......................................................................................... 18
|
Table of Contents
(continued)
Page
----
18. PLEDGOR'S OBLIGATIONS ABSOLUTE, ETC..................................................................... 19
19. REGISTRATION, ETC....................................................................................... 20
20. TERMINATION; RELEASE.................................................................................... 21
21. NOTICES, ETC............................................................................................ 22
22. WAIVER; AMENDMENT....................................................................................... 22
23. MISCELLANEOUS........................................................................................... 22
24. HEADINGS DESCRIPTIVE.................................................................................... 23
25. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL.................................. 23
26. PLEDGOR'S DUTIES........................................................................................ 24
27. COUNTERPARTS............................................................................................ 24
28. SEVERABILITY............................................................................................ 24
29. RECOURSE................................................................................................ 24
|
ANNEX A - SCHEDULE OF LEGAL NAMES, TYPE OF ORGANIZATION, JURISDICTION OF
ORGANIZATION, LOCATION AND ORGANIZATIONAL IDENTIFICATION NUMBERS
ANNEX B - SCHEDULE OF SUBSIDIARIES
ANNEX C - SCHEDULE OF STOCK
ANNEX D - SCHEDULE OF NOTES
ANNEX E - SCHEDULE OF LIMITED LIABILITY COMPANY INTERESTS
ANNEX F - SCHEDULE OF PARTNERSHIP INTERESTS
ANNEX G - SCHEDULE OF CHIEF EXECUTIVE OFFICES
ANNEX H - FORM OF AGREEMENT REGARDING UNCERTIFICATED SECURITIES, LIMITED
LIABILITY COMPANY INTERESTS AND PARTNERSHIP INTERESTS
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EXHIBIT 10.9
SECURITY AGREEMENT
between
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
and
DEUTSCHE BANK TRUST COMPANY AMERICAS,
as COLLATERAL AGENT
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of February 4, 2004, made by Town Sports International Holdings, Inc., a Delaware corporation (the "Assignor"), in favor of Deutsche Bank Trust Company Americas, as collateral agent (together with any successor collateral agent, the "Collateral Agent"), for the benefit of the Secured Creditors (as defined below). Certain capitalized terms as used herein are defined in Article IX hereof. Except as otherwise defined herein, all other capitalized terms used herein and defined in the Credit Agreement (as defined below) shall be used herein as therein defined.
W I T N E S S E T H:
WHEREAS, Town Sports International, Inc. (the "Borrower"), the lenders from time to time party thereto (the "Lenders") and Deutsche Bank Trust Company Americas, as administrative agent (together with any successor administrative agent, the "Administrative Agent"), have entered into a Credit Agreement, dated as of April 16, 2003 (as amended, modified or supplemented from time to time, the "Credit Agreement"), providing for the making of Loans to, and the issuance of, and participation in, Letters of Credit for the account of, the Borrower, all as contemplated therein (the Lenders, each Issuing Lender, the Administrative Agent and the Collateral Agent are herein called the "Lender Creditors");
WHEREAS, the Borrower and/or one or more of its Subsidiaries may have entered into, or may at any time and from time to time after the date hereof enter into one or more Interest Rate Protection Agreements or Other Hedging Agreements with one or more Lenders or any affiliate thereof (each such Lender or affiliate, even if the respective Lender subsequently ceases to be a Lender under the Credit Agreement for any reason, together with such Lender's or affiliate's successors and assigns, if any, collectively, the "Other Creditors" and, together with the Lender Creditors, the "Secured Creditors");
WHEREAS, pursuant to the Holdco Guaranty, the Assignor has guaranteed the payment and performance when due of all Guaranteed Obligations as described therein;
WHEREAS, it is a condition precedent to the First Amendment Effective Date that the Assignor shall have executed and delivered to the Collateral Agent this Agreement; and
WHEREAS, the Assignor will obtain benefits from the incurrence of Loans by the Borrower and the issuance of Letters of Credit for the account of the Borrower under the Credit Agreement and the entering into by the Borrower and/or one or more of its Subsidiaries of Interest Rate Protection Agreements or Other Hedging Agreements and, accordingly, desires to execute this Agreement in order to satisfy the condition described in the preceding recital;
NOW, THEREFORE, in consideration of the foregoing and other benefits accruing to the Assignor, the receipt and sufficiency of which are hereby acknowledged, the Assignor hereby makes the following representations and warranties to the Collateral Agent for the benefit of the Secured Creditors and hereby covenants and agrees with the Collateral Agent for the benefit of the Secured Creditors as follows:
ARTICLE I
SECURITY INTERESTS
1.1 Grant of Security Interests. (a) As security for the prompt and complete payment and performance when due of all of its Obligations, the Assignor does hereby assign and transfer unto the Collateral Agent, and does hereby pledge and grant to the Collateral Agent, in each case for the benefit of the Secured Creditors, a continuing security interest in all of the right, title and interest of the Assignor in, to and under all of the following personal property and fixtures (and all rights therein) of the Assignor, or in which or to which the Assignor has any rights, in each case whether now existing or hereafter from time to time acquired existing or hereafter from time to time acquired existing or hereafter from time to time acquired:
(i) each and every Account;
(ii) all cash;
(iii) the Cash Collateral Account and all monies, securities, Instruments and other investments deposited or required to be deposited in the Cash Collateral Account;
(iv) all Chattel Paper (including, without limitation, all Tangible Chattel Paper and all Electronic Chattel Paper);
(v) all Commercial Tort Claims (including all Commercial Tort Claims described in Annex H hereto);
(vi) all computer programs of the Assignor and all intellectual property rights therein and all other proprietary information of the Assignor, including but not limited to Domain Names and Trade Secret Rights;
(vii) all Contracts, together with all Contract Rights arising thereunder;
(viii) all Copyrights;
(ix) all Equipment;
(x) all Deposit Accounts and all other demand, deposit, time, savings, cash management, passbook and similar accounts maintained by the Assignor with any Person and all monies, securities, Instruments and other investments deposited or required to be deposited in any of the foregoing;
(xi) all Documents;
(xii) all General Intangibles;
(xiii) all Goods;
(xiv) all Instruments;
(xv) all Inventory;
(xvi) all Investment Property;
(xvii) all Letter-of-Credit Rights (whether or not the respective letter of credit is evidenced by a writing);
(xviii) all Marks, together with the registrations and right to all renewals thereof, and the goodwill of the business of the Assignor symbolized by the Marks;
(xix) all Patents;
(xx) all Permits;
(xxi) all Software and all Software licensing rights, all writings, plans, specifications and schematics, all engineering drawings, customer lists, goodwill and licenses, and all recorded data of any kind or nature, regardless of the medium of recording;
(xxii) all Supporting Obligations; and
(xxiii) all Proceeds and products of any and all of the
foregoing (all of the above, including this clause
(xxiii), the "Collateral").
(b) The security interest of the Collateral Agent under this Agreement extends to all Collateral which the Assignor may acquire, or with respect to which the Assignor may obtain rights, at any time during the term of this Agreement.
1.2 Power of Attorney. The Assignor hereby constitutes and appoints the Collateral Agent its true and lawful attorney, irrevocably, with full power after the occurrence of and during the continuance of an Event of Default (in the name of the Assignor or otherwise) to act, require, demand, receive, compound and give acquittance for any and all moneys and claims for moneys due or to become due to the Assignor under or arising out of the Collateral, to endorse any checks or other instruments or orders in connection therewith and to file any claims or take any action or institute any proceedings which the Collateral Agent may deem to be necessary or advisable to protect the interests of the Secured Creditors, which appointment as attorney is coupled with an interest.
ARTICLE II
GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
The Assignor represents, warrants and covenants, which representations, warranties and covenants shall survive execution and delivery of this Agreement, as follows:
2.1 Necessary Filings. All filings, registrations, recordings and other actions necessary or appropriate to create, preserve and perfect the security interest granted by the Assignor to the Collateral Agent hereby in respect of the Collateral have been accomplished and the security interest granted to the Collateral Agent pursuant to this Agreement in and to the Collateral creates (or upon such filings will create) a valid and, together with all such filings, registrations, recordings and other actions, a perfected security interest therein prior to the rights of all other Persons therein and subject to no other Liens (other than Permitted Liens) and is entitled to all the rights, priorities and benefits afforded by the UCC or other relevant law as enacted in any relevant jurisdiction to perfected security interests, in each case to the extent that the Collateral consists of the type of property in which a security interest may be perfected by possession or control (within the meaning of the UCC as in effect on the date hereof in the State of New York), by filing a financing statement under the UCC as enacted in any relevant jurisdiction and by a filing of a Grant of Security Interest in the respective form attached hereto in the United States Patent and Trademark Office or in the United States Copyright Office.
2.2 No Liens. The Assignor is, and as to all Collateral acquired by it from time to time after the date hereof the Assignor will be, the owner of all Collateral free from any Lien, security interest, encumbrance or other right, title or interest of any Person (other than Permitted Liens), and the Assignor shall defend the Collateral against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the Collateral Agent.
2.3 Other Financing Statements. As of the date hereof, there is no financing statement (or similar statement or instrument of registration under the law of any jurisdiction) covering or purporting to cover any interest of any kind in the Collateral (other than financing statements filed in respect of Permitted Liens), and so long as the Termination Date has not occurred, the Assignor will not execute or authorize to be filed in any public office any financing statement (or similar statement or instrument of registration under the law of any jurisdiction) or statements relating to the Collateral, except financing statements filed or to be filed in respect of and covering the security interests granted hereby by the Assignor or in connection with Permitted Liens.
2.4 Chief Executive Office, Record Locations. The chief executive office of the Assignor is, on the date of this Agreement, located at the address indicated on Annex A hereto for the Assignor. During the period of the four calendar months preceding the date of this Agreement, the chief executive office of the Assignor has not been located at any address other than that indicated on Annex A in accordance with the immediately preceding sentence, in each case unless each such other address is also indicated on Annex A hereto for the Assignor.
2.5 Location of Inventory and Equipment. All Inventory and Equipment held on the date hereof, or held at any time during the four calendar months prior to the date hereof, by the Assignor is located at one of the locations shown on Annex B hereto for the Assignor.
2.6 Legal Names; Type of Organization (and Whether a Registered Organization and/or a Transmitting Utility); Jurisdiction of Organization; Location; Organizational Identification Numbers; Changes Thereto; etc. As of the date hereof, the exact legal name of the Assignor, the type of organization of the Assignor, whether or not the Assignor is a Registered Organization, the jurisdiction of organization of the Assignor, the Assignor's Location, the
organizational identification number (if any) of the Assignor, and whether or not the Assignor is a Transmitting Utility, is listed on Annex C hereto for the Assignor. The Assignor shall not change its legal name, its type of organization, its status as a Registered Organization (in the case of a Registered Organization), its status as a Transmitting Utility or as a Person which is not a Transmitting Utility, as the case may be, its jurisdiction of organization, its Location, or its organizational identification number (if any) from that listed on Annex C hereto, except that any such changes shall be permitted (so long as not in violation of the applicable requirements of the Secured Debt Agreements and so long as same do not involve (x) a Registered Organization ceasing to constitute same or (y) the Assignor changing its jurisdiction of organization or Location from the United States or a State thereof to a jurisdiction of organization or Location, as the case may be, outside the United States or a State thereof) if (i) it shall have given to the Collateral Agent not more than 15 days' written notice after each change to the information listed on Annex C (as adjusted for any subsequent changes thereto previously made in accordance with this sentence), together with a supplement to Annex C which shall correct all information contained therein for the Assignor, and (ii) in connection with such respective change or changes, it shall have taken all action reasonably requested by the Collateral Agent to maintain the security interests of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. In addition, to the extent that the Assignor does not have an organizational identification number on the date hereof and later obtains one, the Assignor shall promptly thereafter notify the Collateral Agent of such organizational identification number and shall take all actions reasonably satisfactory to the Collateral Agent to the extent necessary to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby fully perfected and in full force and effect.
2.7 Trade Names; etc. The Assignor does not have nor does it operate in any jurisdiction under, nor in the preceding five years has it had or operated in any jurisdiction under, any trade names, fictitious names or other names except its legal name as specified in Annex C and such other trade or fictitious names as are listed on Annex D hereto for the Assignor. The Assignor may assume or operate in any jurisdiction under any new trade, fictitious or other name if (i) it shall have given to the Collateral Agent not more than 15 days' written notice after any such assumption or operation, clearly describing such new name and the jurisdictions in which such new name will be used and providing such other information in connection therewith as the Collateral Agent may reasonably request and (ii) with respect to such new name, it shall have taken all action reasonably requested by the Collateral Agent to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect.
2.8 Certain Significant Transactions. During the one year period preceding the date of this Agreement, no Person shall have merged or consolidated with or into the Assignor, and no Person shall have liquidated into, or transferred all or substantially all of its assets to, the Assignor, in each case except as described in Annex E hereto. With respect to any transactions so described in Annex E hereto, the Assignor shall have furnished such information with respect to the Person (and the assets of the Person and locations thereof) which merged with or into or consolidated with the Assignor, or was liquidated into or transferred all or substantially all of its assets to the Assignor, and shall have furnished to the Collateral Agent such UCC lien searches as may have been requested with respect to such Person and its assets, to establish that no security interest (excluding Permitted Liens) continues perfected on the date hereof with respect
to any Person described above (or the assets transferred to the Assignor by such Person), including, without limitation, pursuant to Section 9-316(a)(3) of the UCC.
2.9 Non-UCC Property. The aggregate fair market value (as determined by the Assignor in good faith) of all property of the Assignor of the types described in clauses (1), (2) and (3) of Section 9-311(a) of the UCC does not exceed $500,000. If the aggregate value of all such property at any time owned by the Assignor exceeds $500,000, the Assignor shall provide prompt written notice thereof to the Collateral Agent and, upon the request of the Collateral Agent, the Assignor shall promptly (and in any event within 30 days) take such actions (at its own cost and expense) as may be required under the respective United States, State or other laws referenced in Section 9-311(a) of the UCC to perfect the security interests granted herein in any Collateral where the filing of a financing statement does not perfect the security interest in such property in accordance with the provisions of Section 9-311(a) of the UCC.
2.10 As-Extracted Collateral; Timber-to-be-Cut. On the date hereof, the Assignor does not own, or expect to acquire, any property which constitutes, or would constitute, As-Extracted Collateral or Timber-to-be-Cut. If at any time after the date of this Agreement the Assignor owns, acquires or obtains rights to any As-Extracted Collateral or Timber-to-be-Cut, the Assignor shall furnish the Collateral Agent with prompt written notice thereof (which notice shall describe in reasonable detail the As-Extracted Collateral and/or Timber-to-be-Cut and the locations thereof) and shall take all actions as may be deemed reasonably necessary or desirable by the Collateral Agent to perfect the security interest of the Collateral Agent therein.
2.11 Collateral in the Possession of a Bailee. If any Inventory or other Goods are at any time in the possession of a bailee, the Assignor shall promptly notify the Collateral Agent thereof and, if requested by the Collateral Agent, shall use its reasonable best efforts to promptly obtain an acknowledgment from such bailee, in form and substance reasonably satisfactory to the Collateral Agent, that the bailee holds such Collateral for the benefit of the Collateral Agent and shall act upon the instructions of the Collateral Agent, without the further consent of the Assignor. The Collateral Agent agrees with the Assignor that the Collateral Agent shall not give any such instructions unless an Event of Default has occurred and is continuing or would occur after taking into account any action by the Assignor with respect to any such bailee.
ARTICLE III
SPECIAL PROVISIONS CONCERNING ACCOUNTS; CONTRACT RIGHTS;
INSTRUMENTS; CHATTEL PAPER AND CERTAIN OTHER COLLATERAL
3.1 Additional Representations and Warranties. As of the time when each of its Accounts arises, the Assignor shall be deemed to have represented and warranted that each such Account, and all original records, papers and documents relating thereto (if any) are genuine and what they purport to be, and that all papers and documents (if any) relating thereto (i) will, to the knowledge of the Assignor, represent the genuine, legal, valid and binding obligation of the account debtor evidencing indebtedness unpaid and owed by the respective account debtor arising out of the performance of labor or services or the sale or lease and delivery of the merchandise listed therein, or both, (ii) will be the only original writings evidencing and embodying such obligation of the account debtor named therein (other than copies created for
general accounting purposes), (iii) will, to the knowledge of the Assignor, evidence true and valid obligations, enforceable in accordance with their respective terms, and (iv) will be in compliance and will conform in all material respects with all applicable federal, state and local laws and applicable laws of any relevant foreign jurisdiction.
3.2 Maintenance of Records. The Assignor will keep and maintain at its own cost and expense accurate records in all material respects of its Accounts and Contracts, including, but not limited to, originals of all documentation (including each Contract) with respect thereto, records of all payments received, all credits granted thereon, all merchandise returned and all other dealings therewith, and the Assignor will make the same available on the Assignor's premises to the Collateral Agent for inspection as otherwise permitted by the terms of the respective Secured Debt Agreements. Upon the occurrence and during the continuance of an Event of Default and at the request of the Collateral Agent, the Assignor shall, at its own cost and expense, deliver all tangible evidence of its Accounts and Contract Rights (including, without limitation, all documents evidencing the Accounts and all Contracts) and such books and records to the Collateral Agent or to its representatives (copies of which evidence and books and records may be retained by the Assignor). Upon the occurrence and during the continuance of an Event of Default and if the Collateral Agent so directs, the Assignor shall legend, in form and manner satisfactory to the Collateral Agent, the Accounts and the Contracts, as well as books, records and documents (if any) of the Assignor evidencing or pertaining to such Accounts and Contracts with an appropriate reference to the fact that such Accounts and Contracts have been assigned to the Collateral Agent and that the Collateral Agent has a security interest therein.
3.3 Direction to Account Debtors; Contracting Parties; etc. Upon the occurrence and during the continuance of an Event of Default, if the Collateral Agent so directs the Assignor, the Assignor agrees (x) to cause all payments on account of the Accounts and Contracts to be made directly to the Cash Collateral Account, (y) that the Collateral Agent may, at its option, directly notify the obligors with respect to any Accounts and/or under any Contracts to make payments with respect thereto as provided in the preceding clause (x), and (z) that the Collateral Agent may enforce collection of any such Accounts and Contracts and may adjust, settle or compromise the amount of payment thereof, in the same manner and to the same extent as the Assignor. Without notice to or assent by the Assignor, the Collateral Agent may, upon the occurrence and during the continuance of an Event of Default, apply any or all amounts then in, or thereafter deposited in, the Cash Collateral Account toward the payment of the Obligations in the manner provided in Section 7.4 of this Agreement. The reasonable costs and expenses of collection (including reasonable attorneys' fees), whether incurred by the Assignor or the Collateral Agent, shall be borne by the Assignor. The Collateral Agent shall deliver a copy of each notice referred to in the preceding clause (y) to the Assignor, provided that (x) the failure by the Collateral Agent to so notify the Assignor shall not affect the effectiveness of such notice or the other rights of the Collateral Agent created by this Section 3.3 and (y) no such notice shall be required if an Event of Default of the type described in Section 10.05 of the Credit Agreement has occurred and is continuing.
3.4 Modification of Terms; etc. Except in accordance with the Assignor's ordinary course of business or as is consistent with reasonable business judgment or as permitted by Section 3.5 hereof, the Assignor shall not rescind or cancel any indebtedness evidenced by any Account or under any Contract, or modify any material term thereof or make any material
adjustment with respect thereto, or extend or renew the same, or compromise or settle any material dispute, claim, suit or legal proceeding relating thereto, or sell any Account or Contract, or interest therein, without the prior written consent of the Collateral Agent. The Assignor will not do anything to impair the rights of the Collateral Agent in the Accounts or Contracts.
3.5 Collection. The Assignor shall endeavor in accordance with reasonable business practices to cause to be collected from the account debtor named in each of its Accounts or obligor under any Contract, as and when due (including, without limitation, amounts which are delinquent, such amounts to be collected in accordance with generally accepted lawful collection procedures) any and all amounts owing under or on account of such Account or Contract. Except as otherwise directed by the Collateral Agent after the occurrence and during the continuation of an Event of Default, the Assignor may allow in the ordinary course of business as adjustments to amounts owing under its Accounts and Contracts (i) an extension or renewal of the time or times of payment, or settlement for less than the total unpaid balance, which the Assignor finds appropriate in accordance with reasonable business judgment, and (ii) a refund or credit due as a result of returned or damaged merchandise or improperly performed services or for other reasons which the Assignor finds appropriate in accordance with reasonable business judgment. The reasonable costs and expenses (including, without limitation, reasonable attorneys' fees) of collection, whether incurred by the Assignor or the Collateral Agent, shall be borne by the Assignor.
3.6 Instruments. If the Assignor owns or acquires any Instrument in excess of $500,000 constituting Collateral (other than checks and other payment instruments received and collected in the ordinary course of business), the Assignor will within 10 Business Days notify the Collateral Agent thereof, and upon request by the Collateral Agent will promptly deliver such Instrument to the Collateral Agent appropriately endorsed to the order of the Collateral Agent as further security hereunder.
3.7 Assignor Remains Liable Under Accounts. Anything herein to the contrary notwithstanding, the Assignor shall remain liable under each of the Accounts to observe and perform all of the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise to such Accounts. Neither the Collateral Agent nor any other Secured Creditor shall have any obligation or liability under any Account (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by the Collateral Agent or any other Secured Creditor of any payment relating to such Account pursuant hereto, nor shall the Collateral Agent or any other Secured Creditor be obligated in any manner to perform any of the obligations of the Assignor under or pursuant to any Account (or any agreement giving rise thereto), to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by them or as to the sufficiency of any performance by any party under any Account (or any agreement giving rise thereto), to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to them or to which they may be entitled at any time or times.
3.8 Assignor Remains Liable Under Contracts. Anything herein to the contrary notwithstanding, the Assignor shall remain liable under each of the Contracts to observe and perform all of the conditions and obligations to be observed and performed by them thereunder, all
in accordance with and pursuant to the terms and provisions of each Contract. Neither the Collateral Agent nor any other Secured Creditor shall have any obligation or liability under any Contract by reason of or arising out of this Agreement or the receipt by the Collateral Agent or any other Secured Creditor of any payment relating to such Contract pursuant hereto, nor shall the Collateral Agent or any other Secured Creditor be obligated in any manner to perform any of the obligations of the Assignor under or pursuant to any Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any performance by any party under any Contract, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to them or to which they may be entitled at any time or times.
3.9 Deposit Accounts; etc. (a) The Assignor does not maintain, nor at any time after the date of this Agreement shall establish or maintain, any demand, time, savings, passbook or similar account, except for such accounts maintained with a bank (as defined in Section 9-102 of the UCC) whose jurisdiction (determined in accordance with Section 9-304 of the UCC) is within a State of the United States. Annex F-1 hereto accurately sets forth, as of the date of this Agreement, for the Assignor, each Deposit Account maintained by the Assignor (including a description thereof and the respective account number), the name of the respective bank with which such Deposit Account is maintained, and the jurisdiction of the respective bank with respect to such Deposit Account. For each Deposit Account listed on Annex F-2 hereto, the Assignor shall use its commercially reasonable efforts to cause the bank with which the Deposit Account is maintained to execute and deliver to the Collateral Agent, within 30 days after the date of this Agreement or, if later, at the time of the establishment of the respective Deposit Account, a "control agreement" in the form of Annex G hereto (appropriately completed), with such changes thereto, or other forms requested by any such bank, in either case as may be acceptable to the Collateral Agent; provided, however, the provisions of this sentence shall not apply to any Deposit Account maintained with Deutsche Bank Trust Company Americas (whether in its capacity as Collateral Agent or in its individual capacity) in which it otherwise has "control" over within the meaning of Section 9-104 of the UCC. Except as otherwise provided in the proviso to the immediately preceding sentence, if any bank with which a Deposit Account listed on Annex F-2 hereto refuses to, or does not, enter into such a "control agreement", then, at the request of the Collateral Agent or the Required Lenders, the Assignor shall promptly close the respective Deposit Account and transfer all balances therein to the Cash Collateral Account or another Deposit Account meeting the requirements of this Section 3.9. If any bank with which a Deposit Account listed on Annex F-2 hereto refuses to subordinate all its claims with respect to such Deposit Account to the Collateral Agent's security interest therein on terms satisfactory to the Collateral Agent, then the Collateral Agent, at its option, may (x) require that such Deposit Account be terminated in accordance with the immediately preceding sentence or (y) agree to a "control agreement" without such subordination, provided that in such event the Collateral Agent may at any time, at its option, subsequently require that such Deposit Account be terminated (within 30 days after notice from the Collateral Agent) in accordance with the requirements of the immediately preceding sentence.
(b) After the date of this Agreement, the Assignor shall not establish any new demand, time, savings, passbook or similar account, except for Deposit Accounts established and maintained with banks and meeting the requirements of the first sentence of preceding clause (a).
(c) The Assignor, the Collateral Agent and Deutsche Bank Trust Company Americas in its individual capacity hereby agree that after the occurrence and during the continuance of any Event of Default, Deutsche Bank Trust Company Americas in its individual capacity shall only honor instructions from the Collateral Agent with respect to Deposit Accounts maintained with Deutsche Bank Trust Company Americas following a notice from the Collateral Agent indicating that it is exercising control over any such Deposit Account without the consent of any other Person (including without the consent of the Assignor).
3.10 Letter-of-Credit Rights. If the Assignor is at any time a beneficiary under a letter of credit with a stated amount of $500,000 or more, the Assignor shall promptly notify the Collateral Agent thereof and, at the request of the Collateral Agent, the Assignor shall, pursuant to an agreement in form and substance reasonably satisfactory to the Collateral Agent, use its reasonable best efforts to either (i) arrange for the issuer and any confirmer of such letter of credit to consent to an assignment to the Collateral Agent of the proceeds of any drawing under such letter of credit or (ii) arrange for the Collateral Agent to become the transferee beneficiary of such letter of credit, with the Collateral Agent agreeing, in each case, that the proceeds of any drawing under the letter of credit are to be applied as provided in this Agreement after the occurrence and during the continuance of an Event of Default.
3.11 Commercial Tort Claims. All Commercial Tort Claims of, and known to, the Assignor as of the date of this Agreement are described in Annex H hereto. If the Assignor shall at any time after the date of this Agreement acquire a Commercial Tort Claim in an amount (taking the greater of the aggregate claimed damages thereunder or the reasonably estimated value thereof) of $1,000,000 or more, the Assignor shall promptly notify the Collateral Agent thereof in a writing signed by the Assignor and describing the details thereof and shall grant to the Collateral Agent in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to the Collateral Agent.
3.12 Chattel Paper. Upon the request of the Collateral Agent made at any time or from time to time, the Assignor shall promptly furnish to the Collateral Agent a list of all Electronic Chattel Paper held or owned by the Assignor. Furthermore, if requested by the Collateral Agent, the Assignor shall promptly take all actions which are reasonably practicable so that the Collateral Agent has "control" of all Electronic Chattel Paper in accordance with the requirements of Section 9-105 of the UCC. The Assignor will promptly (and in any event within 10 days) following any request by the Collateral Agent, deliver all of its Tangible Chattel Paper to the Collateral Agent.
3.13 Further Actions. The Assignor will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, certificates, reports and other assurances or instruments and take such further steps, including any and all actions as may be necessary or required under the Federal Assignment of Claims Act, relating to its Accounts, Contracts, Instruments and other property or rights covered by the security interest hereby granted, as the Collateral Agent may reasonably require.
ARTICLE IV
SPECIAL PROVISIONS CONCERNING TRADEMARKS AND DOMAIN NAMES
4.1 Additional Representations and Warranties. The Assignor represents and warrants that it is the true and lawful owner of or otherwise has the right to use the registered Marks and Domain Names listed in Annex I hereto for the Assignor and that said listed Marks and Domain Names include all United States marks and applications for United States marks registered in the United States Patent and Trademark Office and all Domain Names that the Assignor owns or uses in connection with its business as of the date hereof. The Assignor represents and warrants that it owns, is licensed to use or otherwise has the right to use, all Marks and Domain Names that are necessary for the conduct of its business. The Assignor further warrants that it has no knowledge of any third party claim received by it that any aspect of the Assignor's present or contemplated business operations infringe or will infringe any trademark, service mark or trade name of any other Person other than as could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Assignor represents and warrants that it is the true and lawful owner of or otherwise has the right to use all U.S. trademark registrations and applications and Domain Name registrations listed in Annex I hereto and that said registrations are valid, subsisting, have not been canceled and that the Assignor is not aware of any third-party claim that any of said registrations is invalid or unenforceable, and is not aware that there is any reason that any of said registrations is invalid or unenforceable, and is not aware that there is any reason that any of said applications will not mature into registrations. The Assignor hereby grants to the Collateral Agent an absolute power of attorney to sign, upon the occurrence and during the continuance of an Event of Default, any document which may be required by the United States Patent and Trademark Office or similar registrar in order to effect an absolute assignment of all right, title and interest in each Mark and/or Domain Name, and record the same.
4.2 Licenses and Assignments. Except as otherwise permitted by the Secured Debt Agreements, the Assignor hereby agrees not to divest itself of any Mark or Domain Name.
4.3 Infringements. The Assignor agrees, promptly upon learning thereof, to notify the Collateral Agent in writing of the name and address of, and to furnish such pertinent information that may be available with respect to, any party who the Assignor believes is, or may be, infringing or diluting or otherwise violating any of the Assignor's rights in and to any Mark or Domain Name in any manner that could reasonably be expected to have a Material Adverse Effect, or with respect to any party claiming that the Assignor's use of any Mark or Domain Name material to the Assignor's business violates in any material respect any property right of that party. The Assignor further agrees to prosecute diligently in accordance with reasonable business practices any Person infringing any Mark or Domain Name in any manner that could reasonably be expected to have a Material Adverse Effect.
4.4 Preservation of Marks and Domain Names. The Assignor agrees to use its Marks and Domain Names which are material to the Assignor's business in interstate commerce during the time in which this Agreement is in effect and to take all such other actions as are reasonably necessary to preserve such Marks as trademarks or service marks under the laws of
the United States (other than any such Marks which are no longer used or useful in its business or operations).
4.5 Maintenance of Registration. The Assignor shall, at its own expense, diligently process all documents reasonably required to maintain all Mark and/or Domain Name registrations, including but not limited to affidavits of use and applications for renewals of registration in the United States Patent and Trademark Office for all of its material registered Marks, and shall pay all fees and disbursements in connection therewith and shall not abandon any such filing of affidavit of use or any such application of renewal prior to the exhaustion of all administrative and judicial remedies without prior written consent of the Collateral Agent (other than with respect to registrations and applications deemed by the Assignor in its reasonable business judgment to be no longer prudent to pursue).
4.6 Future Registered Marks and Domain Names. If any Mark registration is issued hereafter to the Assignor as a result of any application now or hereafter pending before the United States Patent and Trademark Office or any Domain Name is registered by the Assignor, at the end of the calendar quarter in which such certificate or similar indicia of ownership was received, the Assignor shall deliver to the Collateral Agent a copy of such registration certificate or similar indicia of ownership, and a grant of a security interest in such Mark and/or Domain Name, to the Collateral Agent and at the expense of the Assignor, confirming the grant of a security interest in such Mark and/or Domain Name to the Collateral Agent hereunder, the form of such security to be substantially in the form of Annex L hereto or in such other form as may be reasonably satisfactory to the Collateral Agent.
4.7 Remedies. If an Event of Default shall occur and be
continuing, the Collateral Agent may, by written notice to the Assignor, take
any or all of the following actions: (i) declare the entire right, title and
interest of the Assignor in and to each of the Marks and Domain Names, together
with all trademark rights and rights of protection to the same, vested in the
Collateral Agent for the benefit of the Secured Creditors, in which event such
rights, title and interest shall immediately vest, in the Collateral Agent for
the benefit of the Secured Creditors, and the Collateral Agent shall be entitled
to exercise the power of attorney referred to in Section 4.1 hereof to execute,
cause to be acknowledged and notarized and record said absolute assignment with
the applicable agency or registrar; (ii) take and use or sell the Marks or
Domain Names and the goodwill of the Assignor's business symbolized by the Marks
or Domain Names and the right to carry on the business and use the assets of the
Assignor in connection with which the Marks or Domain Names have been used; and
(iii) direct the Assignor to refrain, in which event the Assignor shall refrain,
from using the Marks or Domain Names in any manner whatsoever, directly or
indirectly, and the Assignor shall execute such further documents that the
Collateral Agent may reasonably request to further confirm this and to transfer
ownership of the Marks or Domain Names and registrations and any pending
trademark application in the United States Patent and Trademark Office or
applicable Domain Name registrar to the Collateral Agent.
ARTICLE V
SPECIAL PROVISIONS CONCERNING PATENTS, COPYRIGHTS AND TRADE SECRETS
5.1 Additional Representations and Warranties. The Assignor represents and warrants that it is the true and lawful owner of (i) all rights in (x) the Patents listed in Annex J hereto for the Assignor and that said Patents include all the United States patents and applications for United States patents that the Assignor owns as of the date hereof and (y) the Copyrights listed in Annex K hereto for the Assignor and that said Copyrights constitute all the United States copyrights registered with the United States Copyright Office and applications to United States copyrights that the Assignor owns as of the date hereof and (ii) all rights in, or otherwise has the right to use, all Trade Secrets and proprietary information necessary to operate the business of the Assignor ("Trade Secret Rights"). The Assignor further warrants that it has no knowledge of any third party claim that any aspect of the Assignor's present or contemplated business operations infringes or will infringe any patent of any other Person or the Assignor has misappropriated any trade secret or proprietary information which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. The Assignor hereby grants to the Collateral Agent an absolute power of attorney to sign, upon the occurrence and during the continuance of any Event of Default, any document which may be required by the United States Patent and Trademark Office or the United States Copyright Office in order to effect an absolute assignment of all right, title and interest in each Patent or Copyright, and to record the same.
5.2 Licenses and Assignments. Except as otherwise permitted by the Secured Debt Agreements, the Assignor hereby agrees not to divest itself of any right under any Patent or Copyright.
5.3 Infringements. The Assignor agrees, promptly upon learning thereof, to furnish the Collateral Agent in writing with all pertinent information available to the Assignor with respect to any infringement, contributing infringement or active inducement to infringe or other violation of the Assignor's rights in any Patent or Copyright or to any claim that the practice of any Patent or use of any Copyright violates any property right of a third party, or with respect to any misappropriation of any Trade Secret Right or any claim that practice of any Trade Secret Right violates any property right of a third party, in each case, in any manner which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. The Assignor further agrees, absent direction of the Collateral Agent to the contrary, to diligently prosecute any Person infringing any Patent or Copyright or any Person misappropriating any Trade Secret Right, in each case to the extent that such infringement or misappropriation, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
5.4 Maintenance of Patents or Copyrights. At its own expense, the Assignor shall make timely payment of all post-issuance fees required pursuant to 35 U.S.C. Section 41 to maintain in force its rights under each Patent or Copyright, absent prior written consent of the Collateral Agent (other than any such Patents or Copyrights which are no longer used or are deemed by the Assignor in its reasonable business judgment to no longer be useful in its business or operations).
5.5 Prosecution of Patent or Copyright Applications. At its own expense, the Assignor shall diligently prosecute all material applications for (i) United States Patents listed in Annex J hereto and (ii) Copyrights listed on Annex K hereto, in each case for the Assignor and
shall not abandon any such application prior to exhaustion of all administrative and judicial remedies (other than applications deemed by the Assignor in its reasonable business judgment to be no longer prudent to pursue), absent written consent of the Collateral Agent.
5.6 Other Patents and Copyrights. At the end of each calendar quarter following the acquisition or issuance of a United States Patent, registration of a Copyright, or acquisition of a registered Copyright, or of filing of an application for a United States Patent or Copyright, the Assignor shall deliver to the Collateral Agent a copy of said Copyright or Patent, or certificate or registration of, or application therefor, as the case may be, with a grant of a security interest as to such Patent or Copyright, as the case may be, to the Collateral Agent and at the expense of the Assignor, confirming the grant of a security interest, the form of such grant of a security interest to be substantially in the form of Annex M or N hereto, as appropriate, or in such other form as may be reasonably satisfactory to the Collateral Agent.
5.7 Remedies. If an Event of Default shall occur and be continuing, the Collateral Agent may, by written notice to the Assignor, take any or all of the following actions: (i) declare the entire right, title, and interest of the Assignor in each of the Patents and Copyrights vested in the Collateral Agent for the benefit of the Secured Creditors, in which event such right, title, and interest shall immediately vest in the Collateral Agent for the benefit of the Secured Creditors, in which case the Collateral Agent shall be entitled to exercise the power of attorney referred to in Section 5.1 hereof to execute, cause to be acknowledged and notarized and to record said absolute assignment with the applicable agency; (ii) take and practice or sell the Patents and Copyrights; and (iii) direct the Assignor to refrain, in which event the Assignor shall refrain, from practicing the Patents and using the Copyrights directly or indirectly, and the Assignor shall execute such further documents as the Collateral Agent may reasonably request further to confirm this and to transfer ownership of the Patents and Copyrights to the Collateral Agent for the benefit of the Secured Creditors.
ARTICLE VI
PROVISIONS CONCERNING ALL COLLATERAL
6.1 Protection of Collateral Agent's Security. Except as otherwise permitted by the Secured Debt Agreements, the Assignor will do nothing to impair the rights of the Collateral Agent in the Collateral. The Assignor will at all times keep its Inventory and Equipment insured in favor of the Collateral Agent, at the Assignor's own expense to the extent and in the manner provided in the Secured Debt Agreements. Except to the extent otherwise permitted to be retained by the Assignor or applied by the Assignor pursuant to the terms of the Secured Debt Agreements, the Collateral Agent shall, at the time any proceeds of such insurance are distributed to the Secured Creditors, apply such proceeds in accordance with Section 7.4 hereof. The Assignor assumes all liability and responsibility in connection with the Collateral acquired by it and the liability of the Assignor to pay the Obligations shall in no way be affected or diminished by reason of the fact that such Collateral may be lost, destroyed, stolen, damaged or for any reason whatsoever unavailable to the Assignor.
6.2 Warehouse Receipts Non-Negotiable. To the extent practicable, the Assignor agrees that if any warehouse receipt or receipt in the nature of a warehouse receipt is issued with
respect to any of its Inventory, the Assignor shall request that such warehouse receipt or receipt in the nature thereof shall not be "negotiable" (as such term is used in Section 7-104 of the UCC as in effect in any relevant jurisdiction or under other relevant law).
6.3 Additional Information. The Assignor will, at its own expense, from time to time upon the reasonable request of the Collateral Agent, promptly (and in any event within 10 days after its receipt of the respective request) furnish to the Collateral Agent such information with respect to the Collateral (including with reasonable specificity and in summary form, the identity of the Collateral or such components thereof as may have been reasonably requested by the Collateral Agent, the value and location of such Collateral, etc.) as may be reasonably requested by the Collateral Agent. Without limiting the foregoing, the Assignor agrees that it shall promptly (and in any event within 10 Business Days after its receipt of the respective request) furnish to the Collateral Agent such updated Annexes hereto as may from time to time be reasonably requested by the Collateral Agent.
6.4 Further Actions. The Assignor will, at its own expense and upon the reasonable request of the Collateral Agent, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such lists, descriptions and designations of its Collateral, warehouse receipts, receipts in the nature of warehouse receipts, bills of lading, documents of title, vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, certificates, reports and other assurances or instruments and take such further steps relating to the Collateral and other property or rights covered by the security interest hereby granted, which the Collateral Agent deems reasonably appropriate or advisable to perfect, preserve or protect its security interest in the Collateral.
6.5 Financing Statements. The Assignor agrees to authorize and deliver to the Collateral Agent such financing statements, in form reasonably acceptable to the Collateral Agent, as the Collateral Agent may from time to time reasonably request or as are reasonably necessary or desirable in the opinion of the Collateral Agent to establish and maintain a valid, enforceable, perfected security interest in the Collateral as provided herein and the other rights and security contemplated hereby. The Assignor will pay any applicable filing fees, recordation taxes and related expenses relating to its Collateral. The Assignor hereby authorizes the Collateral Agent to file any such financing statements without the signature of the Assignor where permitted by law (and such authorization includes describing the Collateral as "all assets" of the Assignor).
ARTICLE VII
REMEDIES UPON OCCURRENCE OF AN EVENT OF DEFAULT
7.1 Remedies; Obtaining the Collateral Upon Default. The Assignor agrees that, if any Event of Default shall have occurred and be continuing, then and in every such case, the Collateral Agent, in addition to any rights now or hereafter existing under applicable law and under the other provisions of this Agreement, shall have all rights as a secured creditor under any UCC, and such additional rights and remedies to which a secured creditor is entitled under the laws in effect in all relevant jurisdictions and may:
(i) personally, or by agents or attorneys, immediately take possession of the Collateral or any part thereof, from the Assignor or any other Person who then has possession of any part thereof with or without notice or process of law, and for that purpose may enter upon the Assignor's premises where any of the Collateral is located and remove the same and use in connection with such removal any and all services, supplies, aids and other facilities of the Assignor;
(ii) instruct the obligor or obligors on any agreement, instrument or other obligation (including, without limitation, the Accounts and the Contracts) constituting the Collateral to make any payment required by the terms of such agreement, instrument or other obligation directly to the Collateral Agent and may exercise any and all remedies of the Assignor in respect of such Collateral;
(iii) instruct all depository banks which have entered into a control agreement with the Collateral Agent to transfer all monies, securities and instruments held by such depositary bank to the Cash Collateral Account in accordance with the terms of the respective control agreement (including by issuing a "Notice of Exclusive Control" in accordance with the terms thereof);
(iv) withdraw all monies, securities and instruments in the Cash Collateral Account and/or in any other Deposit Account maintained with the Collateral Agent (whether or not such Deposit Accounts are maintained with the Collateral Agent in its capacity as such) for application to the Obligations in accordance with Section 7.4 hereof;
(v) sell, assign or otherwise liquidate any or all of the Collateral or any part thereof in accordance with Section 7.2 hereof, or direct the Assignor to sell, assign or otherwise liquidate any or all of the Collateral or any part thereof, and, in each case, take possession of the proceeds of any such sale or liquidation;
(vi) take possession of the Collateral or any part thereof, by directing the Assignor in writing to deliver the same to the Collateral Agent at any reasonable place or places designated by the Collateral Agent, in which event the Assignor shall at its own expense:
(x) forthwith cause the same to be moved to the place or places so designated by the Collateral Agent and there delivered to the Collateral Agent;
(y) store and keep any Collateral so delivered to the Collateral Agent at such place or places pending further action by the Collateral Agent as provided in Section 7.2 hereof; and
(z) while the Collateral shall be so stored and kept, provide such security and maintenance services as shall be reasonably necessary to protect the same and to preserve and maintain it in good condition;
(vii) license or sublicense, whether on an exclusive or nonexclusive basis, any Marks, Domain Names, Patents or Copyrights included in the Collateral for such term
and on such conditions and in such manner as the Collateral Agent shall in its sole judgment determine;
(viii) apply any monies constituting Collateral or proceeds thereof in accordance with the provisions of Section 7.4; and
(ix) take any other action as specified in clauses (1) through (5), inclusive, of Section 9-607(a) of the UCC;
it being understood that the Assignor's obligation so to deliver the Collateral is of the essence of this Agreement and that, accordingly, upon application to a court of equity having jurisdiction, the Collateral Agent shall be entitled to a decree requiring specific performance by the Assignor of said obligation. By accepting the benefits of this Agreement and each other Security Document, the Secured Creditors expressly acknowledge and agree that this Agreement and each other Security Document may be enforced only by the action of the Collateral Agent acting upon the instructions of the Required Secured Creditors and that no other Secured Creditor shall have any right individually to seek to enforce or to enforce this Agreement or to realize upon the security to be granted hereby, it being understood and agreed that such rights and remedies may be exercised by the Collateral Agent or the holders of at least a majority of the outstanding Other Obligations, as the case may be, for the benefit of the Secured Creditors upon the terms of this Agreement and the other Security Documents.
7.2 Remedies; Disposition of the Collateral. If any Event of Default shall have occurred and be continuing, then any Collateral repossessed by the Collateral Agent under or pursuant to Section 7.1 hereof and any other Collateral whether or not so repossessed by the Collateral Agent, may be sold, assigned, leased or otherwise disposed of under one or more contracts or as an entirety, and without the necessity of gathering at the place of sale the property to be sold, and in general in such manner, at such time or times, at such place or places and on such terms as the Collateral Agent may, in compliance with any mandatory requirements of applicable law, determine to be commercially reasonable. Any of the Collateral may be sold, leased or otherwise disposed of, in the condition in which the same existed when taken by the Collateral Agent or after any overhaul or repair at the expense of the Assignor which the Collateral Agent shall determine to be commercially reasonable. Any disposition which shall be a private sale or other private proceedings permitted by such requirements shall be made upon not less than 10 days' prior written notice to the Assignor specifying the time at which such disposition is to be made and the intended sale price or other consideration therefor, and shall be subject, for the 10 days after the giving of such notice, to the right of the Assignor or any nominee of the Assignor to acquire the Collateral involved at a price or for such other consideration at least equal to the intended sale price or other consideration so specified. Any such disposition which shall be a public sale permitted by such requirements shall be made upon not less than 10 days' prior written notice to the Assignor specifying the time and place of such sale and, in the absence of applicable requirements of law, shall be by public auction (which may, at the Collateral Agent's option, be subject to reserve), after publication of notice of such auction (where required by applicable law) not less than 10 days prior thereto. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the sale may be so adjourned. To the extent permitted by any such
requirement of law, the Collateral Agent may bid for and become the purchaser of
the Collateral or any item thereof, offered for sale in accordance with this
Section 7.2 without accountability to the Assignor. If, under applicable law,
the Collateral Agent shall be permitted to make disposition of the Collateral
within a period of time which does not permit the giving of notice to the
Assignor as hereinabove specified, the Collateral Agent need give the Assignor
only such notice of disposition as shall be reasonably practicable in view of
such applicable law. The Assignor agrees to do or cause to be done all such
other acts and things as may be reasonably necessary to make such disposition or
dispositions of all or any portion of the Collateral valid and binding and in
compliance with any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction over
any such sale or sales, all at the Assignor's expense.
7.3 Waiver of Claims. Except as otherwise provided in this Agreement, THE ASSIGNOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL AGENT'S TAKING POSSESSION OR THE COLLATERAL AGENT'S DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES, and the Assignor hereby further waives, to the extent permitted by law:
(i) all damages occasioned by such taking of possession except any damages which are the direct result of the Collateral Agent's gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision);
(ii) except as otherwise expressly provided in this Agreement, all other requirements as to the time, place and terms of sale or other requirements with respect to the enforcement of the Collateral Agent's rights hereunder; and
(iii) all rights of redemption, appraisement, valuation, stay, extension or moratorium now or hereafter in force under any applicable law in order to prevent or delay the enforcement of this Agreement or the absolute sale of the Collateral or any portion thereof, and the Assignor, for itself and all who may claim under it, insofar as it or they now or hereafter lawfully may, hereby waives the benefit of all such laws.
Any sale of, or the grant of options to purchase, or any other realization upon, any Collateral shall operate to divest all right, title, interest, claim and demand, either at law or in equity, of the Assignor therein and thereto, and shall be a perpetual bar both at law and in equity against the Assignor and against any and all Persons claiming or attempting to claim the Collateral so sold, optioned or realized upon, or any part thereof, from, through and under the Assignor.
7.4 Application of Proceeds. (a) All moneys collected by the Collateral Agent upon any sale or other disposition of the Collateral (and, to the extent the Holdco Pledge Agreement requires proceeds of collateral thereunder to be applied in accordance with the provisions of this Agreement, all monies collected by the Pledgee under the Holdco Pledge Agreement upon any sale or other disposition of the collateral thereunder), together with all other
moneys received by the Collateral Agent hereunder and under the Holdco Pledge Agreement, shall be applied as follows:
(i) first, to the payment of all amounts owing the Collateral Agent of the type described in clauses (iii), (iv) and (v) of the definition of "Obligations";
(ii) second, to the extent proceeds remain after the application pursuant to preceding clause (i), an amount equal to the outstanding Primary Obligations shall be paid to the Secured Creditors as provided in Section 7.4(e) hereof, with each Secured Creditor receiving an amount equal to its outstanding Primary Obligations or, if the proceeds are insufficient to pay in full all such Primary Obligations, its Pro Rata Share of such amount remaining to be distributed;
(iii) third, to the extent proceeds remain after the application pursuant to preceding clauses (i) and (ii), an amount equal to the outstanding Secondary Obligations shall be paid to the Secured Creditors as provided in Section 7.4(e) hereof, with each Secured Creditor receiving an amount equal to its outstanding Secondary Obligations or, if the proceeds are insufficient to pay in full all such Secondary Obligations, its Pro Rata Share of such amount remaining to be distributed; and
(iv) fourth, to the extent proceeds remain after the application pursuant to preceding clauses (i) through (iii), inclusive, and following the termination of this Agreement pursuant to Section 10.8(a) hereof, to the Assignor or to whomever may be lawfully entitled to receive such surplus.
(b) For purposes of this Agreement, (x) "Pro Rata Share" shall mean, when calculating a Secured Creditor's portion of any distribution or amount, that amount (expressed as a percentage) equal to a fraction the numerator of which is the then unpaid amount of such Secured Creditor's Primary Obligations or Secondary Obligations, as the case may be, and the denominator of which is the then outstanding amount of all Primary Obligations or Secondary Obligations, as the case may be, (y) "Primary Obligations" shall mean (i) in the case of the Credit Document Obligations, all principal of, premium, fees and interest on, all Loans, all Unpaid Drawings, all contingent reimbursement obligations equal to the Stated Amount of all outstanding Letters of Credit and all Fees and (ii) in the case of the Other Obligations, all amounts due under each Interest Rate Protection Agreement and each Other Hedging Agreement with an Other Creditor (other than indemnities, fees (including, without limitation, attorneys' fees) and similar obligations and liabilities) and (z) "Secondary Obligations" shall mean all Obligations other than Primary Obligations.
(c) When payments to Secured Creditors are based upon
their respective Pro Rata Shares, the amounts received by such Secured Creditors
hereunder shall be applied (for purposes of making determinations under this
Section 7.4 only) (i) first, to their Primary Obligations and (ii) second, to
their Secondary Obligations. If any payment to any Secured Creditor of its Pro
Rata Share of any distribution would result in overpayment to such Secured
Creditor, such excess amount shall instead be distributed in respect of the
unpaid Primary Obligations or Secondary Obligations, as the case may be, of the
other Secured Creditors, with each Secured Creditor whose Primary Obligations or
Secondary Obligations, as the case may be, have not been
paid in full to receive an amount equal to such excess amount multiplied by a fraction the numerator of which is the unpaid Primary Obligations or Secondary Obligations, as the case may be, of such Secured Creditor entitled to distribution and the denominator of which is the unpaid Primary Obligations or Secondary Obligations, as the case may be, of all Secured Creditors entitled to such distribution.
(d) Each of the Secured Creditors, by their acceptance of the benefits hereof and of the other Security Documents, agrees and acknowledges that if the Lender Creditors are to receive a distribution on account of undrawn amounts with respect to Letters of Credit issued under the Credit Agreement (which shall only occur after all outstanding Loans under the Credit Agreement and Unpaid Drawings have been paid in full), such amounts shall be paid to the Administrative Agent under the Credit Agreement and held by it, for the equal and ratable benefit of the Lender Creditors, as cash security for the repayment of Obligations owing to the Lender Creditors as such. If any amounts are held as cash security pursuant to the immediately preceding sentence, then upon the termination of all outstanding Letters of Credit under the Credit Agreement, and after the application of all such cash security to the repayment of all Obligations owing to the Lender Creditors after giving effect to the termination of all such Letters of Credit, if there remains any excess cash, such excess cash shall be returned by the Administrative Agent to the Collateral Agent for distribution in accordance with Section 7.4(a) hereof.
(e) All payments required to be made hereunder shall be made (x) if to the Lender Creditors, to the Administrative Agent for the account of the Lender Creditors, and (y) if to the Other Creditors, to the trustee, paying agent or other similar representative (each, a "Representative") for the Other Creditors or, in the absence of such a Representative, directly to the Other Creditors.
(f) For purposes of applying payments received in accordance with this Section 7.4, the Collateral Agent shall be entitled to rely upon (i) the Administrative Agent and (ii) the Representative or, in the absence of such a Representative, upon the Other Creditors for a determination (which the Administrative Agent, each Representative and the Secured Creditors agree (or shall agree) to provide upon request of the Collateral Agent) of the outstanding Obligations owed to the Lender Creditors or the Other Creditors, as the case may be. Unless it has received written notice from a Lender Creditor or an Other Creditor to the contrary, the Administrative Agent and each Representative, in furnishing information pursuant to the preceding sentence, and the Collateral Agent, in acting hereunder, shall be entitled to assume that no Secondary Obligations are outstanding. Unless it has written notice from an Other Creditor to the contrary, the Collateral Agent, in acting hereunder, shall be entitled to assume that no Interest Rate Protection Agreements or Other Hedging Agreements are in existence.
(g) This Agreement is made with full recourse to the Assignor and pursuant to and upon all the warranties, representations, covenants and agreements on the part of the Assignor contained herein, in the Secured Debt Agreements and otherwise in writing in connection herewith or therewith. It is understood that the Assignor shall remain liable to the extent of any deficiency between the amount of the proceeds of the Collateral and the aggregate amount of the Obligations of the Assignor.
7.5 Remedies Cumulative. Each and every right, power and remedy hereby specifically given to the Collateral Agent shall be in addition to every other right, power and remedy specifically given to the Collateral Agent under this Agreement, the other Secured Debt Agreements or now or hereafter existing at law, in equity or by statute and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time or simultaneously and as often and in such order as may be deemed expedient by the Collateral Agent. All such rights, powers and remedies shall be cumulative and the exercise or the beginning of the exercise of one shall not be deemed a waiver of the right to exercise any other or others. No delay or omission of the Collateral Agent in the exercise of any such right, power or remedy and no renewal or extension of any of the Obligations shall impair any such right, power or remedy or shall be construed to be a waiver of any Default or Event of Default or an acquiescence thereof. No notice to or demand on the Assignor in any case shall entitle it to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Collateral Agent to any other or further action in any circumstances without notice or demand. In the event that the Collateral Agent shall bring any suit to enforce any of its rights hereunder and shall be entitled to judgment, then in such suit the Collateral Agent may recover reasonable expenses, including reasonable attorneys' fees, and the amounts thereof shall be included in such judgment.
7.6 Discontinuance of Proceedings. In case the Collateral Agent shall have instituted any proceeding to enforce any right, power or remedy under this Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Collateral Agent, then and in every such case the Assignor, the Collateral Agent and each holder of any of the Obligations shall be restored to their former positions and rights hereunder with respect to the Collateral subject to the security interest created under this Agreement, and all rights, remedies and powers of the Collateral Agent shall continue as if no such proceeding had been instituted.
ARTICLE VIII
INDEMNITY
8.1 Indemnity. (a) Without limiting the provisions of the
other Secured Debt Agreements, the Assignor agrees to indemnify, reimburse and
hold the Collateral Agent, each other Secured Creditor (in its capacity as such)
and their respective successors, assigns, employees, affiliates, advisors and
agents (hereinafter in this Section 8.1 referred to individually as
"Indemnitee," and collectively as "Indemnitees") harmless from any and all
liabilities, obligations, damages, injuries, penalties, claims, demands,
actions, suits, judgments and any and all costs, expenses or disbursements
(including reasonable attorneys' fees and expenses) (for the purposes of this
Section 8.1 the foregoing are collectively called "expenses") of whatsoever kind
and nature imposed on, asserted against or incurred by any of the Indemnitees in
any way relating to or arising out of this Agreement or the enforcement of any
of the terms hereof, or the preservation of any rights hereunder, or in any way
relating to or arising out of the manufacture, ownership, ordering, purchase,
delivery, control, acceptance, lease, financing, possession, operation,
condition, sale, return or other disposition, or use of the Collateral
(including, without limitation, latent or other defects, whether or not
discoverable), the violation of the laws of any country, state or other
governmental body or unit, any tort (including, without limitation, claims
arising or imposed under the doctrine of strict liability, or for or on account
of injury to or the death of any Person (including any Indemnitee), or property
damage), or contract claim; provided that no Indemnitee shall be indemnified
pursuant to this Section 8.1(a) for losses, damages or liabilities to the extent
caused by the gross negligence or willful misconduct of such Indemnitee (as
determined by a court of competent jurisdiction in a final and non-appealable
decision). The Assignor agrees that upon written notice by any Indemnitee of the
assertion of such a liability, obligation, damage, injury, penalty, claim,
demand, action, suit or judgment, the Assignor shall assume full responsibility
for the defense thereof. Each Indemnitee agrees to use its best efforts to
promptly notify the Assignor of any such assertion of which such Indemnitee has
knowledge.
(b) Without limiting the application of Section 8.1(a) hereof, the Assignor agrees to pay or reimburse the Collateral Agent for any and all reasonable fees, costs and expenses of whatever kind or nature incurred in connection with the creation, preservation or protection of the Collateral Agent's Liens on, and security interest in, the Collateral, including, without limitation, all fees and taxes in connection with the recording or filing of instruments and documents in all applicable public offices, payment or discharge of any taxes or Liens upon or in respect of the Collateral, premiums for insurance with respect to the Collateral and all other fees, costs and expenses in connection with protecting, maintaining or preserving the Collateral and the Collateral Agent's interest therein, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions, suits or proceedings arising out of or relating to the Collateral.
(c) Without limiting the application of Section 8.1(a) or
(b) hereof, the Assignor agrees to pay, indemnify and hold each Indemnitee
harmless from and against any loss, costs, damages and expenses which such
Indemnitee may suffer, expend or incur in consequence of or growing out of any
misrepresentation by the Assignor in this Agreement or in any writing
contemplated by or made or delivered pursuant to or in connection with this
Agreement.
(d) If and to the extent that the obligations of the Assignor under this Section 8.1 are unenforceable for any reason, the Assignor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law.
8.2 Indemnity Obligations Secured by Collateral; Survival. Any amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement shall constitute Obligations secured by the Collateral. The indemnity obligations of the Assignor contained in this Article VIII shall continue in full force and effect notwithstanding the full payment of all of the other Obligations and notwithstanding the full payment of all the Notes issued, and Loans made, under the Credit Agreement, the termination of all Letters of Credit issued under the Credit Agreement, the termination of all Interest Rate Protection Agreements and Other Hedging Agreements entered into with the Other Creditors and the payment of all other Obligations and notwithstanding the discharge thereof and the occurrence of the Termination Date.
ARTICLE IX
DEFINITIONS
The following terms shall have the meanings herein specified. Such definitions shall be equally applicable to the singular and plural forms of the terms defined.
"Account" shall mean any "account" as such term is defined in
the UCC as in effect on the date hereof in the State of New York, and in any
event shall include but shall not be limited to, all rights to payment of any
monetary obligation, whether or not earned by performance, (i) for property that
has been or is to be sold, leased, licensed, assigned or otherwise disposed of,
(ii) for services rendered or to be rendered, (iii) for a policy of insurance
issued or to be issued, (iv) for a secondary obligation incurred or to be
incurred, (v) for energy provided or to be provided, (vi) for the use or hire of
a vessel under a charter or other contract, (vii) arising out of the use of a
credit or charge card or information contained on or for use with the card, or
(viii) as winnings in a lottery or other game of chance operated or sponsored by
a State, governmental unit of a State, or person licensed or authorized to
operate the game by a State or governmental unit of a State. Without limiting
the foregoing, the term "account" shall include all Health-Care-Insurance
Receivables.
"Administrative Agent" shall have the meaning provided in the recitals of this Agreement.
"Agreement" shall mean this Security Agreement as the same may be amended, modified or supplemented from time to time in accordance with its terms.
"As-Extracted Collateral" shall mean "as-extracted collateral" as such term is defined in the UCC as in effect on the date hereof in the State of New York.
"Assignor" shall have the meaning provided in the first paragraph of this Agreement.
"Borrower" shall have the meaning provided in the recitals of this Agreement.
"Cash Collateral Account" shall mean a non-interest bearing cash collateral account maintained with, and in the sole dominion and control of, the Collateral Agent for the benefit of the Secured Creditors.
"Chattel Paper" shall mean "chattel paper" as such term is defined in the UCC as in effect on the date hereof in the State of New York. Without limiting the foregoing, the term "Chattel Paper" shall in any event include all Tangible Chattel Paper and all Electronic Chattel Paper.
"Class" shall have the meaning provided in Section 10.2 of this Agreement.
"Collateral" shall have the meaning provided in Section 1.1(a) of this Agreement.
"Collateral Agent" shall have the meaning provided in the first paragraph of this Agreement.
"Commercial Tort Claims" shall mean "commercial tort claims" as such term is defined in the UCC as in effect on the date hereof in the State of New York.
"Contract Rights" shall mean all rights of the Assignor under each Contract, including, without limitation, (i) any and all rights to receive and demand payments under any or all Contracts, (ii) any and all rights to receive and compel performance under any or all Contracts and (iii) any and all other rights, interests and claims now existing or in the future arising in connection with any or all Contracts.
"Contracts" shall mean all contracts between the Assignor and one or more additional parties (including, without limitation, any Interest Rate Protection Agreements, Other Hedging Agreements, licensing agreements and any partnership agreements, joint venture agreements and limited liability company agreements).
"Copyrights" shall mean any United States or foreign copyright now or hereafter owned by the Assignor, including any registrations of any copyrights, in the United States Copyright Office or any foreign equivalent office, as well as any application for a copyright registration now or hereafter made with the United States Copyright Office or any foreign equivalent office by the Assignor.
"Credit Agreement" shall have the meaning provided in the recitals of this Agreement.
"Credit Document Obligations" shall have the meaning provided in the definition of "Obligations" in this Article IX.
"Deposit Accounts" shall mean all "deposit accounts" as such term is defined in the UCC as in effect on the date hereof in the State of New York.
"Documents" shall mean "documents" as such term is defined in the UCC as in effect on the date hereof in the State of New York.
"Domain Names" shall mean all Internet domain names and associated URL addresses in or to which the Assignor now or hereafter has any right, title or interest.
"Electronic Chattel Paper" shall mean "electronic chattel paper" as such term is defined in the UCC as in effect on the date hereof in the State of New York.
"Equipment" shall mean any "equipment" as such term is defined in the UCC as in effect on the date hereof in the State of New York now or hereafter owned by the Assignor, and in any event, shall include, but shall not be limited to, all machinery, equipment, furnishings, fixtures and vehicles now or hereafter owned by the Assignor and any and all additions, substitutions and replacements of any of the foregoing and all accessions thereto, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto.
"Event of Default" shall mean any Event of Default (or similar term) under, and as defined in, the Credit Agreement and any Interest Rate Protection Agreement or Other Hedging Agreement entered into with an Other Creditor and shall in any event include, without limitation, any payment default on any of the Obligations after the expiration of any applicable grace period.
"General Intangibles" shall mean "general intangibles" as such term is defined in the UCC as in effect on the date hereof in the State of New York.
"Goods" shall mean "goods" as such term is defined in the UCC as in effect on the date hereof in the State of New York.
"Health-Care-Insurance Receivable" shall mean any "health-care-insurance receivable" as such term is defined in the UCC as in effect on the date hereof in the State of New York.
"Indemnitee" shall have the meaning provided in Section 8.1(a) of this Agreement.
"Instrument" shall mean "instruments" as such term is defined in the UCC as in effect on the date hereof in the State of New York.
"Inventory" shall mean merchandise, inventory and goods, and all additions, substitutions and replacements thereof and all accessions thereto, wherever located, together with all goods, supplies, incidentals, packaging materials, labels, materials and any other items used or usable in manufacturing, processing, packaging or shipping same, in all stages of production from raw materials through work in process to finished goods, and all products and proceeds of whatever sort and wherever located any portion thereof which may be returned, rejected, reclaimed or repossessed by the Collateral Agent from the Assignor's customers, and shall specifically include all "inventory" as such term is defined in the UCC as in effect on the date hereof in the State of New York.
"Investment Property" shall mean "investment property" as such term is defined in the UCC as in effect on the date hereof in the State of New York.
"Lender Creditors" shall have the meaning provided in the recitals of this Agreement.
"Lenders" shall have the meaning provided in the recitals of this Agreement.
"Letter-of-Credit Rights" shall mean "letter-of-credit rights" as such term is defined in the UCC as in effect on the date hereof in the State of New York.
"Location" of the Assignor, shall mean the Assignor's
"location" as determined pursuant to Section 9-307 of the UCC.
"Marks" shall mean all right, title and interest in and to any
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trademarks, service marks and trade names now held or hereafter acquired by the Assignor, including any registration or application for registration of any trademarks and service marks now held or hereafter acquired by the Assignor, which are registered or filed in the United States Patent and Trademark Office or the equivalent thereof in any state of the United States or any equivalent foreign office or agency, as well as any unregistered trademarks and service marks used by the Assignor and any trade dress including logos, designs, fictitious business names and other business identifiers used by the Assignor.
"Material Adverse Effect" shall have the meaning provided in the Holdco Guaranty.
"Obligations" shall mean and include, as to the Assignor, all of the following:
(i) the full and prompt payment when due (whether at stated maturity, by acceleration or otherwise) of all obligations, liabilities and indebtedness (including, without limitation, principal, premium, interest, reimbursement obligations (both actual and contingent) under Letters of Credit, fees, cost and indemnities (including, in each case, without limitation, all interest that accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency, reorganization or similar proceeding of the Assignor at the rate provided for in the respective documentation, whether or not a claim for post-petition interest is allowed in any such proceeding) of the Assignor to the Lender Creditors, whether now existing or hereafter incurred under, arising out of, or in connection with, the Credit Agreement and the other Credit Documents to which the Assignor is a party (including, without limitation, all such obligations, liabilities and indebtedness of the Assignor under the Holdco Guaranty) and the due performance and compliance by the Assignor with all of the terms, conditions and agreements contained in the Credit Agreement and in such other Credit Documents (all such obligations, liabilities and indebtedness under this clause (i), except to the extent consisting of obligations or indebtedness with respect to Interest Rate Protection Agreements or Other Hedging Agreements, being herein collectively called the "Credit Document Obligations");
(ii) the full and prompt payment when due (whether at stated maturity, by acceleration or otherwise) of all obligations, liabilities and indebtedness (including, in each case, without limitation, all interest that accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency, reorganization or
similar proceeding of the Assignor at the rate provided for in the respective documentation, whether or not a claim for post-petition interest is allowed in any such proceeding) owing by the Assignor to the Other Creditors, now existing or hereafter incurred under, arising out of or in connection with any Interest Rate Protection Agreement or Other Hedging Agreement, whether such Interest Rate Protection Agreement or Other Hedging Agreement is now in existence or hereinafter arising (including, without limitation, all obligations, liabilities and indebtedness of the Assignor under the Holdco Guaranty in respect of the Interest Rate Protection Agreements and Other Hedging Agreements), and the due performance and compliance by the Assignor with all of the terms, conditions and agreements contained in each such Interest Rate Protection Agreement and Other Hedging Agreement (all such obligations, liabilities and indebtedness under this clause (ii) being herein collectively called the "Other Obligations");
(iii) any and all sums advanced by the Collateral Agent in order to preserve the Collateral or preserve its security interest in the Collateral;
(iv) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities of the Assignor referred to in clauses (i) and (ii) above, after an Event of Default shall have occurred and be continuing, the reasonable expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the Collateral, or of any exercise by the Collateral Agent of its rights hereunder, together with reasonable attorneys' fees and court costs; and
(v) all amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement under Section 8.1 of this Agreement;
it being acknowledged and agreed that the "Obligations" shall include extensions of credit of the types described above, whether outstanding on the date of this Agreement or extended from time to time after the date of this Agreement.
"Other Creditors" shall have the meaning provided in the recitals of this Agreement.
"Other Obligations" shall have the meaning provided in the definition of "Obligations" in this Article IX.
"Patents" shall mean any United States or foreign patent in or to which the Assignor now or hereafter has any right, title or interest therein, and any divisions, continuations (including, but not limited to, continuations-in-parts) and improvements thereof, as well as any application for a United States or foreign patent now or hereafter made by the Assignor.
"Permits" shall mean, to the extent permitted to be assigned by the terms thereof or by applicable law, all licenses, permits, rights, orders, variances, franchises or authorizations of or from any governmental authority or agency.
"Permitted Liens" shall mean (x) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with generally accepted accounting principles and (y) Liens created pursuant to the Holdco Pledge Agreement and this Agreement.
"Primary Obligations" shall have the meaning provided in
Section 7.4(b) of this Agreement.
"Pro Rata Share" shall have the meaning provided in Section 7.4(b) of this Agreement.
"Proceeds" shall mean all "proceeds" as such term is defined in the UCC as in effect in the State of New York on the date hereof and, in any event, shall include, but not be limited to, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Collateral Agent or the Assignor from time to time with respect to any of the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to the Assignor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any person acting under color of governmental authority) and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral.
"Registered Organization" shall have the meaning provided in the UCC as in effect in the State of New York.
"Representative" shall have the meaning provided in Section 7.4(e) of this Agreement.
"Required Secured Creditors" shall mean (i) at any time when any Credit Document Obligations are outstanding (other than contingent indemnity obligations that are not then due and payable) or any Revolving Loan Commitments or Letters of Credit under the Credit Agreement exist, the Required Lenders (or, to the extent provided in Section 13.12 of the Credit Agreement, each of the Lenders) and (ii) at any time after all of the Credit Document Obligations have been paid in full in cash (other than contingent indemnity obligations that are not then due and payable) and all Revolving Loan Commitments or Letters of Credit under the Credit Agreement have been terminated, the holders of a majority of the Other Obligations.
"Requisite Creditors" shall have the meaning provided in
Section 10.2 of this Agreement.
"Secondary Obligations" shall have the meaning provided in
Section 7.4(b) of this Agreement.
"Secured Creditors" shall have the meaning provided in the recitals of this Agreement.
"Secured Debt Agreements" shall mean and include (i) this Agreement and the other Credit Documents and (ii) the Interest Rate Protection Agreements and Other Hedging Agreements entered into with an Other Creditor.
"Software" shall mean "software" as such term is defined in the UCC as in effect on the date hereof in the State of New York.
"Supporting Obligations" shall mean any "supporting obligation" as such term is defined in the UCC as in effect on the date hereof in the State of New York, now or hereafter owned by the Assignor, or in which the Assignor has any rights, and, in any event, shall include, but shall not be limited to, all of the Assignor's rights in any Letter-of-Credit Right or secondary obligation that supports the payment or performance of, and all security for, any Account, Chattel Paper, Document, General Intangible, Instrument or Investment Property.
"Tangible Chattel Paper" shall mean "tangible chattel paper" as such term is defined in the UCC as in effect on the date hereof in the State of New York.
"Termination Date" shall have the meaning provided in Section 10.8(a) of this Agreement.
"Timber-to-be-Cut" shall mean "timber-to-be-cut" as such term is defined in the UCC as in effect on the date hereof in the State of New York.
"Trade Secret Rights" shall have the meaning provided in
Section 5.1 of this Agreement.
"Trade Secrets" shall mean any secretly held existing engineering or other data, information, production procedures and other know-how relating to the design manufacture, assembly, installation, use, operation, marketing, sale and/or servicing of any products or business of the Assignor worldwide whether written or not.
"Transmitting Utility" shall have the meaning given such term in Section 9-102(a)(80) of the UCC.
"UCC" shall mean the Uniform Commercial Code as in effect from time to time in the relevant jurisdiction.
ARTICLE X
MISCELLANEOUS
10.1 Notices. Except as otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be sent or delivered by mail, telegraph, telex, telecopy, cable or courier service and all such notices and communications shall, when mailed, telegraphed, telexed, telecopied, or cabled or sent by courier, be effective when deposited in the mails, delivered to the telegraph company, cable company or overnight courier, as the case may be, or sent by telex or telecopier, except that notices and communications to the Collateral Agent or the Assignor shall not be effective until received by the Collateral Agent or the Assignor, as the case may be. All notices and other communications shall be in writing and addressed as follows:
(a) if to the Assignor, at:
888 Seventh Avenue
25th Floor
New York, New York 10106
Attention: Richard Pyle
Telephone No.: (212) 246-6700
Telecopier No.: (212) 664-8906
(b) if to the Collateral Agent, at:
60 Wall Street New York, New York 10005 Attention: Carin Keegan Telephone No.: (212) 250-6083 Telecopier No.: (212) 250-5690
(c) if to any Lender Creditor (other than the Collateral Agent), at such address as such Lender Creditor shall have specified in the Credit Agreement;
(d) if to any Other Creditor, at such address as such Other Creditor shall have specified in writing to the Assignor and the Collateral Agent;
or at such other address or addressed to such other individual as shall have been furnished in writing by any Person described above to the party required to give notice hereunder.
10.2 Waiver; Amendment. Except as provided in Sections 10.8 and 10.12 hereof, none of the terms and conditions of this Agreement or the Holdco Pledge Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by the Assignor and the Collateral Agent (with the written consent of the Required Secured Creditors); provided, however, (i) that any change, waiver, modification or variance affecting the rights and benefits of a single Class of Secured Creditors (and not all Secured Creditors in a like or similar manner) also shall require the written consent of the Requisite Creditors of such affected Class, and (ii) supplements to the Annexes hereto and to the Holdco Pledge Agreement may be made without the consent of any Secured Creditor, other than the Collateral Agent, as provided herein or therein. For the purpose of this Agreement and the Holdco Pledge Agreement, the term "Class" shall mean each class of Secured Creditors, i.e., whether (x) the Lender Creditors as holders of the Credit Document Obligations or (y) the Other Creditors as the holders of the Other Obligations. For the purpose of this Agreement, the term "Requisite Creditors" of any Class shall mean each of (x) with respect to the Credit Document Obligations, the Required Lenders (or, to the extent provided in Section 13.12 of the Credit Agreement, each of the Lenders), and (y) with respect to the Other Obligations, the holders of at least a majority of all Other Obligations outstanding from time to time.
10.3 Obligations Absolute. The obligations of the Assignor hereunder shall remain in full force and effect without regard to, and shall not be impaired by, (a) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of the Assignor; (b) any exercise or non-exercise, or any waiver of, any right, remedy, power or privilege under or in respect of this Agreement or any other Secured Debt Agreement;
or (c) any amendment to or modification of any Secured Debt Agreement or any security for any of the Obligations; whether or not the Assignor shall have notice or knowledge of any of the foregoing.
10.4 Successors and Assigns. This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect, subject to release and/or termination as set forth in Section 10.8 hereof, (ii) be binding upon the Assignor, its successors and assigns; provided, however, that the Assignor shall not assign any of its rights or obligations hereunder or under the other Credit Documents without the prior written consent of the Collateral Agent (with the prior written consent of the Required Secured Creditors), and (iii) inure, together with the rights and remedies of the Collateral Agent hereunder, to the benefit of the Collateral Agent, the other Secured Creditors and their respective successors, transferees and assigns. All agreements, statements, representations and warranties made by the Assignor herein or in any certificate or other instrument delivered by the Assignor or on its behalf under this Agreement shall be considered to have been relied upon by the Secured Creditors and shall survive the execution and delivery of this Agreement and the other Secured Debt Agreements regardless of any investigation made by the Secured Creditors or on their behalf.
10.5 Headings Descriptive. The headings of the several sections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement.
10.6 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK IN EACH CASE WHICH ARE LOCATED IN THE COUNTY OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE ASSIGNOR HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE ASSIGNOR HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK PERSONAL JURISDICTION OVER THE ASSIGNOR, AND AGREES NOT TO PLEAD OR CLAIM IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN ANY OF THE AFORESAID COURTS THAT ANY SUCH COURT LACKS PERSONAL JURISDICTION OVER THE ASSIGNOR. THE ASSIGNOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE ASSIGNOR AT ITS ADDRESS FOR NOTICES AS PROVIDED IN SECTION 10.1 ABOVE, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. THE ASSIGNOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY
ACTION OR PROCEEDING COMMENCED HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT THAT SUCH SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE COLLATERAL AGENT UNDER THIS AGREEMENT, OR ANY SECURED CREDITOR, TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE ASSIGNOR IN ANY OTHER JURISDICTION.
(b) THE ASSIGNOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
10.7 Assignor's Duties. It is expressly agreed, anything herein contained to the contrary notwithstanding, that, prior to the Termination Date, the Assignor shall remain liable to perform all of the obligations, if any, assumed by it with respect to the Collateral and, except as otherwise provided in Section 10.11 hereof, the Collateral Agent shall not have any obligations or liabilities with respect to any Collateral by reason of or arising out of this Agreement, nor shall the Collateral Agent be required or obligated in any manner to perform or fulfill any of the obligations of the Assignor under or with respect to any Collateral.
10.8 Termination; Release. (a) After the Termination Date, this Agreement shall terminate (provided that all indemnities set forth herein including, without limitation, in Section 8.1 hereof, shall survive such termination) and the Collateral Agent, at the request and expense of the Assignor, will promptly execute and deliver to the Assignor a proper instrument or instruments (including UCC termination statements on form UCC-3) acknowledging the satisfaction and termination of this Agreement, and will duly assign, transfer and deliver to the Assignor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of the Collateral Agent and as has not theretofore been sold or otherwise applied or released pursuant to this Agreement. As used in this Agreement, "Termination Date" shall mean the date upon which the Total Revolving Loan Commitment under the Credit Agreement has been terminated and all Interest Rate Protection Agreements and Other Hedging Agreements entered into with any Other Creditor have been terminated, no Note under the Credit Agreement is outstanding and all Loans thereunder have been repaid in full, all Letters of Credit issued under the Credit Agreement have been terminated and all other Obligations then due and payable have been paid in full.
(b) In the event that any part of the Collateral is sold or otherwise disposed of (to a Person other than a Credit Party or a Subsidiary thereof) (x) at any time prior to the time at which all Credit Document Obligations have been paid in full and all Revolving Loan Commitments and Letters of Credit under the Credit Agreement have been terminated, in connection with a sale or disposition permitted by the Secured Debt Agreements or is otherwise released at the direction of the Required Lenders (or all the Lenders if required by Section 13.12 of the Credit Agreement) or (y) at any time thereafter, to the extent permitted by the other Secured Debt Agreements, and in the case of clauses (x) and (y), the proceeds of such sale or other disposition (or from such release) are applied in accordance with the terms of the Credit Agreement or such other Secured Debt Agreements, as the case may be, to the extent required to be so applied, the Collateral Agent, at the request and expense of the Assignor, will duly release from the security interest created hereby (and will execute and deliver such documentation, including termination or partial release statements and the like in connection therewith) and assign, transfer and deliver to the Assignor (without recourse and without any representation or warranty) such of the Collateral as is then being (or has been) so sold or otherwise disposed of, or released, and as may be in the possession of the Collateral Agent and has not theretofore been released pursuant to this Agreement.
(c) At any time that the Assignor desires that the Collateral Agent take any action to acknowledge or give effect to any release of Collateral pursuant to the foregoing Section 10.8(a) or (b), the Assignor shall deliver to the Collateral Agent a certificate signed by a senior officer of the Assignor stating that the release of the respective Collateral is permitted pursuant to such Section 10.8(a) or (b).
(d) The Collateral Agent shall have no liability whatsoever to any other Secured Creditor as the result of any release of Collateral by it in accordance with (or which the Collateral Agent in the absence of gross negligence and willful misconduct believes to be in accordance with) this Section 10.8.
10.9 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Collateral Agent.
10.10 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
10.11 The Collateral Agent and the other Secured Creditors. The Collateral Agent will hold in accordance with this Agreement all items of the Collateral at any time received under this Agreement. It is expressly understood and agreed that the obligations of the Collateral Agent as holder of the Collateral and interests therein and with respect to the disposition thereof, and otherwise under this Agreement, are only those expressly set forth in this
Agreement and in Section 12 of the Credit Agreement. The Collateral Agent shall act hereunder on the terms and conditions set forth herein and in Section 12 of the Credit Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written.
TOWN SPORTS INTERNATIONAL
HOLDINGS, INC., as Assignor
By: /s/ Richard Pyle
__________________________
Name: Richard Pyle
Title: Chief Financial Officer
|
Accepted and Agreed to:
DEUTSCHE BANK TRUST COMPANY
AMERICAS, as Collateral Agent
By: /s/ Diane F. Rolfe
_______________________________
Name: Diane F. Rolfe
Title: Vice President
|
DEUTSCHE BANK TRUST COMPANY
AMERICAS, in its individual capacity
for purposes of Section 3.9(c)
By: /s/ Scottye Lindsey
_______________________________
Name: Scottye Lindsey
Title: Vice President
|
ANNEX A
to
SECURITY AGREEMENT
SCHEDULE OF CHIEF EXECUTIVE OFFICE
Name of Assignor Address(es) of Chief Executive Office
---------------- -------------------------------------
Town Sports International Holdings, Inc. 888 Seventh Avenue
25th Floor
New York, NY 10106
|
ANNEX B
to
SECURITY AGREEMENT
SCHEDULE OF INVENTORY AND EQUIPMENT LOCATIONS
Assignor Location
-------- --------------------
Town Sports International Holdings, Inc. 888 Seventh Avenue
25th Floor
New York, NY 10106
|
ANNEX C
to
SECURITY AGREEMENT
SCHEDULE OF LEGAL NAMES, TYPE OF ORGANIZATION
(AND WHETHER A REGISTERED ORGANIZATION AND/OR
A TRANSMITTING UTILITY), JURISDICTION OF ORGANIZATION,
LOCATION AND ORGANIZATIONAL IDENTIFICATION NUMBERS
Type of Organization
(or, if the Assignor Registered
Exact Legal Name of Each is an Individual, so Organization? Jurisdiction of Assignor's Location (for
Assignor indicate) (Yes/No) Organization purposes of NY UCC Section 9-307)
------------------------- -------------------- ------------- --------------- --------------------------------
Town Sports International Corporation Yes Delaware Delaware
Holdings, Inc.
Assignor's Organization Transmitting
Identification Number Utility?
(or, if none, so indicate) (Yes/No)
-------------------------- ------------
3754592 No
|
ANNEX D
to
SECURITY AGREEMENT
SCHEDULE OF TRADE AND FICTITIOUS NAMES
None.
ANNEX E
to
SECURITY AGREEMENT
DESCRIPTION OF CERTAIN SIGNIFICANT TRANSACTIONS OCCURRING WITHIN
ONE YEAR PRIOR TO THE DATE OF THE SECURITY AGREEMENT
None
ANNEX F-1
to
SECURITY AGREEMENT
SCHEDULE OF DEPOSIT ACCOUNTS
ENTITY ACCOUNT BANK # BANK ABA # TYPE OF ACCOUNT Town Sports 00433666 Deutsche Bank Trust 021001033 Money Market Fund International Holdings, Company Americas Inc. Town Sports 00537641 Deutsche Bank Trust 021001033 Checking Account International Holdings, Company Americas Inc. |
ANNEX F-2
to
SECURITY AGREEMENT
SCHEDULE OF DEPOSIT ACCOUNTS
FOR WHICH COMPANY WILL OBTAIN ACCOUNT CONTROL AGREEMENTS
None.
ANNEX G
to
SECURITY AGREEMENT
FORM OF CONTROL AGREEMENT REGARDING DEPOSIT ACCOUNTS
AGREEMENT (as amended, modified or supplemented from time to time, this "Agreement"), dated as of _______ __, ____, among the undersigned assignor (the "Assignor") Deutsche Bank Trust Company Americas, not in its individual capacity but solely as Collateral Agent (the "Collateral Agent"), and __________ (the "Deposit Account Bank"), as the bank (as defined in Section 9-102 of the Uniform Commercial Code as in effect on the date hereof in the State of _______________ (the "UCC")) with which one or more deposit accounts (as defined in Section 9-102 of the UCC) are maintained by the Assignor (with all such deposit accounts now or at any time in the future maintained by the Assignor with the Deposit Account Bank being herein called the "Deposit Accounts").
W I T N E S S E T H :
WHEREAS, the Assignor and the Collateral Agent have entered into a Security Agreement, dated as of February 4, 2004 (as amended, modified or supplemented from time to time, the "Security Agreement"), under which, among other things, in order to secure the payment of the Obligations (as defined in the Security Agreement), the Assignor has granted a security interest to the Collateral Agent for the benefit of the Secured Creditors (as defined in the Security Agreement) in all of the right, title and interest of the Assignor in and into any and all deposit accounts (as defined in Section 9-102 of the UCC) and in all monies, securities, instruments and other investments deposited therein from time to time (collectively, herein called the "Collateral"); and
WHEREAS, the Assignor desires that the Deposit Account Bank enter into this Agreement in order to establish "control" (as defined in Section 9-104 of the UCC) by the Collateral Agent in each Deposit Account at any time or from time to time maintained with the Deposit Account Bank, and to provide for the rights of the parties under this Agreement with respect to such Deposit Accounts;
NOW THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Assignor's Dealings with Deposit Accounts; Notice of Exclusive Control. Until the Deposit Account Bank shall have received from the Collateral Agent a Notice of Exclusive Control (as defined below), the Assignor shall be entitled to present items drawn on and otherwise to withdraw or direct the disposition of funds from the Deposit Accounts and give instructions in respect of the Deposit Accounts; provided, however, that the Assignor may not, and the Deposit Account Bank agrees that it shall not permit the Assignor to, without the Collateral Agent's prior written consent, close any Deposit Account. If the Collateral Agent shall give to the Deposit Account Bank a notice of the Collateral Agent's exclusive control of the Deposit Accounts, which notice states that it is a "Notice of Exclusive Control" (a "Notice of Exclusive Control"), only the Collateral Agent shall be entitled to withdraw funds from the
Annex G
Deposit Accounts, to give any instructions in respect of the Deposit Accounts and any funds held therein or credited thereto or otherwise to deal with the Deposit Accounts.
2. Collateral Agent's Right to Give Instructions as to Deposit Accounts. (a) Notwithstanding the foregoing or any separate agreement that the Assignor may have with the Deposit Account Bank, the Collateral Agent shall be entitled, for purposes of this Agreement, at any time concurrently with or following the delivery of a Notice of Exclusive Control to the Deposit Account Bank, to give the Deposit Account Bank instructions as to the withdrawal or disposition of any funds from time to time credited to any Deposit Account, or as to any other matters relating to any Deposit Account or any other Collateral, without further consent from the Assignor. The Assignor hereby irrevocably authorizes and instructs the Deposit Account Bank, and the Deposit Account Bank hereby agrees, to comply with any such instructions from the Collateral Agent without any further consent from the Assignor. Such instructions may include the giving of stop payment orders for any items being presented to any Deposit Account for payment. The Deposit Account Bank shall be fully entitled to rely on, and shall comply with, such instructions from the Collateral Agent even if such instructions are contrary to any instructions or demands that the Assignor may give to the Deposit Account Bank. In case of any conflict between instructions received by the Deposit Account Bank from the Collateral Agent and the Assignor, the instructions from the Collateral Agent shall prevail.
(b) It is understood and agreed that the Deposit Account Bank's duty to comply with instructions from the Collateral Agent regarding the Deposit Accounts concurrently with or following the delivery of a Notice of Exclusive Control to the Deposit Account Bank, is absolute, and the Deposit Account Bank shall be under no duty or obligation, nor shall it have the authority, to inquire or determine whether or not such instructions are in accordance with the Security Agreement or any other Secured Debt Agreement (as defined in the Security Agreement), nor seek confirmation thereof from the Assignor or any other Person.
3. Assignor's Exculpation and Indemnification of Depository Bank. The Assignor hereby irrevocably authorizes and instructs the Deposit Account Bank, concurrently with or following the delivery of a Notice of Exclusive Control to the Deposit Account Bank, to follow instructions from the Collateral Agent regarding the Deposit Accounts even if the result of following such instructions from the Collateral Agent is that the Deposit Account Bank dishonors items presented for payment from any Deposit Account. The Assignor further confirms that the Deposit Account Bank shall have no liability to the Assignor for wrongful dishonor of such items in following such instructions from the Collateral Agent. The Deposit Account Bank shall have no duty to inquire or determine whether the Assignor's obligations to the Collateral Agent are in default or whether the Collateral Agent is entitled, under any separate agreement between the Assignor and the Collateral Agent, to give any such instructions. The Assignor further agrees to be responsible for the Deposit Account Bank's customary charges and to indemnify the Deposit Account Bank from and to hold the Deposit Account Bank harmless against any loss, cost or expense that the Deposit Account Bank may sustain or incur in acting upon instructions which the Deposit Account Bank believes in good faith to be instructions from the Collateral Agent.
Annex G
4. Subordination of Security Interests; Deposit Account Bank's Recourse to Deposit Accounts. The Deposit Account Bank hereby subordinates any claims and security interests it may have against, or with respect to, any Deposit Account at any time established or maintained with it by the Assignor (including any amounts, investments, instruments or other Collateral from time to time on deposit therein) to the security interests of the Collateral Agent (for the benefit of the Secured Creditors) therein, and agrees that no amounts shall be charged by it to, or withheld or set-off or otherwise recouped by it from, any Deposit Account of the Assignor or any amounts, investments, instruments or other Collateral from time to time on deposit therein; provided that the Deposit Account Bank may, however, from time to time debit the Deposit Accounts for any of its customary charges in maintaining the Deposit Accounts or for reimbursement for the reversal of any provisional credits granted by the Deposit Account Bank to any Deposit Account, to the extent, in each case, that the Assignor has not separately paid or reimbursed the Deposit Account Bank therefor.
5. Representations, Warranties and Covenants of Deposit Account Bank. The Deposit Account Bank represents and warrants to the Collateral Agent that:
(a) The Deposit Account Bank constitutes a "bank" (as defined in Section 9-102 of the UCC), that the jurisdiction (determined in accordance with Section 9-304 of the UCC) of the Deposit Account Bank for purposes of each Deposit Account maintained by the Assignor with the Deposit Account Bank shall be one or more States within the United States.
(b) The Deposit Account Bank shall not permit the Assignor to establish any demand, time, savings, passbook or other account with it which does not constitute a "deposit account" (as defined in Section 9-102 of the UCC).
(c) The account agreements between the Deposit Account Bank and the Assignor relating to the establishment and general operation of the Deposit Accounts provide, whether specifically or generally, that the laws of ______________ govern secured transactions relating to the Deposit Accounts and that the Deposit Account Bank's "jurisdiction" for purposes of Section 9-304 of the UCC in respect of the Deposit Accounts is ___________________. The Deposit Account Bank will not, without the Collateral Agent's prior written consent, amend any such account agreement so that the Deposit Account Bank's jurisdiction for purposes of Section 9-304 of the UCC is other than a jurisdiction permitted pursuant to preceding clause (a). All account agreements in respect of each Deposit Account in existence on the date hereof are listed on Annex A hereto and copies of all such account agreements have been furnished to the Collateral Agent. The Deposit Account Bank will promptly furnish to the Collateral Agent a copy of the account agreement for each Deposit Account hereafter established by the Deposit Account Bank for the Assignor.
(d) The Deposit Account Bank has not entered and will not enter, into any agreement with any other Person by which the Deposit Account Bank is obligated to comply with instructions from such other Person as to the disposition of funds from any Deposit Account or other dealings with any Deposit Account or other of the Collateral.
Annex G
(e) On the date hereof the Deposit Account Bank maintains no Deposit Accounts for the Assignor other than the Deposit Accounts specifically identified in Annex A hereto.
(f) Any items or funds received by the Deposit Account Bank for the Assignor's account will be credited to said Deposit Accounts specified in paragraph (e) above or to any other Deposit Accounts hereafter established by the Deposit Account Bank for the Assignor in accordance with this Agreement.
6. Deposit Account Statements and Information. The Deposit Account Bank agrees, and is hereby authorized and instructed by the Assignor, to furnish to the Collateral Agent upon its request, at its address indicated below, copies of all account statements and other information relating to each Deposit Account that the Deposit Account Bank sends to the Assignor and to disclose to the Collateral Agent all information requested by the Collateral Agent regarding any Deposit Account.
7. Conflicting Agreements. This Agreement shall have control over any conflicting agreement between the Deposit Account Bank and the Assignor.
8. Merger or Consolidation of Deposit Account Bank. Without the execution or filing of any paper or any further act on the part of any of the parties hereto, any bank into which the Deposit Account Bank may be merged or with which it may be consolidated, or any bank resulting from any merger to which the Deposit Account Bank shall be a party, shall be the successor of the Deposit Account Bank hereunder and shall be bound by all provisions hereof which are binding upon the Deposit Account Bank and shall be deemed to affirm as to itself all representations and warranties of the Deposit Account Bank contained herein.
9. Notices. (a) All notices and other communications provided for in this Agreement shall be in writing (including facsimile) and sent to the intended recipient at its address or telex or facsimile number set forth below:
If to the Collateral Agent, at:
If to the Assignor, at:
If to the Deposit Account Bank, at:
Annex G
or, as to any party, to such other address or telex or facsimile number as such party may designate from time to time by notice to the other parties.
(b) Except as otherwise provided herein, all notices and other communications hereunder shall be delivered by hand or by commercial overnight courier (delivery charges prepaid), or mailed, postage prepaid, or telexed or faxed, addressed as aforesaid, and shall be effective (i) three business days after being deposited in the mail (if mailed), (ii) when delivered (if delivered by hand or courier) and (iii) or when transmitted with receipt confirmed (if telexed or faxed); provided that notices to the Collateral Agent shall not be effective until actually received by it.
10. Amendment. This Agreement may not be amended, modified or supplemented except in writing executed and delivered by all the parties hereto.
11. Binding Agreement. This Agreement shall bind the parties hereto and their successors and assigns and shall inure to the benefit of the parties hereto and their successors and assigns. Without limiting the provisions of the immediately preceding sentence, the Collateral Agent at any time or from time to time may designate in writing to the Deposit Account Bank a successor Collateral Agent (at such time, if any, as such entity becomes the Collateral Agent under the Security Agreement, or at any time thereafter) who shall thereafter succeed to the rights of the existing Collateral Agent hereunder and shall be entitled to all of the rights and benefits provided hereunder.
12. Continuing Obligations. The rights and powers granted herein to the Collateral Agent have been granted in order to protect and further perfect its security interests in the Deposit Accounts and other Collateral and are powers coupled with an interest and will be affected neither by any purported revocation by the Assignor of this Agreement or the rights granted to the Collateral Agent hereunder or by the bankruptcy, insolvency, conservatorship or receivership of the Assignor or the Deposit Account Bank or by the lapse of time. The rights of the Collateral Agent hereunder and in respect of the Deposit Accounts and the other Collateral, and the obligations of the Assignor and Deposit Account Bank hereunder, shall continue in effect until the security interests of Collateral Agent in the Deposit Accounts and such other Collateral have been terminated and the Collateral Agent has notified the Deposit Account Bank of such termination in writing.
13. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.
14. Counterparts. This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing and delivering one or more counterparts.
Annex G
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
Annex G
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the date first written above.
Assignor:
[NAME]
By: ________________________
Name:
Title:
Collateral Agent:
DEUTSCHE BANK TRUST COMPANY
AMERICAS
By: ________________________
Name:
Title:
Deposit Account Bank:
[NAME]
By: ________________________
Name:
Title:
ANNEX H
to
SECURITY AGREEMENT
DESCRIPTION OF COMMERCIAL TORT CLAIMS
None
ANNEX I
to
SECURITY AGREEMENT
SCHEDULE OF MARKS AND APPLICATIONS;
INTERNET DOMAIN NAME REGISTRATIONS
None.
ANNEX J
to
SECURITY AGREEMENT
SCHEDULE OF PATENTS
None
ANNEX K
to
SECURITY AGREEMENT
SCHEDULE OF COPYRIGHTS
None
ANNEX L
to
SECURITY AGREEMENT
GRANT OF SECURITY INTEREST
IN UNITED STATES TRADEMARKS
FOR GOOD AND VALUABLE CONSIDERATION, receipt and sufficiency of which are hereby acknowledged, [Name of Grantor], a __________ _________ (the "Grantor") with principal offices at ____________________________, hereby grants to Deutsche Bank Trust Company Americas, as Collateral Agent, with principal offices at 60 Wall Street, New York, New York 10005 (the "Grantee"), a security interest in (i) all of the Grantor's right, title and interest in and to the United States trademarks, trademark registrations and trademark applications (the "Marks") set forth on Schedule A attached hereto, (ii) all Proceeds (as such term is defined in the Security Agreement referred to below) and products of the Marks, (iii) the goodwill of the businesses with which the Marks are associated and (iv) all causes of action arising prior to or after the date hereof for infringement of any of the Marks or unfair competition regarding the same.
THIS GRANT is made to secure the satisfactory performance and payment of all the Obligations of the Grantor, as such term is defined in the Security Agreement between the Grantor and the Grantee, dated as of February 4, 2004 (as amended, modified or supplemented from time to time, the "Security Agreement"). Upon the occurrence of the Termination Date (as defined in the Security Agreement), the Grantee shall execute, acknowledge, and deliver to the Grantor an instrument in writing releasing the security interest in the Marks acquired under this Grant.
This Grant has been granted in conjunction with the security interest granted to the Grantee under the Security Agreement. The rights and remedies of the Grantee with respect to the security interest granted herein are as set forth in the Security Agreement, all terms and provisions of which are incorporated herein by reference. In the event that any provisions of this
Annex L
Grant are deemed to conflict with the Security Agreement, the provisions of the Security Agreement shall govern.
* * *
Annex L
IN WITNESS WHEREOF, the undersigned have executed this Grant as of the ____ day of ____________, ____.
[NAME OF GRANTOR], Grantor
By ___________________________
Name:
Title:
DEUTSCHE BANK TRUST COMPANY
AMERICAS,
as Collateral Agent and Grantee
By ___________________________
Name:
Title:
STATE OF ______________ )
) ss.:
COUNTY OF _____________ )
On this ____ day of _________, ____, before me personally came
________ ________________ who, being by me duly sworn, did state as follows:
that [s]he is ______________ of [Name of Grantor], that [s]he is authorized to
execute the foregoing Grant on behalf of said ____________ and that [s]he did so
by authority of the [Board of Directors] of said ____________.
STATE OF ______________ )
) ss.:
COUNTY OF _____________ )
On this ____ day of _________, ____, before me personally came ________ _____________________ who, being by me duly sworn, did state as follows: that [s]he is __________________ of Deutsche Bank Trust Company Americas, that [s]he is authorized to execute the foregoing Grant on behalf of said corporation and that [s]he did so by authority of the Board of Directors of said corporation.
Notary Public
SCHEDULE A
MARK REG. NO. REG. DATE ---- ------- --------- |
ANNEX M
to
SECURITY AGREEMENT
GRANT OF SECURITY INTEREST
IN UNITED STATES PATENTS
FOR GOOD AND VALUABLE CONSIDERATION, receipt and sufficiency of which are hereby acknowledged, [Name of Grantor], a __________ _________ (the "Grantor") with principal offices at ____________________________, hereby grants to Deutsche Bank Trust Company Americas, as Collateral Agent, with principal offices 60 Wall Street, New York, New York 10005 (the "Grantee"), a security interest in (i) all of the Grantor's rights, title and interest in and to the United States patents (the "Patents") set forth on Schedule A attached hereto, in each case together with (ii) all Proceeds (as such term is defined in the Security Agreement referred to below) and products of the Patents, and (iii) all causes of action arising prior to or after the date hereof for infringement of any of the Patents or unfair competition regarding the same.
THIS GRANT is made to secure the satisfactory performance and payment of all the Obligations of the Grantor, as such term is defined in the Security Agreement between the Grantor and the Grantee, dated as of February 4, 2004 (as amended, modified or supplemented from time to time, the "Security Agreement"). Upon the occurrence of the Termination Date (as defined in the Security Agreement), the Grantee shall execute, acknowledge, and deliver to the Grantor an instrument in writing releasing the security interest in the Patents acquired under this Grant.
Annex M
This Grant has been granted in conjunction with the security interest granted to the Grantee under the Security Agreement. The rights and remedies of the Grantee with respect to the security interest granted herein are as set forth in the Security Agreement, all terms and provisions of which are incorporated herein by reference. In the event that any provisions of this Grant are deemed to conflict with the Security Agreement, the provisions of the Security Agreement shall govern.
* * *
Annex M
IN WITNESS WHEREOF, the undersigned have executed this Grant as of the ____ day of ____________, ____.
[NAME OF GRANTOR], Grantor
By ___________________________
Name:
Title:
DEUTSCHE BANK TRUST COMPANY
AMERICAS,
as Collateral Agent and Grantee
By ___________________________
Name:
Title:
STATE OF ______________ )
) ss.:
COUNTY OF _____________ )
On this ____ day of _________, ____, before me personally came
________ ________________ who, being by me duly sworn, did state as follows:
that [s]he is ______________ of [Name of Grantor], that [s]he is authorized to
execute the foregoing Grant on behalf of said ____________ and that [s]he did so
by authority of the Board of Directors of said ____________.
STATE OF ______________ )
) ss.:
COUNTY OF _____________ )
On this ____ day of _________, ____, before me personally came ________ _____________________ who, being by me duly sworn, did state as follows: that [s]he is __________________ of Deutsche Bank Trust Company Americas, that [s]he is authorized to execute the foregoing Grant on behalf of said corporation and that [s]he did so by authority of the Board of Directors of said corporation.
Notary Public
SCHEDULE A
PATENT PATENT NO. ISSUE DATE ------ ---------- ---------- |
ANNEX N
to
SECURITY AGREEMENT
GRANT OF SECURITY INTEREST
IN UNITED STATES COPYRIGHTS
WHEREAS, [Name of Grantor], a _______________ _____________ (the "Grantor"), having its chief executive office at ____________________, _________________, is the owner of all right, title and interest in and to the United States copyrights and associated United States copyright registrations and applications for registration set forth in Schedule A attached hereto;
WHEREAS, DEUTSCHE BANK TRUST COMPANY AMERICAS, as Collateral Agent, having its principal offices at 60 Wall Street, New York, New York 10005 (the "Grantee"), desires to acquire a security interest in said copyrights and copyright registrations and applications therefor; and
WHEREAS, the Grantor is willing to grant to the Grantee a security interest in and lien upon the copyrights and copyright registrations and applications therefor described above.
NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, and subject to the terms and conditions of the Security Agreement, dated as of February 4, 2004, made by the Grantor and the Grantee (as amended, modified or supplemented from time to time, the "Security Agreement"), the Grantor hereby assigns to the Grantee as collateral security, and grants to the Grantee a security interest in, the copyrights and copyright registrations and applications therefor set forth in Schedule A attached hereto.
This Grant has been granted in conjunction with the security interest granted to the Grantee under the Security Agreement. The rights and remedies of the Grantee with respect to the security interest granted herein are as set forth in the Security Agreement, all terms and provisions of which are incorporated herein by reference. In the event that any provisions of this Grant are deemed to conflict with the Security Agreement, the provisions of the Security Agreement shall govern.
* * *
Annex N
EXECUTED AT __________________, ________________ the ____ day of ____________, ____.
[NAME OF GRANTOR], Grantor
By ___________________________
Name:
Title:
DEUTSCHE BANK TRUST COMPANY
AMERICAS,
as Collateral Agent and Grantee
By ___________________________
Name:
Title:
STATE OF ______________ )
) ss.:
COUNTY OF _____________ )
On this __ day of _________, ____, before me personally came ___________ ______________, who being duly sworn, did depose and say that [s]he is ___________________ of [Name of Grantor], that [s]he is authorized to execute the foregoing Grant on behalf of said corporation and that [s]he did so by authority of the Board of Directors of said corporation.
STATE OF ______________ )
) ss.:
COUNTY OF _____________ )
On this ____ day of _________, ____, before me personally came
________ __________________ who, being by me duly sworn, did state as follows:
that [s]he is __________________ of Deutsche Bank Trust Company Americas, that
[s]he is authorized to execute the foregoing Grant on behalf of said __________
and that [s]he did so by authority of the Board of Directors of said __________.
TABLE OF CONTENTS
PAGE
----
ARTICLE I SECURITY INTERESTS ........................................................................... 2
1.1 Grant of Security Interests ............................................................... 2
1.2 Power of Attorney ......................................................................... 3
ARTICLE II GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS............................................ 3
2.1 Necessary Filings ......................................................................... 4
2.2 No Liens .................................................................................. 4
2.3 Other Financing Statements ................................................................ 4
2.4 Chief Executive Office, Record Locations .................................................. 4
2.5 Location of Inventory and Equipment ....................................................... 4
2.6 Legal Names; Type of Organization (and Whether a Registered Organization and/or a
Transmitting Utility); Jurisdiction of Organization; Location; Organizational
Identification Numbers; Changes Thereto; etc. .......................................... 4
2.7 Trade Names; etc. ......................................................................... 5
2.8 Certain Significant Transactions .......................................................... 5
2.9 Non-UCC Property .......................................................................... 6
2.10 As-Extracted Collateral; Timber-to-be-Cut ................................................ 6
2.11 Collateral in the Possession of a Bailee ................................................. 6
ARTICLE III SPECIAL PROVISIONS CONCERNING ACCOUNTS; CONTRACT RIGHTS; INSTRUMENTS; CHATTEL PAPER
AND CERTAIN OTHER COLLATERAL .................................................................. 6
3.1 Additional Representations and Warranties ................................................. 6
3.2 Maintenance of Records .................................................................... 7
3.3 Direction to Account Debtors; Contracting Parties; etc. ................................... 7
3.4 Modification of Terms; etc. ............................................................... 7
3.5 Collection ................................................................................ 8
3.6 Instruments ............................................................................... 8
3.7 Assignor Remains Liable Under Accounts .................................................... 8
3.8 Assignor Remains Liable Under Contracts ................................................... 8
3.9 Deposit Accounts; etc. .................................................................... 9
3.10 Letter-of-Credit Rights .................................................................. 10
3.11 Commercial Tort Claims ................................................................... 10
3.12 Chattel Paper ............................................................................ 10
3.13 Further Actions .......................................................................... 10
ARTICLE IV SPECIAL PROVISIONS CONCERNING TRADEMARKS AND DOMAIN NAMES ................................... 11
4.1 Additional Representations and Warranties ................................................. 11
4.2 Licenses and Assignments .................................................................. 11
|
4.3 Infringements ............................................................................. 11
4.4 Preservation of Marks and Domain Names .................................................... 11
4.5 Maintenance of Registration ............................................................... 12
4.6 Future Registered Marks and Domain Names .................................................. 12
4.7 Remedies .................................................................................. 12
ARTICLE V SPECIAL PROVISIONS CONCERNING PATENTS, COPYRIGHTS AND TRADE SECRETS .......................... 12
5.1 Additional Representations and Warranties ................................................. 13
5.2 Licenses and Assignments .................................................................. 13
5.3 Infringements ............................................................................. 13
5.4 Maintenance of Patents or Copyrights ...................................................... 13
5.5 Prosecution of Patent or Copyright Applications ........................................... 13
5.6 Other Patents and Copyrights .............................................................. 14
5.7 Remedies .................................................................................. 14
ARTICLE VI PROVISIONS CONCERNING ALL COLLATERAL ........................................................ 14
6.1 Protection of Collateral Agent's Security ................................................. 14
6.2 Warehouse Receipts Non-Negotiable ......................................................... 14
6.3 Additional Information .................................................................... 15
6.4 Further Actions ........................................................................... 15
6.5 Financing Statements ...................................................................... 15
ARTICLE VII REMEDIES UPON OCCURRENCE OF AN EVENT OF DEFAULT ............................................ 15
7.1 Remedies; Obtaining the Collateral Upon Default ........................................... 15
7.2 Remedies; Disposition of the Collateral ................................................... 17
7.3 Waiver of Claims .......................................................................... 18
7.4 Application of Proceeds ................................................................... 18
7.5 Remedies Cumulative ....................................................................... 21
7.6 Discontinuance of Proceedings ............................................................. 21
ARTICLE VIII INDEMNITY ................................................................................. 22
8.1 Indemnity ................................................................................. 22
8.2 Indemnity Obligations Secured by Collateral; Survival ..................................... 23
ARTICLE IX DEFINITIONS ................................................................................. 23
ARTICLE X MISCELLANEOUS ................................................................................ 29
10.1 Notices .................................................................................. 29
10.2 Waiver; Amendment ........................................................................ 30
10.3 Obligations Absolute ..................................................................... 30
10.4 Successors and Assigns ................................................................... 31
10.5 Headings Descriptive ..................................................................... 31
10.6 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL ................... 31
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10.7 Assignor's Duties ........................................................................ 32
10.8 Termination; Release ..................................................................... 32
10.9 Counterparts ............................................................................. 33
10.10 Severability ............................................................................ 33
10.11 The Collateral Agent and the other Secured Creditors .................................... 33
SCHEDULE OF DEPOSIT ACCOUNTS FOR WHICH COMPANY WILL OBTAIN ACCOUNT CONTROL AGREEMENTS .................. 1
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ANNEX A Schedule of Chief Executive Offices Address(es) of Chief Executive Office
ANNEX B Schedule of Inventory and Equipment Locations
ANNEX C Schedule of Legal Names, Type of Organization (and Whether a Registered Organization
and/or a Transmitting Utility), Jurisdiction of Organization, Location and
Organizational Identification Numbers
ANNEX D Schedule of Trade and Fictitious Names
ANNEX E Description of Certain Significant Transactions Occurring Within One Year Prior to the
Date of the Security Agreement
ANNEX F-1 Schedule of Deposit Accounts
ANNEX F-2 Schedule of Deposit Accounts for Which Company Will Obtain Account Control Agreements
ANNEX G Form of Control Agreement Regarding Deposit Accounts
ANNEX H Schedule of Commercial Tort Claims
ANNEX I Schedule of Marks and Applications; Internet Domain Name Registrations
ANNEX J Schedule of Patents
ANNEX K Schedule of Copyrights
ANNEX L Grant of Security Interest in United States Trademarks
ANNEX M Grant of Security Interest in United States Patents
ANNEX N Grant of Security Interest in United States Copyrights
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EXHIBIT 10.10
HOLDCO GUARANTY
HOLDCO GUARANTY, dated as of February 4, 2004 (as amended, modified or supplemented from time to time, this "Guaranty"), made by TOWN SPORTS INTERNATIONAL HOLDINGS, INC., a Delaware corporation (the "Guarantor"). Except as otherwise defined herein, capitalized terms used herein and defined in the Credit Agreement (as defined below) shall be used herein as therein defined.
W I T N E S S E T H :
WHEREAS, Town Sports International, Inc. (the "Borrower"), the lenders from time to time party thereto (the "Lenders") and Deutsche Bank Trust Company Americas, as administrative agent (together with any successor administrative agent, the "Administrative Agent"), have entered into a Credit Agreement, dated as of April 16, 2003 (as amended, modified or supplemented from time to time, the "Credit Agreement"), providing for the making of Loans to, and the issuance of, and participation in, Letters of Credit for the account of, the Borrower as contemplated therein (the Lenders, the Collateral Agent, the Issuing Lenders and the Administrative Agent are herein called the "Lender Creditors");
WHEREAS, the Borrower and/or one or more of its Subsidiaries may at any time and from time to time enter into one or more Interest Rate Protection Agreements or Other Hedging Agreements with one or more Lenders or any affiliate thereof (each such Lender or affiliate, even if the respective Lender subsequently ceases to be a Lender under the Credit Agreement for any reason, together with such Lender's or affiliate's successors and assigns, if any, collectively, the "Other Creditors" and, together with the Lender Creditors, the "Secured Creditors");
WHEREAS, the Guarantor owns 100% of the outstanding capital stock of the Borrower;
WHEREAS, it is a condition precedent to the First Amendment Effective Date that the Guarantor shall have executed and delivered to the Administrative Agent this Guaranty; and
WHEREAS, the Guarantor will obtain benefits from the incurrence of Loans to, and the issuance of Letters of Credit for the account of, the Borrower under the Credit Agreement and the entering into by the Borrower and/or one or more of its Subsidiaries of Interest Rate Protection Agreements or Other Hedging Agreements and, accordingly, desires to execute this Guaranty in order to satisfy the condition described in the preceding paragraph;
NOW, THEREFORE, in consideration of the foregoing and other benefits accruing to the Guarantor, the receipt and sufficiency of which are hereby acknowledged, the
Guarantor hereby makes the following representations and warranties to the Secured Creditors and hereby covenants and agrees with each Secured Creditor as follows:
1. The Guarantor irrevocably, absolutely and unconditionally guarantees: (i) to the Lender Creditors the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of (x) the principal of, premium, if any, and interest on the Notes issued by, and the Loans made to, the Borrower under the Credit Agreement, and all reimbursement obligations and Unpaid Drawings with respect to Letters of Credit and (y) all other obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due), liabilities and indebtedness owing by the Borrower to the Lender Creditors under the Credit Agreement and each other Credit Document to which the Borrower is a party (including, without limitation, indemnities, Fees and interest thereon (including, in each case, any interest accruing after the commencement of any bankruptcy, insolvency, receivership or similar proceeding at the rate provided for in the Credit Agreement, whether or not such interest is an allowed claim in any such proceeding), whether now existing or hereafter incurred under, arising out of or in connection with the Credit Agreement and any such other Credit Document and the due performance and compliance by the Borrower with all of the terms, conditions and agreements contained in all such Credit Documents (all such principal, premium, interest, liabilities, indebtedness and obligations being herein collectively called the "Credit Document Obligations"); and (ii) to each Other Creditor the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due), liabilities and indebtedness (including, in each case, any interest accruing after the commencement of any bankruptcy, insolvency, receivership or similar proceeding at the rate provided for in the respective Interest Rate Protection Agreements or Other Hedging Agreements, whether or not such interest is an allowed claim in any such proceeding) owing by the Borrower and/or one or more of its Subsidiaries under any Interest Rate Protection Agreement or Other Hedging Agreement, whether now in existence or hereafter arising, and the due performance and compliance by the Borrower and such Subsidiaries with all of the terms, conditions and agreements contained in each Interest Rate Protection Agreement and Other Hedging Agreement to which it is a party (all such obligations, liabilities and indebtedness being herein collectively called the "Other Obligations" and, together with the Credit Document Obligations, the "Guaranteed Obligations"). As used herein, the term "Guaranteed Party" shall mean the Borrower and each Subsidiary thereof party to any Interest Rate Protection Agreement or Other Hedging Agreement with an Other Creditor. The Guarantor understands, agrees and confirms that the Secured Creditors may enforce this Guaranty up to the full amount of the Guaranteed Obligations against the Guarantor without proceeding against the Borrower, any other Guaranteed Party, any Subsidiary Guarantor, against any security for the Guaranteed Obligations, or under any other guaranty covering all or a portion of the Guaranteed Obligations.
2. Additionally, the Guarantor unconditionally, absolutely and irrevocably guarantees the payment of any and all Guaranteed Obligations whether or not due or payable by the Borrower or any other Guaranteed Party upon the occurrence in respect of the Borrower or any such other Guaranteed Party of any of the events specified in Section 10.05 of the Credit Agreement, and unconditionally and irrevocably promises to pay such Guaranteed Obligations to
the Secured Creditors, or order, on demand. This Guaranty shall constitute a guaranty of payment, and not of collection.
3. The liability of the Guarantor hereunder is primary, absolute and unconditional and is exclusive and independent of any security for or other guaranty of the indebtedness of the Borrower or any other Guaranteed Party whether executed by the Guarantor, any Subsidiary Guarantor, any other guarantor or by any other party, and the liability of the Guarantor hereunder shall not be affected or impaired by any circumstance or occurrence whatsoever, including, without limitation: (a) any direction as to application of payment by the Borrower or any other Guaranteed Party or by any other party, (b) any other continuing or other guaranty, undertaking or maximum liability of a guarantor or of any other party as to the Guaranteed Obligations, (c) any payment on or in reduction of any such other guaranty or undertaking, (d) any dissolution, termination or increase, decrease or change in personnel by the Borrower or any other Guaranteed Party, (e) any payment made to any Secured Creditor on the indebtedness which any Secured Creditor repays the Borrower or any other Guaranteed Party pursuant to court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, and the Guarantor waives any right to the deferral or modification of its obligations hereunder by reason of any such proceeding, (f) any action or inaction by the Secured Creditors as contemplated in Section 6 hereof or (g) any invalidity, irregularity or unenforceability of all or any part of the Guaranteed Obligations or of any security therefor.
4. The obligations of the Guarantor hereunder are independent of the obligations of any Subsidiary Guarantor, any other guarantor, the Borrower or any other Guaranteed Party, and a separate action or actions may be brought and prosecuted against the Guarantor whether or not action is brought against any Subsidiary Guarantor, any other guarantor, the Borrower or any other Guaranteed Party and whether or not any Subsidiary Guarantor, any other guarantor, the Borrower or any other Guaranteed Party be joined in any such action or actions. The Guarantor waives, to the fullest extent permitted by law, the benefits of any statute of limitations affecting its liability hereunder or the enforcement thereof. Any payment by the Borrower or any other Guaranteed Party or other circumstance which operates to toll any statute of limitations as to the Borrower or any other Guaranteed Party shall operate to toll the statute of limitations as to the Guarantor.
5. The Guarantor hereby waives notice of acceptance of this Guaranty and notice of any liability to which it may apply, and waives promptness, diligence, presentment, demand of payment, protest, notice of dishonor or nonpayment of any such liabilities, suit or taking of other action by the Administrative Agent or any other Secured Creditor against, and any other notice to, any party liable thereon (including the Guarantor, any Subsidiary Guarantor, any other guarantor, the Borrower or any other Guaranteed Party).
6. Any Secured Creditor may at any time and from time to time without the consent of, or notice to, the Guarantor, without incurring responsibility to the Guarantor, without impairing or releasing the obligations of the Guarantor hereunder, upon or without any terms or conditions and in whole or in part:
(a) change the manner, place or terms of payment of, and/or change, increase or extend the time of payment of, renew or alter, any of the Guaranteed Obligations (including any increase or decrease in the rate of interest thereon or the principal amount thereof), any security therefor, or any liability incurred directly or indirectly in respect thereof, and the guaranty herein made shall apply to the Guaranteed Obligations as so changed, extended, renewed or altered;
(b) take and hold security for the payment of the Guaranteed Obligations and sell, exchange, release, surrender, impair, realize upon or otherwise deal with in any manner and in any order any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, the Guaranteed Obligations or any liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and/or any offset there against;
(c) exercise or refrain from exercising any rights against the Borrower, any other Guaranteed Party, any other Credit Party, any Subsidiary thereof or otherwise act or refrain from acting;
(d) release or substitute any one or more endorsers, Subsidiary Guarantors, other guarantors, the Borrower, any other Guaranteed Party, or other obligors;
(e) settle or compromise any of the Guaranteed Obligations, any security therefor or any liability (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment of all or any part thereof to the payment of any liability (whether due or not) of the Borrower or any other Guaranteed Party to creditors of the Borrower or such other Guaranteed Party other than the Secured Creditors;
(f) apply any sums by whomsoever paid or howsoever realized to any liability or liabilities of the Borrower or any other Guaranteed Party to the Secured Creditors regardless of what liabilities of the Borrower or such other Guaranteed Party remain unpaid;
(g) consent to or waive any breach of, or any act, omission or default under, any of the Interest Rate Protection Agreements or Other Hedging Agreements, the Credit Documents or any of the instruments or agreements referred to therein, or otherwise amend, modify or supplement any of the Interest Rate Protection Agreements or Other Hedging Agreements, the Credit Documents or any of such other instruments or agreements;
(h) act or fail to act in any manner referred to in this Guaranty which may deprive the Guarantor of its right to subrogation against the Borrower or any other Guaranteed Party to recover full indemnity for any payments made pursuant to this Guaranty; and/or
(i) take any other action which would, under otherwise applicable principles of common law, give rise to a legal or equitable discharge of such Guarantor from its liabilities under this Guaranty.
7. This Guaranty is a continuing one and all liabilities to which it applies or may apply under the terms hereof shall be conclusively presumed to have been created in reliance hereon. No failure or delay on the part of any Secured Creditor in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein expressly specified are cumulative and not exclusive of any rights or remedies which any Secured Creditor would otherwise have. No notice to or demand on the Guarantor in any case shall entitle the Guarantor to any other further notice or demand in similar or other circumstances or constitute a waiver of the rights of any Secured Creditor to any other or further action in any circumstances without notice or demand. It is not necessary for any Secured Creditor to inquire into the capacity or powers of the Borrower or any other Guaranteed Party or the officers, directors, partners or agents acting or purporting to act on its or their behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder.
8. Any indebtedness of the Borrower or any other Guaranteed Party now or hereafter held by the Guarantor is hereby subordinated to the indebtedness of the Borrower or such other Guaranteed Party to the Secured Creditors, and such indebtedness of the Borrower or such other Guaranteed Party to the Guarantor, if the Administrative Agent or the Collateral Agent, after the occurrence and during the continuance of an Event of Default, so requests, shall be collected, enforced and received by the Guarantor as trustee for the Secured Creditors and be paid over to the Secured Creditors on account of the indebtedness of the Borrower or the other Guaranteed Parties to the Secured Creditors, but without affecting or impairing in any manner the liability of the Guarantor under the other provisions of this Guaranty. Without limiting the generality of the foregoing, the Guarantor hereby agrees with the Secured Creditors that it will not exercise any right of subrogation which it may at any time otherwise have as a result of this Guaranty (whether contractual, under Section 509 of the Bankruptcy Code or otherwise) until all Guaranteed Obligations have been irrevocably paid in full in cash (other than contingent indemnification obligations that are not then due and payable).
9. (a) The Guarantor waives any right (except as shall be required by applicable law and cannot be waived) to require the Secured Creditors to: (i) proceed against the Borrower, any other Guaranteed Party, any Subsidiary Guarantor, any other guarantor of the Guaranteed Obligations or any other party; (ii) proceed against or exhaust any security held from the Borrower, any other Guaranteed Party, any Subsidiary Guarantor, any other guarantor of the Guaranteed Obligations or any other party; or (iii) pursue any other remedy in the Secured Creditors' power whatsoever. The Guarantor waives any defense based on or arising out of any defense of the Borrower, any Guaranteed Party, any Subsidiary Guarantor, any other guarantor of the Guaranteed Obligations or any other party other than payment in full in cash of the Guaranteed Obligations in accordance with the terms thereof, including, without limitation, any defense based on or arising out of the disability of the Borrower, any other Guaranteed Party, any Subsidiary Guarantor, any other guarantor of the Guaranteed Obligations or any other party, or the unenforceability of the Guaranteed Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower or any other Guaranteed Party other than payment in full of the Guaranteed Obligations in cash. The Secured Creditors may, at their
election, foreclose on any security held by the Administrative Agent, the Collateral Agent or the other Secured Creditors by one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable, or exercise any other right or remedy the Secured Creditors may have against the Borrower, any other Guaranteed Party or any other party, or any security, without affecting or impairing in any way the liability of the Guarantor hereunder except to the extent the Guaranteed Obligations have been paid in full in cash in accordance with the terms thereof. The Guarantor waives any defense arising out of any such election by the Secured Creditors, even though such election operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of the Guarantor against the Borrower, any other Guaranteed Party or any other party or any security.
(b) The Guarantor waives all presentments, demands for performance, protests and notices, including, without limitation, notices of nonperformance, notices of protest, notices of dishonor, notices of acceptance of this Guaranty, and notices of the existence, creation or incurring of new or additional indebtedness. The Guarantor assumes all responsibility for being and keeping itself informed of the Borrower's and each other Guaranteed Party's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature, scope and extent of the risks which the Guarantor assumes and incurs hereunder, and agrees that the Secured Creditors shall have no duty to advise the Guarantor of information known to them regarding such circumstances or risks.
10. The Secured Creditors agree that this Guaranty may be enforced only by the action of the Administrative Agent or the Collateral Agent, in each case acting upon the instructions of the Required Lenders (or, after the date on which all Credit Document Obligations have been paid in full, the holders of at least a majority of the outstanding Other Obligations) and that no other Secured Creditors shall have any right individually to seek to enforce or to enforce this Guaranty or to realize upon the security to be granted by the Security Documents, it being understood and agreed that such rights and remedies may be exercised by the Administrative Agent or the Collateral Agent or, after all the Credit Document Obligations have been paid in full (other than contingent indemnification obligations that are not then due and payable), by the holders of at least a majority of the outstanding Other Obligations, as the case may be, for the benefit of the Secured Creditors upon the terms of this Guaranty and the Security Documents. The Secured Creditors further agree that this Guaranty may not be enforced against any director, officer, employee, partner, member or stockholder of the Guarantor.
11. In order to induce the Lenders to make Loans to, and issue Letters of Credit for the account of, the Borrower pursuant to the Credit Agreement, and in order to induce the Other Creditors to execute, deliver and perform the Interest Rate Protection Agreements and Other Hedging Agreements, the Guarantor represents, warrants and covenants that:
(a) the Guarantor (i) is a duly organized and validly existing corporation in good standing under the laws of the jurisdiction of its organization, (ii) has the corporate power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage and (iii) is duly qualified and is authorized to do business and is in good standing in each jurisdiction where the conduct of its business requires such qualification
except for failures to be so qualified which, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect (as defined below);
(b) the Guarantor has the corporate power and authority to execute, deliver and perform the terms and provisions of this Guaranty and each other Credit Document to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance by it of this Guaranty and each such other Credit Document. The Guarantor has duly executed and delivered this Guaranty and each other Credit Document to which it is a party, and this Guaranty and each such other Credit Document constitutes the legal, valid and binding obligation of the Guarantor enforceable in accordance with its terms, except to the extent that the enforceability hereof or thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law);
(c) neither the execution, delivery or performance by the Guarantor of this Guaranty or any other Credit Document to which it is a party, nor compliance by it with the terms and provisions hereof and thereof, will (i) contravene any provision of any applicable law, statute, rule or regulation or any applicable order, writ, injunction or decree of any court or governmental instrumentality, (ii) conflict with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien (except pursuant to the Security Documents) upon any of the property or assets of the Guarantor or any of its Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement, credit agreement, or any other material agreement, contract or instrument to which the Guarantor or any of its Subsidiaries is a party or by which it or any of its property or assets is bound or to which it may be subject or (iii) violate any provision of the certificate or articles of incorporation or by-laws of the Guarantor;
(d) no order, consent, approval, license, authorization or validation of, or filing, recording or registration with (except as have been obtained or made), or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required for, (i) the execution, delivery and performance of this Guaranty by the Guarantor or any other Credit Document to which the Guarantor is a party or (ii) the legality, validity, binding effect or enforceability of this Guaranty or any other Credit Document to which the Guarantor is a party;
(e) there are no actions, suits or proceedings pending or, to the Guarantor's knowledge, threatened (i) with respect to this Guaranty or any other Credit Document to which the Guarantor is a party or (ii) with respect to the Guarantor or any of its Subsidiaries that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; and
(f) no event has occurred and is continuing that is a Holdco Default (as hereafter defined) or Holdco Event of Default (as hereafter defined).
As used in this Guaranty, the term "Material Adverse Effect" shall mean (i) a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole or the Guarantor and its Subsidiaries taken as a whole or (ii) a material adverse effect (x) on the rights or remedies of the Lenders or the Administrative Agent hereunder or under any other Credit Document or (y) on the ability of the Credit Parties taken as a whole or the Guarantor to perform their obligations to the Lenders or Administrative Agent hereunder or under any other Credit Document.
12. The Guarantor covenants and agrees that on and after the date hereof and until the termination of the Total Revolving Loan Commitment and all Interest Rate Protection Agreements and Other Hedging Agreements and until such time as no Note or Letter of Credit remains outstanding and all Guaranteed Obligations have been paid in full (other than contingent indemnification obligations that are not then due and payable):
(a) Information Covenants. The Guarantor will furnish to each Lender:
(i) Management Letters. Promptly after the Guarantor's receipt thereof, a copy of any "management letter" received from its certified public accountants and management's response thereto.
(ii) Officer's Certificates. At the time of the delivery
of the financial statements provided for in Sections 8.01(b) and (c) of
the Credit Agreement, a compliance certificate from an Authorized
Financial Officer of the Guarantor certifying on behalf of the
Guarantor that, to such officer's knowledge after due inquiry, no
Holdco Default or Holdco Event of Default has occurred and is
continuing or, if any Holdco Default or Holdco Event of Default has
occurred and is continuing, specifying the nature and extent thereof,
which certificate shall certify that there have been no changes to
Annexes C through F, and Annexes I through K, in each case of the
Holdco Security Agreement and Annexes A through F of the Holdco Pledge
Agreement, in each case since the date hereof or, if later, since the
date of the most recent certificate delivered pursuant to this Section
12(a)(ii), or if there have been any such changes, a list in reasonable
detail of such changes (but, in each case, only to the extent that such
changes are required to be reported to the Collateral Agent pursuant to
the terms of such Security Documents).
(iii) Notice of Default, Litigation and Material Adverse Effect. Promptly, and in any event within three Business Days after any officer of the Guarantor obtains knowledge thereof, notice of (x) the occurrence of any event which constitutes a Default or an Event of Default, (y) any litigation or governmental investigation (including, without limitation, by the New York Insurance Department) or proceeding pending against the Guarantor or any of its Subsidiaries (1) which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or (2) with respect to any Credit Document, or (z) any other event, change or circumstance that has had, or could reasonably be expected to have, a Material Adverse Effect.
(iv) Other Reports and Filings. Promptly after the filing or delivery thereof, copies of all financial information, proxy materials and reports, if any, which the
Guarantor shall publicly file with the SEC or deliver to holders (or any trustee, agent or other representative therefor) of its material Indebtedness (including the Holdco Notes and the Senior Notes) pursuant to the terms of the documentation governing such Indebtedness.
(v) Other Information. From time to time, such other information or documents (financial or otherwise) with respect to the Guarantor or any of its Subsidiaries as the Administrative Agent or any Lender may reasonably request.
(b) Books, Records and Inspections. The Guarantor will keep proper books of record and accounts in which full, true and correct entries in conformity with (and to the extent required by) generally accepted accounting principles and all applicable requirements of law shall be made in relation to its business and activities. The Guarantor will permit, upon reasonable notice to the Guarantor, officers and designated representatives of the Administrative Agent or the Required Lenders to visit and inspect, under guidance of officers of the Guarantor, any of the properties of the Guarantor, and to examine the books of account of the Guarantor and discuss the affairs, finances and accounts of the Guarantor with, and be advised as to the same by, its officers and independent accountants, all upon reasonable prior notice and at such reasonable times and intervals and to such reasonable extent as the Administrative Agent or the Required Lenders may reasonably request.
(c) Maintenance of Property; Insurance. (i) The Guarantor will (x) maintain (or cause to be maintained by the Borrower) with financially sound and reputable third party insurance companies insurance on all of its material tangible property (to the extent that the Guarantor owns any such material tangible property) and against all such risks as is consistent and in accordance with industry practice for companies similarly situated owning similar properties and engaged in similar businesses as the Guarantor, and (y) furnish to the Administrative Agent, upon its written request therefor, full information as to the insurance carried.
(ii) The Guarantor will at all times keep its property insured in favor of the Collateral Agent as loss payee (to the extent that the Guarantor is otherwise required to maintain such property insurance under this Section 12(c)), and all policies or certificates (or certified copies thereof) with respect to such insurance (and any other insurance maintained by the Guarantor) (w) shall be endorsed to the Collateral Agent's satisfaction for the benefit of the Collateral Agent (including, without limitation, by naming the Collateral Agent as loss payee and/or additional insured, as applicable), (x) shall state that such insurance policies shall not be canceled without at least 30 days' prior written notice thereof by the respective insurer to the Collateral Agent, (y) shall provide that the respective insurers irrevocably waive any and all rights of subrogation with respect to the Collateral Agent and the other Secured Creditors, and (z) shall be deposited with the Collateral Agent.
(iii) If the Guarantor shall fail to maintain insurance in accordance with this Section 12(c) or if the Guarantor shall fail to so endorse and deposit all policies or certificates with respect thereto, the Administrative Agent shall have the right (but shall
be under no obligation) to procure such insurance and the Guarantor agrees to reimburse the Administrative Agent for all reasonable costs and expenses of procuring such insurance.
(d) Existence; Franchises. The Guarantor will do or cause
to be done, all things necessary to preserve and keep in full force and effect
its existence and its material rights, franchises, licenses, permits,
copyrights, trademarks and patents; provided, however, that nothing in this
Section 12(d) shall prevent the withdrawal by the Guarantor of its qualification
as a foreign corporation in any jurisdiction if such withdrawal could not,
either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(e) Compliance with Statutes, etc. The Guarantor will comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property, except such noncompliances as could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(f) Performance of Obligations. The Guarantor will perform all of its obligations under the terms of each mortgage, indenture, security agreement, loan agreement or credit agreement and each other agreement, contract or instrument by which it is bound, except such non-performances as could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(g) Payment of Taxes. The Guarantor will pay and discharge all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or upon any properties belonging to it, in each case on a timely basis, and all lawful claims which, if unpaid, might become a Lien or charge upon any properties of the Borrower or any of its Subsidiaries (other than a Lien of the type that otherwise would be permitted under Section 9.01(i) of the Credit Agreement); provided that the Guarantor shall not be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and by proper proceedings if it has maintained adequate reserves with respect thereto in accordance with generally accepted accounting principles.
(h) Ownership of the Borrower. The Guarantor will at all times own 100% of the outstanding capital stock and other equity interests of the Borrower free and clear of all Liens (other than Liens created under the Holdco Pledge Agreement), and will not sell or otherwise dispose of any such capital stock or other equity interests.
(i) Maintenance of Corporate Separateness. The Guarantor will, and will cause each of its Subsidiaries to, satisfy in all material respects customary corporate formalities, including the holding of regular board of directors' and shareholders' meetings or action by directors or shareholders without a meeting and the maintenance of corporate offices and records. Neither the Guarantor nor any of its Subsidiaries shall take any action, or conduct its affairs in a manner, which is likely to result in the corporate existence of the Guarantor or any of its Subsidiaries being ignored, or in the assets and liabilities of the Guarantor or any of its
Subsidiaries being substantively consolidated with those of the Guarantor in a bankruptcy, reorganization or other insolvency proceeding.
(j) Limitation on Issuance of Capital Stock. The Guarantor will not issue (i) any preferred stock or other preferred equity interests other than Qualified Preferred Stock of the Guarantor or (ii) any redeemable common stock or other redeemable common equity interests other than common stock or other redeemable common equity interests that is redeemable at the sole option of the Guarantor.
(k) Business, etc. The Guarantor will not engage in any business, enter into any transaction of merger or consolidation, create or acquire after the date hereof any direct Subsidiaries or own any significant assets or have any material liabilities other than (i) its ownership of (x) the capital stock of the Borrower and (y) obligations of one or more officers, directors or employees of the Guarantor or any of its Subsidiaries in connection with such officers', directors' or employees' acquisition of shares of capital stock of the Guarantor so long as no cash is paid by the Guarantor or any of its Subsidiaries to such officers, directors or employees in connection with the acquisition of any such obligations (together with any investment income thereon) and (ii) those liabilities which it is responsible for under this Guaranty, the other Holdco Credit Documents to which it is a party, the Holdco Note Documents in an aggregate principal amount at maturity not to exceed $213,000,000 (resulting in $124,807,350 of gross cash proceeds at the time of issuance of the Holdco Notes (in each case as reduced by any repayments of principal thereof made after the date hereof)) and any guaranty of the Borrower's obligations under the Senior Notes in an aggregate principal amount not to exceed $255,000,000, provided that the Guarantor may engage in those activities that are incidental to (x) the maintenance of its existence in compliance with applicable law and (y) legal, tax and accounting matters in connection with any of the foregoing activities.
(l) Limitations on Payments of Holdco Notes; Modifications of Holdco Note Documents, Certificate of Incorporation, By-Laws and Certain Other Agreements, etc. The Guarantor will not:
(i) make (or give any notice in respect of), or permit any of its Subsidiaries to make (or give any notice in respect of), any voluntary or optional payment or prepayment on or redemption, repurchase or acquisition for value of, or any prepayment or redemption as a result of any asset sale, change of control or similar event of (including, in each case without limitation, by way of depositing with the trustee with respect thereto money or securities before due for the purpose of paying when due), any Holdco Notes;
(ii) amend or modify, or permit the amendment or modification of any provision of, any Holdco Note Document other than any amendments or modifications which could not reasonably be expected to be adverse to the interests of the Lenders in any material respect and which do not require the payment of any fees to the holders of the Holdco Notes in connection therewith, provided that the prior written consent of the Administrative Agent is obtained in connection with any such amendment or modification;
(iii) amend, modify or change its certificate or articles of incorporation (including, without limitation, by the filing or modification of any certificate or articles of designation) or by-laws, or any agreement entered into by it with respect to its capital stock or other equity interests (including the Stockholders' Agreement), or enter into any new agreement with respect to its capital stock or other equity interests, unless such amendment, modification, change or other action contemplated by this clause (iii) could not reasonably be expected to be adverse to the interests of the Lenders in any material respect; or
(iv) amend or modify (or permit the amendment or modification of) any provision of the Holdco Tax Sharing Agreement or enter into any additional tax sharing agreement, tax allocation agreement or similar agreement.
(m) End of Fiscal Year; Fiscal Quarters. The Guarantor will cause (i) its fiscal year to end on December 31 of each year and (ii) each of its fiscal quarters to end on March 31, June 30, September 30 and December 31 of each fiscal year.
(n) Contributions. The Guarantor will contribute as a common equity contribution to the capital of the Borrower upon the Guarantor's receipt thereof, any cash proceeds received by the Guarantor from any asset sale, any incurrence of Indebtedness (other than from the issuance of the Holdco Notes on the First Amendment Effective Date), any Recovery Event, any issuance or sale of its equity, any cash capital contributions or any tax refunds (other than any tax refunds that are repaid to the Borrower pursuant to the Holdco Tax Sharing Agreement).
13. The existence or the occurrence of one or more of the following events whatever the reason therefor and under any circumstances whatsoever shall constitute a "Holdco Event of Default" under this Guaranty and the Credit Agreement:
(a) Representations, etc. Any representation, warranty or statement made or deemed made by the Guarantor herein or in any other Holdco Credit Document or in any certificate delivered to the Administrative Agent or any Lender pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or
(b) Covenants. The Guarantor shall (i) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 12(a)(v)(x) hereof, Section 12(h) hereof, Section 12(j) hereof, Section
12(k) hereof, Section 12(l) hereof, Section 12(m) hereof or Section 12(n) hereof
or (ii) default in the due performance or observance by it of any other term,
covenant or agreement contained in this Guaranty (other than those set forth in
Section 13(a) hereof) and such default shall continue unremedied for a period of
30 days after written notice thereof to the Guarantor by the Administrative
Agent or the Required Lenders; or
(c) Default Under Other Agreements. (i) The Guarantor shall (x) default in any payment of any Indebtedness (other than the Guaranteed Obligations) beyond the period of grace, if any, provided in an instrument or agreement under which such Indebtedness was created or (y) default in the observance or performance of any agreement or condition relating to any Indebtedness (other than the Guaranteed Obligations) or contained in any instrument or agree-
ment evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause (determined without regard to whether any notice is required), any such Indebtedness to become due prior to its stated maturity, or (ii) any Indebtedness (other than the Guaranteed Obligations) of the Guarantor shall be declared to be (or shall become) due and payable, or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof, provided that it shall not be a Holdco Default or a Holdco Event of Default under this Section 13(c) unless (A) the principal amount of any one issue of such Indebtedness is at least $2,500,000 or (B) the aggregate principal amount of all Indebtedness as described in preceding clauses (i) and (ii) is at least $5,000,000; or
(d) Bankruptcy, etc. The Guarantor shall commence a voluntary case concerning itself under the Bankruptcy Code; or an involuntary case is commenced against the Guarantor and the petition is not controverted within 10 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Guarantor, or the Guarantor commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Guarantor, or there is commenced against the Guarantor any such proceeding which remains undismissed for a period of 60 days, or the Guarantor is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Guarantor suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 60 days; or the Guarantor makes a general assignment for the benefit of creditors; or any corporate action is taken by the Guarantor for the purpose of effecting any of the foregoing; or
(e) Judgments. One or more judgments or decrees shall be entered against the Guarantor involving in the aggregate for the Guarantor a liability (to the extent not paid or fully covered by a reputable and solvent third party insurance company) and such judgments and decrees either shall be final and non-appealable or shall not be vacated, discharged or stayed or bonded pending appeal for any period of 60 consecutive days, and (I) any one such judgment or decree equals or exceeds $2,500,000 or (II) the aggregate amount of all such judgments or decrees equals or exceeds $5,000,000.
As used in this Guaranty, the term "Holdco Default" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute a Holdco Event of Default.
14. The Guarantor hereby agrees to pay all reasonable out-of-pocket costs and expenses of each Secured Creditor in connection with the enforcement of this Guaranty and of the Administrative Agent in connection with any amendment, waiver or consent relating hereto (including, in each case, without limitation, the reasonable fees and disbursements of counsel employed by each Secured Creditor).
15. This Guaranty shall be binding upon the Guarantor and its successors and assigns and shall inure to the benefit of the Secured Creditors and their successors and assigns; provided, however, the Guarantor may not assign or transfer any of its rights or obligations under this Guaranty without the prior written consent of the Required Lenders or, after the date on which all Credit Document Obligations have been paid in full, the holders of at least a majority of the outstanding Other Obligations (if any).
16. Neither this Guaranty nor any provision hereof may be changed, waived, discharged or terminated except with the written consent of the Guarantor and with the written consent of either (x) the Required Lenders (or, to the extent required by Section 13.12 of the Credit Agreement, with the written consent of each Lender) at all times prior to the time on which all Credit Document Obligations have been paid in full (other than contingent indemnification obligations that are not then due and payable) or (y) the holders of at least a majority of the outstanding Other Obligations at all times after the time on which all Credit Document Obligations have been paid in full (other than contingent indemnification obligations that are not then due and payable); provided, that any change, waiver, modification or variance affecting the rights and benefits of a single Class (as defined below) of Secured Creditors (and not all Secured Creditors in a like or similar manner) shall also require the written consent of the Requisite Creditors (as defined below) of such Class of Secured Creditors. For the purpose of this Guaranty, the term "Class" shall mean each class of Secured Creditors, i.e., whether (x) the Lender Creditors as holders of the Credit Document Obligations or (y) the Other Creditors as the holders of the Other Obligations. For the purpose of this Guaranty, the term "Requisite Creditors" of any Class shall mean (x) with respect to the Credit Document Obligations, the Required Lenders (or, to the extent required by Section 13.12 of the Credit Agreement, each Lender) and (y) with respect to the Other Obligations, the holders of at least a majority of all obligations outstanding from time to time under the Interest Rate Protection Agreements and Other Hedging Agreements.
17. The Guarantor acknowledges that an executed (or conformed) copy of each of the Credit Documents and Interest Rate Protection Agreements or Other Hedging Agreements has been made available to a senior officer of the Guarantor and such officer is familiar with the contents thereof.
18. In addition to any rights now or hereafter granted under applicable law (including, without limitation, Section 151 of the New York Debtor and Secured Creditor Law) and not by way of limitation of any such rights, upon the occurrence and during the continuance of an Event of Default (such term to mean and include any "Event of Default" (or similar term) as defined in the Credit Agreement or in any Interest Rate Protection Agreement or Other Hedging Agreement entered into with any Other Creditor and shall in any event include, without
limitation, any payment default under any of the Obligations continuing after any applicable grace period), each Secured Creditor is hereby authorized, at any time or from time to time, without notice to the Guarantor or to any other Person, any such notice being expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other indebtedness at any time held or owing by such Secured Creditor (including, without limitation, by branches and agencies of such Secured Creditor wherever located) to or for the credit or the account of the Guarantor, against and on account of the obligations and liabilities of the Guarantor to such Secured Creditor under this Guaranty, irrespective of whether or not such Secured Creditor shall have made any demand hereunder and although said obligations, liabilities, deposits or claims, or any of them, shall be contingent or unmatured.
19. All notices, requests, demands or other communications pursuant hereto shall be sent or delivered by mail, telegraph, telex, telecopy, cable or courier service and all such notices and communications shall, when mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, be effective when deposited in the mails, delivered to the telegraph company, cable company or overnight courier, as the case may be, or sent by telex or telecopier, except that notices and communications to the Administrative Agent or the Guarantor shall not be effective until received by the Administrative Agent or the Guarantor, as the case may be. All notices and other communications shall be in writing and addressed to such party at (i) in the case of any Lender Creditor, as provided in the Credit Agreement, (ii) in the case of the Guarantor, at its address set forth opposite its signature below, and (iii) in the case of any Other Creditor, at such address as such Other Creditor shall have specified in writing to the Guarantor; or in any case at such other address as any of the Persons listed above may hereafter notify the others in writing.
20. If claim is ever made upon any Secured Creditor for repayment or recovery of any amount or amounts received in payment or on account of any of the Guaranteed Obligations and any of the aforesaid payees repays all or part of said amount by reason of (i) any judgment, decree or order of any court or administrative body having jurisdiction over such payee or any of its property or (ii) any settlement or compromise of any such claim effected by such payee with any such claimant (including the Borrower or any other Guaranteed Party) then and in such event the Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding upon the Guarantor, notwithstanding any revocation hereof or other instrument evidencing any liability of the Borrower or any other Guaranteed Party, and the Guarantor shall be and remain liable to the aforesaid payees hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by any such payee.
21. (a) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE SECURED CREDITORS AND OF THE UNDERSIGNED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Any legal action or proceeding with respect to this Guaranty or any other Credit Document to which the Guarantor is a party may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York in each case which are located in the County of New York, and, by execution and delivery of this Guaranty,
the Guarantor hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The Guarantor hereby further irrevocably waives any claim that any such court lacks personal jurisdiction over the Guarantor, and agrees not to plead or claim in any legal action or proceeding with respect to this Guaranty or any other Credit Document to which the Guarantor is a party brought in any of the aforesaid courts that any such court lacks personal jurisdiction over the Guarantor. The Guarantor further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Guarantor at its address set forth opposite its signature below, such service to become effective 30 days after such mailing. The Guarantor hereby irrevocably waives any objection to such service of process and further irrevocably waives and agrees not to plead or claim in any action or proceeding commenced hereunder or under any other Credit Document to which the Guarantor is a party that such service of process was in any way invalid or ineffective. Nothing herein shall affect the right of any of the Secured Creditors to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Guarantor in any other jurisdiction.
(b) The Guarantor hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Guaranty or any other Credit Document to which the Guarantor is a party brought in the courts referred to in clause (a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that such action or proceeding brought in any such court has been brought in an inconvenient forum.
(c) THE GUARANTOR AND EACH SECURED CREDITOR (BY ITS ACCEPTANCE OF THE BENEFITS OF THIS GUARANTY) HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS GUARANTY, THE OTHER CREDIT DOCUMENTS TO WHICH THE GUARANTOR IS A PARTY OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
22. This Guaranty may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Guarantor and the Administrative Agent.
23. All payments made by the Guarantor hereunder will be made without setoff, counterclaim or other defense and on the same basis as payments are made by the Borrower under Sections 4.03 and 4.04 of the Credit Agreement.
* * *
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed and delivered as of the date first above written.
Address: TOWN SPORTS INTERNATIONAL
888 Seventh Avenue, 25th Floor HOLDINGS, INC.,
New York, NY 10106 as the Guarantor
Attention: Richard Pyle
Tel. No.: (212) 246-6700 By: /s/ Richard Pyle
Fax No.: (212) 664-8906 __________________________
Name: Richard Pyle
Title: Chief Financial Officer
Accepted and Agreed to:
DEUTSCHE BANK TRUST COMPANY AMERICAS,
as Administrative Agent
By: /s/ Diane F. Rolfe
______________________________
Name: Diane F. Rolfe
Title: Vice President
|
Exhibit 12.1
TOWN SPORTS INTERNATIONAL, INC.
COMPUTATION OF EARNINGS TO FIXED CHARGES
ALL FIGURES $'000, EXCEPT COVERAGE RATIOS
Year ended December 31,
--------------------------------------------
PRO
FORMA
1999 2000 2001 2002 2003 2003
---- ---- ---- ---- ---- ----
Earnings available for fixed
charges:
Income (loss) before
income taxes $ 745 $ 10,227 $ 14,429 $ 21,672 $ 12,966 $ (1,194)
Less: income from
investments accounted
for by the equity
method (314) (512) (695) (796) (755) (755)
Add: Cash distributions
from investments
accounted for by the
equity method 285 420 809 720 840 840
Add: Fixed charges, net
of capitalized interest 20,093 24,790 28,176 31,756 40,588 54,748
-------- -------- -------- -------- -------- --------
Total $ 20,809 $ 34,925 $ 42,719 $ 53,352 $ 53,639 $ 53,639
Fixed Charges
Interest (includes
amortization of
issuance costs) $ 11,527 $ 14,300 $ 14,918 $ 16,559 $ 23,670 $ 37,830
Interest portion of rent
expense 8,566 10,490 13,258 15,197 16,918 16,918
Capitalized interest 436 660 907 354 322 322
-------- -------- -------- -------- -------- --------
Total $ 20,529 $ 25,450 $ 29,083 $ 32,110 $ 40,910 $ 55,070
Coverage:
Earnings to fixed charges 1.0 1.4 1.5 1.7 1.3 1.0
|
.
.
.
EXHIBIT 21.1
SUBSIDIARIES DECEMBER 31, 2003
SUBSIDIARY FORM OWNER ---------- ---- ----- Town Sports AG Corporation TSI International, Inc. TSI 217 Broadway, Inc. Corporation Town Sports International, Inc. TSI Alexandria, LLC Corporation TSI Holdings (VA), Inc. TSI Allston, Inc. Corporation Town Sports International, Inc. TSI Andover, Inc. Corporation TSI Holdings (MA), Inc. TSI Ardmore, LLC Corporation TSI Holdings (PA), Inc. TSI Arthro Fitness Services, Inc. Corporation Town Sports International, Inc. TSI Astoria, Inc. Corporation Town Sports International, Inc. TSI Battery Park, Inc. Corporation Town Sports International, Inc. TSI Bethesda, LLC Corporation TSI Holdings (MD), Inc. TSI Broadway, Inc. Corporation Town Sports International, Inc. TSI Brooklyn Belt, Inc. Corporation Town Sports International, Inc. TSI Brunswick, Inc. Corporation Town Sports International, Inc. TSI Bryn Mawr, LLC Corporation TSI Holdings (PA), Inc. TSI Bulfinch, Inc. Corporation Town Sports International, Inc. TSI Cash Management, Inc. Corporation Town Sports International, Inc. TSI Central Square, Inc. Corporation Town Sports International, Inc. TSI Cherry Hill, LLC Corporation TSI Holdings (NJ), Inc. TSI Chevy Chase, Inc. Corporation TSI Holdings (DC), Inc. TSI Clarendon, LLC Corporation TSI Holdings (VA), Inc. TSI Cobble Hill, Inc. Corporation Town Sports International, Inc. TSI Colonia, LLC Corporation TSI Holdings (NJ), Inc. TSI Commack, Inc. Corporation Town Sports International, Inc. TSI Connecticut Avenue, Inc. Corporation TSI Holdings (DC), Inc. TSI Copley, Inc. Corporation Town Sports International, Inc. TSI Court Street, Inc. Corporation Town Sports International, Inc. TSI Croton, Inc. Corporation Town Sports International, Inc. TSI Danbury, Inc. Corporation Town Sports International, Inc. TSI Danvers, Inc. Corporation TSI Holdings (MA), Inc. TSI Downtown Crossing, Inc. Corporation TSI Holdings (MA), Inc. TSI Dupont Circle, Inc. Corporation TSI Holdings (DC), Inc. TSI Dupont II, Inc. Corporation TSI Holdings (DC), Inc. TSI East 23, Inc. Corporation Town Sports International, Inc. TSI East 31, Inc. Corporation Town Sports International, Inc. TSI East 34, Inc. Corporation Town Sports International, Inc. TSI East 36, Inc. Corporation Town Sports International, Inc. TSI East 41, Inc. Corporation Town Sports International, Inc. TSI East 51, Inc. Corporation Town Sports International, Inc. TSI East 59, Inc. Corporation Town Sports International, Inc. TSI East 76, Inc. Corporation Town Sports International, Inc. TSI East 86, LLC Corporation Town Sports International, Inc. TSI East 91, Inc. Corporation Town Sports International, Inc. TSI East Cambridge, Inc. Corporation Town Sports International, Inc. TSI East Meadow, Inc Corporation Town Sports International, Inc. |
SUBSIDIARIES DECEMBER 31, 2003
SUBSIDIARY FORM OWNER ---------- ---- ----- TSI F Street, Inc. Corporation TSI Holdings (DC), Inc. TSI Fairfax, LLC Corporation TSI Holdings (VA), Inc. TSI Fenway, Inc. Corporation Town Sports International, Inc. TSI Fifth Avenue, Inc. Corporation Town Sports International, Inc. TSI First Avenue, Inc. Corporation Town Sports International, Inc. TSI Forest Hills, Inc. Corporation Town Sports International, Inc. TSI Fort Lee, LLC Corporation TSI Holdings (NJ), Inc. TSI Framingham, Inc. Corporation TSI Holdings (MA), Inc. TSI Franklin (MA), Inc. Corporation TSI Holdings (MA), Inc. TSI Franklin Park, LLC Corporation TSI Holdings (NJ), Inc. TSI Freehold, LLC Corporation TSI Holdings (NJ), Inc. TSI Gallery Place, Inc. Corporation TSI Holdings (DC), Inc. TSI Garden City, Inc. Corporation Town Sports International, Inc. TSI Germantown, LLC Corporation TSI Holdings (MD), Inc. TSI Glover, Inc. Corporation TSI Holdings (DC), Inc. TSI Grand Central, Inc. Corporation Town Sports International, Inc. TSI Great Neck, Inc. Corporation Town Sports International, Inc. TSI Greenwich, Inc. Corporation Town Sports International, Inc. TSI Herald, Inc. Corporation Town Sports International, Inc. TSI Highpoint, LLC Corporation TSI Holdings, (PA), Inc. TSI Hoboken, LLC Corporation TSI Holdings (NJ), Inc. TSI Hoboken North, LLC Corporation TSI Holdings (NJ), Inc. TSI Holdings (CIP), Inc. Corporation Town Sports International, Inc. TSI Holdings (DC), Inc. Corporation Town Sports International, Inc. TSI Holdings (IP), LLC Corporation TSI Insurance, Inc. TSI Holdings, (MA) Inc Corporation Town Sports International, Inc. TSI Holdings (MD), Inc. Corporation Town Sports International, Inc. TSI Holdings (NJ), Inc. Corporation Town Sports International, Inc. TSI Holdings (PA), Inc. Corporation Town Sports International, Inc. TSI Holdings (VA), Inc. Corporation Town Sports International, Inc. TSI Huntington, Inc. Corporation Town Sports International, Inc. TSI International, Inc. Corporation Town Sports International, Inc. TSI Insurance, Inc. Corporation Town Sports International, Inc. TSI Irving Place, Inc. Corporation Town Sports International, Inc. TSI Jersey City, LLC Corporation TSI Holdings (NJ), Inc. TSI Larchmont, Inc. Corporation Town Sports International, Inc. TSI Lexington, (MA), Inc. Corporation TSI Holdings (MA), Inc. TSI Lincoln, Inc. Corporation Town Sports International, Inc. TSI Livingston, LLC Corporation TSI Holdings (NJ), Inc. TSI Long Beach, Inc. Corporation Town Sports International, Inc. TSI Lynnfield, Inc. Corporation TSI Holdings (MA), Inc. TSI M Street, Inc. Corporation TSI Holdings (DC), Inc. TSI Madison, Inc. Corporation Town Sports International, Inc. TSI Mahwah, LLC Corporation TSI Holdings (NJ), Inc. TSI Mamaroneck, Inc. Corporation Town Sports International, Inc. TSI Market Street, LLC Corporation TSI Holdings (PA), Inc. TSI Marlboro, LLC Corporation TSI Holdings (NJ), Inc. TSI Matawan, LLC Corporation TSI Holdings (NJ), Inc. TSI Montclair, LLC Corporation TSI Holdings (NJ), Inc. |
SUBSIDIARIES DECEMBER 31, 2003
SUBSIDIARY FORM OWNER ---------- ---- ----- TSI Murray Hill, Inc. Corporation Town Sports International, Inc. TSI Nanuet, Inc. Corporation Town Sports International, Inc. TSI Natick, Inc. Corporation Town Sports International, Inc. TSI Newark, LLC Corporation TSI Holdings (NJ), Inc. TSI Newbury Street, Inc. Corporation Town Sports International, Inc. TSI North Bethesda, LLC Corporation TSI Holdings (MD), Inc. TSI Norwalk, Inc. Corporation Town Sports International, Inc. TSI Oceanside, Inc. Corporation Town Sports International, Inc. TSI Old Bridge, Inc. Corporation TSI Holdings (NJ), Inc. TSI Parsippany, LLC Corporation TSI Holdings (NJ), Inc. TSI Plainsboro, LLC Corporation TSI Holdings (NJ), Inc. TSI Princeton, LLC Corporation TSI Brunswick, Inc. TSI Ramsey, LLC Corporation TSI Holdings (NJ), Inc. TSI Reade Street, Inc. Corporation Town Sports International, Inc. TSI Ridgewood, LLC Corporation TSI Holdings, (NJ), Inc. TSI Rittenhouse, LLC Corporation TSI Holdings (PA), Inc. TSI Rodin Place, LLC Corporation TSI Holdings (PA), Inc. TSI Rye, Inc. Corporation Town Sports International, Inc. TSI Scarsdale, Inc. Corporation Town Sports International, Inc. TSI Seaport, Inc. Corporation Town Sports International, Inc. TSI Sheridan, Inc. Corporation Town Sports International, Inc. TSI Silver Spring, LLC Corporation TSI Holdings (MD), Inc. TSI Society Hill, LLC Corporation TSI Holdings (PA), Inc. TSI Soho, Inc. Corporation Town Sports International, Inc. TSI Somerset, LLC Corporation TSI Holdings (NJ), Inc. TSI South Park Slope, Inc. Corporation Town Sports International, Inc. TSI Springfield, LLC Corporation TSI Holdings (NJ), Inc. TSI Stamford Downtown, Inc. Corporation Town Sports International, Inc. TSI Stamford Post, Inc. Corporation Town Sports International, Inc. TSI Stamford Rinks, Inc. Corporation Town Sports International, Inc. TSI Staten Island, Inc. Corporation Town Sports International, Inc. TSI Sterling, LLC Corporation TSI Holdings (VA), Inc. TSI Supplements, Inc. Corporation Town Sports International, Inc. TSI Syosset, Inc. Corporation Town Sports International, Inc. TSI Wall Street, Inc. Corporation Town Sports International, Inc. TSI Waltham, LLC Corporation TSI Holdings (MA), Inc. TSI Water Street, Inc. Corporation Town Sports International, Inc. TSI Washington, Inc. Corporation TSI Holdings (DC), Inc. TSI Wellesley, Inc. Corporation TSI Holdings (MA), Inc. TSI Westport, Inc. Corporation Town Sports International, Inc. TSI West 14, Inc. Corporation Town Sports International, Inc. TSI West 16, Inc. Corporation Town Sports International, Inc. TSI West 23, Inc. Corporation Town Sports International, Inc. TSI West 38, Inc. Corporation Town Sports International, Inc. TSI West 41, Inc. Corporation Town Sports International, Inc. TSI West 44, Inc. Corporation Town Sports International, Inc. |
SUBSIDIARIES DECEMBER 31, 2003
SUBSIDIARY FORM OWNER ---------- ---- ----- TSI West 48, Inc. Corporation Town Sports International, Inc. TSI West 52, Inc. Corporation Town Sports International, Inc. TSI West 73, Inc. Corporation Town Sports International, Inc. TSI West 76, Inc. Corporation Town Sports International, Inc. TSI West 80, Inc. Corporation Town Sports International, Inc. TSI West 94, Inc. Corporation Town Sports International, Inc. TSI West 125, Inc. Corporation Town Sports International, Inc. TSI West Caldwell, LLC Corporation TSI Holdings (NJ), Inc. TSI West Newton, Inc. Corporation Town Sports International, Inc. TSI West Nyack, Inc. Corporation Town Sports International, Inc. TSI West Springfield, LLC Corporation TSI Holdings (VA), Inc. TSI Westwood, LLC Corporation TSI Holdings (NJ), Inc. TSI Weymouth, Inc. Corporation Town Sports International, Inc. TSI White Plains, Inc. Corporation Town Sports International, Inc. TSI Whitestone, Inc. Corporation Town Sports International, Inc. TSI Woodmere, Inc. Corporation Town Sports International, Inc. |
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of Town Sports International Holdings, Inc. of our report dated February 17, 2004, except as to Note 18, which is dated March 17, 2004, relating to the financial statements of Town Sports International, Inc., which appear in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
New York, New York
April 5, 2004
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |_|
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) |
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
(Exact name of obligor as specified in its charter)
Delaware 13-2749906 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 888 Seventh Avenue New York, NY 10106 (Address of principal executive offices) (Zip code) |
11% Senior Discount Notes due 2014
(Title of the indenture securities)
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT.
Name Address
---- -------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
|
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE 7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority.
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 16th day of March, 2004.
THE BANK OF NEW YORK
By: /s/ Patricia Gallagher
----------------------------------
Name: PATRICIA GALLAGHER
Title: VICE PRESIDENT
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EXHIBIT 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business December 31, 2003, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS In Thousands
------ ------------
Cash and balances due from depository
institutions:
Noninterest-bearing balances and currency and coin ........... $ 3,752,987
Interest-bearing balances .................................... 7,153,561
Securities:
Held-to-maturity securities .................................. 260,388
Available-for-sale securities ................................ 21,587,862
Federal funds sold and securities purchased
under agreements to resell ...................................
Federal funds sold in domestic offices ....................... 165,000
Securities purchased under agreements to resell .............. 2,804,315
Loans and lease financing receivables:
Loans and leases held for sale ............................... 557,358
Loans and leases, net of unearned income ..................... 36,255,119
LESS: Allowance for loan and lease losses .................... 664,233
Loans and leases, net of unearned
income and allowance ....................................... 35,590,886
Trading Assets ................................................. 4,892,480
Premises and fixed assets (including
capitalized leases) .......................................... 926,789
Other real estate owned ........................................ 409
Investments in unconsolidated subsidiaries
and associated companies ..................................... 277,788
Customers' liability to this bank on
acceptances outstanding ...................................... 144,025
Intangible assets ..............................................
Goodwill ..................................................... 2,635,322
Other intangible assets ...................................... 781,009
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Other assets ................................................... 7,727,722
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Total assets ................................................... $89,257,901
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LIABILITIES
Deposits:
In domestic offices .......................................... $33,763,250
Noninterest-bearing .......................................... 14,511,050
Interest-bearing ............................................. 19,252,200
In foreign offices, Edge and Agreement
subsidiaries, and IBFs ..................................... 22,980,400
Noninterest-bearing .......................................... 341,376
Interest-bearing ............................................. 22,639,024
Federal funds purchased and securities sold
under agreements to repurchase ...............................
Federal funds purchased in domestic offices .................. 545,681
Securities sold under agreements to repurchase ............... 695,658
Trading liabilities ............................................ 2,338,897
Other borrowed money:
(includes mortgage indebtedness and
obligations under capitalized leases) ........................ 11,078,363
Bank's liability on acceptances executed and outstanding ....... 145,615
Subordinated notes and debentures .............................. 2,408,665
Other liabilities .............................................. 6,441,088
-----------
Total liabilities .............................................. $80,397,617
===========
Minority interest in consolidated subsidiaries ................. 640,126
EQUITY CAPITAL
Perpetual preferred stock and related
surplus ...................................................... 0
Common stock ................................................... 1,135,284
Surplus ........................................................ 2,077,255
Retained earnings .............................................. 4,955,319
Accumulated other comprehensive income ......................... 52,300
Other equity capital components ................................ 0
-----------
Total equity capital ........................................... 8,220,158
-----------
Total liabilities minority interest and equity capital ......... $89,257,901
===========
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I, Thomas J. Mastro, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition is true and correct to the best of my knowledge and belief.
Thomas J. Mastro, Senior Vice President and Comptroller
We, the undersigned directors, attest to the correctness of this statement of resources and liabilities. We declare that it has been examined by us, and to the best of our knowledge and belief has been prepared in conformance with the instructions and is true and correct.
Thomas A. Renyi :
Gerald L. Hassell : Directors
Alan R. Griffith :