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FIRST SUPPLEMENTAL INDENTURE
Dated as of July 17, 1998
(Supplemental to Indenture dated as of July 22, 1997)
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DISCOVERY ZONE, INC., as Issuer
AND
THE SUBSIDIARY GUARANTORS NAMED THEREIN
AND
STATE STREET BANK AND TRUST COMPANY, as Trustee
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13 1/2% SENIOR SECURED NOTES DUE 2002
and
13 1/2% SENIOR SECURED NOTES DUE 2002, SERIES B
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FIRST SUPPLEMENTAL INDENTURE, dated as of the 17th day of
July, 1998 among Discovery Zone, Inc., a Delaware corporation (the "Company"),
the Subsidiary Guarantors (as defined in the Original Indenture) and State
Street Bank and Trust Company, as trustee (the "Trustee").
WHEREAS, the Company and the Subsidiary Guarantors executed
and delivered to the Trustee an Indenture, dated as of July 22, 1997, (the
"Original Indenture") providing for the issuance of the Company's 13 1/2% Senior
Secured Notes due 2002 (the "Initial Notes") and its 13 1/2% Senior Secured
Notes due 2002, Series B (the "Exchange Notes", and together with the Initial
Notes, the "Notes"); and
WHEREAS, the Company proposes to issue (the "Offering") on or
about the date hereof (i) up to 20,000 units (the "New Note Units"), consisting
of $20,000,000 principal amount of the Company's 13 1/2% Senior Collateralized
Notes due 2002 (the "New Notes"), with detachable warrants (the "New Series A
Warrants") to purchase shares of the Company's common stock, par value $.00017
per share (the "Common Stock") or shares of the Company's non-voting common
stock, par value $.00017 per share (the "Non-Voting Common Stock"), and with
detachable redeemable warrants (the "New Series B Warrants" and collectively,
with the New Series A Warrants, the "New Warrants") to purchase shares of the
Company's Common Stock or shares of the Company's Non-Voting Common Stock,
collectively representing approximately 49% of the Company's common equity on a
fully diluted basis (before giving effect to the future issuance of options
under the Company's stock incentive plan in effect at the time of the Offering
(the "Stock Incentive Plan")), (ii) units (the "Series A Preferred Stock
Units"), consisting of 80,000 shares of Series A Junior Cumulative Preferred
Stock, liquidation preference $25.00 per share (the "Series A Preferred Stock"),
with detachable warrants (the "Series A Preferred Warrants") to purchase shares
of Common Stock, representing approximately 9.638% of the Common Stock on a
fully diluted basis (before giving effect to the future issuance of options
under the Company's Stock Incentive Plan), and (iii) units (the "Series B
Preferred Stock Units" and, together with the Series A Preferred Stock Units,
the "Preferred Stock Units") consisting of 340,000 shares of Series B Junior
Cumulative Preferred Stock, liquidation preference $25.00 per share (the "Series
B Preferred Stock" and, together with the Series A Preferred Stock, the "New
Preferred Stock"), with detachable warrants (the "Series B Preferred Warrants"
and, together with the Series A Preferred Warrants, the "Preferred Warrants") to
purchase shares of Common Stock, representing approximately 40.962% of the
Common Stock on a fully diluted basis (before giving effect to the future
issuance of options under the Company's Stock Incentive Plan);
WHEREAS, Holders (as defined in the Original Indenture)
representing at least a majority in aggregate principal amount ("Majority
Holders") of the Notes have agreed to waive the application of the provisions of
the Original Indenture as more particularly set forth in Article 2 hereof to the
full extent necessary to (i) permit the Offering (the "Offering Waiver"), and
(ii) permit the Trustee, on behalf of the Holders, to enter into an agreement
(the "New Notes Intercreditor Agreement") with the trustee for the holders of
the New Notes (the "New Notes Trustee") to the effect that (a) the priority of
the security interests in and liens on the collateral under the indenture (the
"New Notes Indenture") and related agreements governing the New Notes be senior
to the security interests in and liens on the collateral under the Original
Indenture and related agreements governing the Notes, (b) the New Notes are
fully secured and (c) in the event of a bankruptcy proceeding, Holders will not
object to an application for "adequate
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protection" in favor of the holders of the New Notes (the "Intercreditor Waiver"
and, collectively with the Offering Waiver, the "Waivers"); and
WHEREAS, the Majority Holders have agreed to certain
amendments to the Indenture (A) to permit the Company (i) to incur up to $20
million of additional Indebtedness (as defined in the Original Indenture)
pursuant to the New Notes, (ii) to incur additional liens on the collateral
securing the Notes for the benefit of the holders of the New Notes, (iii) to
make future investments in the New Notes, (iv) to incur up to $5 million of
additional Indebtedness (as defined in the Original Indenture) (which
Indebtedness may include additional Indebtedness evidenced by an Eligible Credit
Facility (as defined herein) and secured by a first priority security interest
in, among other things, the collateral securing the Notes ("Additional Secured
Indebtedness")), (v) to make certain future redemptions and repurchases of the
New Notes in accordance with their terms and the terms of the New Notes
Indenture, and (vi) to make future redemptions in connection with a Primary
Offering (as defined in the Original Indenture) of certain shares of Common
Stock that represented accrued and unpaid dividends on New Preferred Stock held
by holders of New Preferred Stock whose shares of New Preferred Stock were
converted into Common Stock on or prior to the completion of such Primary
Offering, and (B) to permit the Trustee to enter into the New Notes
Intercreditor Agreement and an Intercreditor Agreement (as defined herein) with
the Lender or Lenders (as defined in the Original Indenture) of any Additional
Secured Indebtedness.
NOW THEREFORE, the Company, the Subsidiary Guarantors and the
Trustee hereby agree as follows:
ARTICLE 1.
Amendments
1. Section 1.01 of the Original Indenture is hereby amended as
follows:
(a) The definition of "Eligible Credit Facility" is hereby
amended in its entirety to read as follows:
" "Eligible Credit Facility" means one or
more credit facilities (and any permitted
refinancings or replacements thereof) between the
Company and one or more Lenders, including any
related notes, guarantees, collateral documents,
instruments and agreements executed in connection
therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time
to time as permitted herein, which credit facility or
facilities (and any permitted refinancings or
replacements thereof) (i) has or have terms and
conditions (including with respect to applicable
interest rates and fees) customary for similar
facilities extended to borrowers comparable to the
Company, (ii) collectively do not permit the Company
to incur Indebtedness thereunder at any time
outstanding in excess of $15,000,000 in the aggregate
principal amount, and (iii) may be secured by certain
assets of the Company, subject to the terms and
conditions of an Intercreditor Agreement."
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(b) The definition of "Intercreditor Agreement" is hereby
amended in its entirety to read as follows:
" "Intercreditor Agreement" means one or
more agreements between the Trustee and one or more
Lenders, each substantially in the form of Exhibit
G-1 attached to the First Supplemental Indenture
hereto, to be entered into after the Issue Date, if
the Company and such Lender or Lenders enter into an
Eligible Credit Facility, as such agreement or
agreements may be amended from time to time."
(c) Subparagraph (h) of the definition of "Permitted
Indebtedness" is hereby amended in its entirety and a new subparagraph (i) is
hereby added to the definition of "Permitted Indebtedness," each to read as
follows:
"(h) other Indebtedness of the Company in an
aggregate amount not to exceed $15 million at any one
time outstanding, which Indebtedness may include
Indebtedness evidenced by an Eligible Credit
Facility; and
(i) Indebtedness of the Company represented
by the New Notes and in an aggregate principal amount
not to exceed $20 million."
(d) The subsection (vi) of the definition of "Permitted
Investments" is hereby amended in its entirety to read as follows:
"(vi) Investments in the Notes and/or the
New Notes."
(e) Subparagraph (xiii) of the definition of "Permitted Liens"
is hereby amended in its entirety to read as follows:
"(xiii) Liens securing Indebtedness of the
Company under an Eligible Credit Facility or the New
Notes;"
(f) The following definitions are hereby added to Section
1.01:
" "New Indenture Primary Offering" means an offering of
Qualified Capital Stock of the Company.
" "New Note Units" means units consisting of New Notes, New
Series A Warrants and New Series B Warrants to be initially sold
by the Company in a private offering on July 17, 1998."
" "New Notes" means up to $20,000,000 aggregate principal
amount of the Company's 13 1/2% Senior Collateralized Notes due
2002 and the Company's 13 1/2% Series B Senior Collateralized
Notes due 2002."
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" "New Notes Indenture" means the Indenture dated as of July
17, 1998 among the Company, the Subsidiary Guarantors named
therein and the New Notes Trustee."
" "New Notes Intercreditor Agreement" means an agreement
between the Trustee and the New Notes Trustee in substantially
the form of Exhibit G-2 attached to the First Supplemental
Indenture hereto to be entered into on the date on which the New
Notes are issued providing that (i) the priority of the security
interests in and liens on the collateral under the New Notes
Indenture and related agreements governing the New Notes be
senior to the security interests in and liens on the collateral
under this Indenture and related agreements governing the Notes,
(ii) the New Notes are fully secured and (iii) in the event of a
bankruptcy proceeding, the Holders will not object to an
application for "adequate protection" in favor of the holders of
the New Notes."
" "New Notes Trustee" means Firstar Bank of Minnesota, N.A.
as trustee under the New Indenture or any successor trustee under
the New Indenture."
" "New Preferred Stock" means collectively, (i) the 80,000
shares of the Company's Series A Junior Cumulative Preferred
Stock, liquidation preference $25.00 per share, and (ii) the
340,000 shares of Series B Junior Cumulative Preferred Stock,
liquidation preference $25.00 per share, issued on the date on
which the New Notes are issued."
" "New Series A Warrants" means warrants to purchase shares
of the Company's common stock, par value $.00017 per share or
shares of the Company's non-voting common stock, par value
$.00017 per share representing approximately 34% of the Company's
common equity on a fully diluted basis (before giving effect to
the future issuance of options under the Company's Stock
Incentive Plan as in effect on the date of issuance of the New
Note Units) issued in connection with the New Note Units pursuant
to the terms of the New Warrant Agreement."
" "New Series B Warrants" means warrants to purchase shares
of the Company's common stock, par value $.00017 per share or
shares of the Company's non-voting common stock, par value
$.00017 per share representing approximately 15% of the Company's
common equity on a fully diluted basis (before giving effect to
the future issuance of options under the Company's Stock
Incentive Plan as in effect on the date of issuance of the New
Note Units) issued in connection with the New Note Units pursuant
to the terms of the New Warrant Agreement."
" "New Warrant Agreement" means the Warrant Agreement dated
as of July 17, 1998, between the Company and Firstar Bank of
Minnesota, N.A. as Warrant Agent pursuant to which the New
Warrants are issued, as amended and supplemented from time to
time in accordance with its terms."
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" "New Warrants" means collectively, the New Series A
Warrants and the New Series B Warrants issued by the Company
pursuant to the terms and conditions of the New Warrant
Agreement."
" "Public Equity Offering" means an underwritten public
offering of Qualified Capital Stock of the Company pursuant to a
registration statement filed with and declared effective by the
SEC pursuant to the Securities Act (other than a registration
statement on Form S-8 or otherwise relating to equity securities
under any employee benefit plans) that results in net proceeds to
the Company of at least $20 million."
2. Section 4.10 of the Original Indenture is hereby amended:
(a) by deleting the word "and" in the twenty-ninth line of the
second full paragraph thereof;
(b) by adding the words "; (x) the redemption or repurchase of
New Notes, in accordance with the terms of the New Notes Indenture, in
connection with an Asset Sale; (xi) the redemption or repurchase of New Notes,
in accordance with the terms of the New Notes Indenture, following the
occurrence of a Change of Control (as defined in the New Notes Indenture); (xii)
the redemption, in accordance with the terms of the New Notes Indenture, of up
to 100% of the original principal amount of the New Notes, utilizing the
proceeds of a New Indenture Primary Offering provided that such redemption shall
occur within 30 days of the date of the closing of such New Indenture Primary
Offering; (xiii) the payment, in accordance with the terms of the New Preferred
Stock utilizing the proceeds of a Public Equity Offering, of accrued and unpaid
dividends on New Preferred Stock held by holders thereof whose New Preferred
Stock was converted into Common Stock, either concurrently with or prior to the
consummation of such Public Equity Offering; and (xiv) the purchase, redemption,
defeasance or other acquisition or retirement of New Warrants required by the
terms of the New Warrant Agreement", immediately following the word "Indenture"
in the thirty fourth line of the second full paragraph thereof.
3. Section 4.22 of the Original Indenture is hereby amended by
adding the words ", the New Notes Intercreditor Agreement" immediately after the
words "Intercreditor Agreement" in the first and twelfth lines thereof.
4. Section 5.01(a) of the Original Indenture is hereby amended
by adding the words ", the New Notes Intercreditor Agreement" immediately after
the words "the Intercreditor Agreement" in the thirteenth line thereof.
5. Section 5.02 of the Original Indenture is hereby amended by
adding the words ", the New Notes Intercreditor Agreement" immediately after the
words "the Warrant Agreement" in the seventh line thereof.
6. Section 10.01 of the Original Indenture is hereby amended
(x) by adding the words "subject to the terms of the Intercreditor Agreement and
the New Notes Intercreditor Agreement"
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immediately after the word "Interests" in the ninth line of the first paragraph
thereof, (y) by adding the words "or in the New Notes Intercreditor Agreement"
immediately after the word "Agreement" in the sixteenth line of the second
paragraph thereof and (z) by adding the words "in the New Notes Intercreditor
Agreement," immediately prior to the phrase "in the Subordination Agreement" in
the nineteenth line of the second paragraph thereof.
7. Section 10.02 of the Original Indenture is hereby amended
by (x) amending the heading thereof to add the words "; Execution of New Notes
Intercreditor Agreement" at the end thereof and (y) by adding a second paragraph
thereto which shall read in its entirety as follows: "The Company is permitted
to enter into the New Notes Intercreditor Agreement, substantially in the form
of Exhibit G-2 attached hereto, at any time on or after the date on which the
New Notes are initially issued, providing, among other things, that (i) the
priority of the security interests in and Liens on the Collateral under the New
Notes Indenture and related agreements governing the New Notes be senior to the
security interests in and Liens on the Collateral under this Indenture and
related agreements governing the Notes, (ii) the New Notes are fully secured,
(iii) in the event of a bankruptcy proceeding, the Holders will not object to an
application for "adequate protection" in favor of the holders of the New Notes,
(iv) during any insolvency proceedings, the collateral agent with respect to the
New Notes and the Collateral Agent will coordinate their efforts to give effect
to the relative priority of their security interests in such properties and
assets, and (v) following an Event of Default, all decisions with respect to
such properties and assets, including the time and method of any disposition
thereof, will be made in accordance with the terms of such New Notes
Intercreditor Agreement, in each case, subject to the terms and provisions of
this Indenture, the Intercreditor Agreement, and the Collateral Agreements."
8. Section 10.04 of the Original Indenture is hereby amended
by (x)(i) deleting the word "Neither" in the first line of subsection (a)
thereof and (ii) substituting therefor the words "Subject to the Intercreditor
Agreement and the New Notes Intercreditor Agreement, neither," (y)(i) deleting
the word "At" in the first line of subsection (b) thereof and (ii) substituting
therefor the words "Subject to the Intercreditor Agreement and the New Notes
Intercreditor Agreement, at" and (z) by adding the words "or pursuant to the
Intercreditor Agreement or the New Notes Intercreditor Agreement" immediately
after the word "Agreements" in the fourth line of subsection (c) thereof.
9. Section 10.05 of the Original Indenture is hereby amended
(x) by adding the words "and to the extent applicable, the Intercreditor
Agreement and the New Notes Intercreditor Agreement," immediately after the word
"Agreements" in the fourth line of subsection (a) thereof, (y) by adding the
words "and, to the extent applicable, the Intercreditor Agreement and the New
Notes Intercreditor Agreement" immediately after the word "Agreements" in the
fifth line of subsection (b) thereof and (z) by adding the words "and, to the
extent applicable, the Intercreditor Agreement and the New Notes Intercreditor
Agreement" immediately after the word "Agreements" in the fourth line of
subparagraph (b)(iv) thereof.
10. Section 10.08 of the Original Indenture is hereby amended
by adding the words ", the New Notes Intercreditor Agreement" immediately after
the words "Subordination Agreement" in the second line thereof.
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11. Section 12.01 of the Original Indenture is hereby amended
by adding the following paragraph at the end thereof, "The Company agrees and
each Holder by its acceptance thereof likewise agrees, that the Trustee, on
behalf of each Holder, may enter into the New Notes Intercreditor Agreement with
the New Trustee pursuant to which, among other things, (i) to better secure the
Company's payment obligations in Section 7.07 of the Indenture, the Trustee
shall have a claim prior to the New Notes on all assets or money held or
collected by the New Notes Trustee in its capacity as New Notes Trustee,
including assets or money held in trust to pay principal of or interest on
particular New Notes, to the extent, if any, that the Company fails promptly to
pay amounts owed the Trustee under said Section 7.07 and (ii) the New Notes
Trustee, on behalf of the holders of the New Notes, shall be granted a security
interest in and lien on certain assets of the Company to the extent of the
Indebtedness outstanding under the New Notes. Notwithstanding the foregoing, the
grant of a Lien on such assets pursuant to the terms of the New Indenture, and
related collateral and security agreements, neither the New Notes nor the New
Notes Intercreditor Agreement, shall, other than as specifically set forth in
the New Notes Intercreditor Agreement, adversely effect in any manner whatsoever
the security interests created by this Indenture, the Notes and the Collateral
Agreements."
ARTICLE 2.
Waivers
As of July 17, 1998, consents were received from the holders
of 88.24% of the aggregate principal amount of the outstanding Notes to:
(a) the waiver of the application of the following provisions of the Original
Indenture in connection with the New Offering:
(i) Section 1.01 (Definition of "Permitted
Indebtedness") and Section 4.12 - to the full extent necessary to
permit the Company to issue up to $20 million aggregate principal
amount of the New Notes and to permit the Subsidiary Guarantors to
guaranty the Company's obligations under the New Notes and the New
Indenture, in each case, without meeting the tests currently set forth
in Section 4.12 for the incurrence of additional Indebtedness;
(ii) Section 1.01 (Definition of "Permitted Liens")
and Section 4.17 - to the full extent necessary to permit the Company,
in connection with the issuance of the New Notes, to incur additional
Liens on the Collateral for the purpose of securing the New Notes; and
(iii) Section 4.22 - to the full extent necessary to
permit the Company and the Trustee to enter into the New Indenture and
certain related collateral and security agreements, with the effect
that the holders of New Notes will be granted a Lien on the Collateral
for the purpose of securing the New Notes, which Lien will be senior in
priority to the Lien on the Collateral securing the Notes; and
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(b) to the waiver of the application of the provisions of the Original Indenture
including, but not limited to, Section 4.22, Section 10.01 and Section 10.08
thereof to the full extent necessary to permit the Trustee, on behalf of the
Holders, to enter into the New Notes Intercreditor Agreement.
ARTICLE 3.
Miscellaneous
1. All provisions of this First Supplemental Indenture shall
be deemed to be incorporated in, and made a part of, the Original Indenture; and
the Original Indenture, as supplemented by this First Supplemental Indenture,
shall be read, taken and construed as one and the same instrument.
2. The Trustee accepts the trusts created by the Original
Indenture, as supplemented by this First Supplemental Indenture, and agrees to
perform the same upon the terms and conditions in the Original Indenture, as
supplemented by this First Supplemental Indenture. The Trustee is relying on the
Opinion of Counsel and the Officers' Certificate delivered to the Trustee by the
Company stating that this First Supplemental Indenture complies with and has
received all necessary authorizations under the Original Indenture, including,
without limitation, Section 9.02 thereof. The Trustee shall not be responsible
in any manner whatsoever for or in respect of the validity or sufficiency of
this First Supplemental Indenture, except for the Trustee's certificate of
authentication, or the due execution hereof by the Company and the Subsidiary
Guarantors, or for or in respect of the recitals contained herein, all of which
recitals are made by the Company and the Subsidiary Guarantors.
3. All capitalized terms used and not defined herein shall
have the respective meanings assigned to them in the Original Indenture.
4. This First Supplemental Indenture may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, as of the date first above written.
DISCOVERY ZONE, INC.
By: /s/ Xxxxx X. Xxxxxxxxx
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Name: Xxxxx X. Xxxxxxxxx
Title: President and Chief Executive Officer
Attest: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: Senior Vice President
and Chief Financial and
Administrative Officer
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By: /s/ X. X. Xxxxxx
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Name: X. X. Xxxxxx
Title: Vice President
SUBSIDIARY GUARANTORS
DISCOVERY ZONE (CANADA) LIMITED
By: /s/ Xxxxx X. Xxxxxxxxx
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Name: Xxxxx X. Xxxxxxxxx
Title: President and Chief Executive Officer
Attest: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: Senior Vice President
and Chief Financial and
Administrative Officer
DISCOVERY ZONE (PUERTO RICO),
INC.
By: /s/ Xxxxx X. Xxxxxxxxx
--------------------------------------
Name: Xxxxx X. Xxxxxxxxx
Title: President and Chief Executive Officer
Attest: /s/ Xxxxxx X. Xxxxxx
--------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Senior Vice President
and Chief Financial and
Administrative Officer
DISCOVERY ZONE LICENSING, INC.
By: /s/ Xxxxx X. Xxxxxxxxx
--------------------------------------
Name: Xxxxx X. Xxxxxxxxx
Title: President and Chief Executive Officer
Attest: /s/ Xxxxxx X. Xxxxxx
--------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Senior Vice President
and Chief Financial and
Administrative Officer
