On December 28, 2020 (the “Closing Date”), Town Sports International Holdings, Inc. (the “Company”), entered into a credit agreement (the “Credit Agreement”) with the several lenders party thereto (the “Lenders”) and Alter Domus (US) LLC, as administrative agent (the “Administrative Agent”) to which the Lenders agreed to provide senior secured first lien term loans in an aggregate principal amount of up to $100.0 million to the Company consisting of (a) initial senior secured first lien term loans in an aggregate principal amount of $5.0 million (the “Initial Loans”), which Initial Loans were drawn at closing, and (b) senior secured first lien delayed draw term loans in an aggregate principal amount of up to $95.0 million (the “Delayed Draw Term Loans” and, together with the Initial Loans, the “Loans”), in each case, subject to the terms and conditions set forth in the Credit Agreement. The proceeds of the Loans are to be used for general corporate purposes.

In order to incur any of the Delayed Draw Term Loans, the Company must satisfy certain conditions, including, but not limited to, the following: (i) if the incurrence of such Delayed Draw Term Loans occurs on or prior to June 30, 2021, (a) unless made in connection with any acquisition approved by the majority of the Board, the proceeds of such Delayed Draw Term Loans must be used in compliance with the Approved Budget (as defined in the Credit Agreement), and (b) the Unrestricted Cash (as defined in the Credit Agreement) of the Company and its subsidiaries immediately prior to such incurrence may not exceed $5.0 million and, (ii) if the incurrence occurs after June 30, 2021, the Consolidated Total Leverage Ratio (as defined in the Credit Agreement) for the prior four fiscal quarter period may not exceed 4.00 to 1.00 after giving pro forma effect to the incurrence of such Delayed Draw Term Loans.

The Company’s obligations under the Credit Agreement are guaranteed by certain subsidiaries of the Company (collectively with the Company, the “Guarantors”). On the Closing Date, the Company, the Guarantors and the Administrative Agent entered into a guarantee and collateral agreement (the “Guarantee and Collateral Agreement”) to which the Guarantors guaranteed the debt under the Credit Agreement and the Company and the Guarantors granted a first-priority lien on substantially all of their assets (subject to certain exceptions) in favor of the Administrative Agent and the Lenders.

On the Closing Date, the Company paid in-kind in the form of additional term loans a closing fee equal to $10.0 million, representing 10.0% of the aggregate principal amount of the commitments provided by the Lenders as of the Closing Date. Borrowings under the Credit Agreement accrue interest at a rate of either 10.0% per annum payable in cash or 12.0% per annum payable in-kind. The Credit Agreement will mature on December 28, 2025 (or, if such day is not a business day, the immediately precedent business day). Prior to the second anniversary of the Closing Date, the Loans may be prepaid at their principal amount plus a make whole premium. On or after the second anniversary of the Closing Date, the Company may prepay the Loans, in whole or in part, at any time, subject to a prepayment premium equal to (a) 10.0% of the principal amount prepaid if prepaid before the third anniversary of the Closing Date and (b) 5.0% of the principal amount prepaid if prepaid after the third anniversary of the Closing Date but prior to the fourth anniversary of the Closing Date. Thereafter, no prepayment premium is applicable.

The Credit Agreement also provides that PW Partners Capital Management LLC may elect to provide, on or prior to January 29, 2021, up to $10.0 million of additional commitments to lend Delayed Draw Term Loans, subject to the terms and conditions set forth in the Credit Agreement, including the payment by the Company of a closing fee representing 10.0% of such additional commitments to be paid in-kind in the form of additional term loans and the issuance of shares of Common Stock.

The Credit Agreement contains customary covenants, including, but not limited to, restrictions on the Company’s ability to incur indebtedness, grant liens or security interests on assets, make acquisitions, loans, advances or investments, pay dividends, sell or otherwise transfer assets, or enter into transactions with affiliates.

Additionally, the Credit Agreement provides that, upon the occurrence of certain events of default, the Company’s obligations thereunder may be accelerated and the lending commitments with respect to the Delayed Draw Term Loans terminated. Such events of default include payment defaults to the Lenders, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, voluntary and involuntary bankruptcy proceedings, material money judgments, certain change of control events and other customary events of default.

As compensation for agreeing to provide the Loans and related commitments, on the Closing Date, affiliates of Kennedy Lewis Investment Management, LLC (“KLIM”) received approximately 41.5 million shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), equal to 51% of the fully diluted outstanding Common Stock as of the Closing Date (such shares, the “Consideration Shares”). After giving effect to the receipt of the Consideration Shares, KLIM beneficially owned 45,735,483 shares of Common Stock, representing approximately 56.2% of the Common Stock outstanding after the issuance. The borrowing of the Loans to the Credit Agreement together with the issuance of the Consideration Shares is referred to herein as the “Transactions”.

In connection with the issuance of Consideration Shares to KLIM, on the Closing Date, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with certain affiliates of KLIM and Patrick Walsh, the Company’s chief executive officer, under which the Company agreed to register the Common Stock held by the Company stockholders party to the Registration Rights Agreement and Mr. Walsh with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended. The Company also agreed to provide certain piggy-back and demand registration rights to the parties to the Registration Rights Agreement in respect of the Common Stock held by each of them.

In connection with the entry into the Credit Agreement, the Company amended, effective as of the Closing Date, the Town Sports International Holdings, Inc. 2006 Stock Incentive Plan (“the “Incentive Plan”) to reserve an additional 10,180,265 shares of Common Stock for issuance as awards under the Plan. In addition, the Company approved a grant, on the Closing Date, of 8,144,212 shares of restricted Common Stock to Patrick Walsh and 2,036,053 shares of restricted Common Stock to Phillip Juhan under the Incentive Plan. The awards of Common Stock are generally on the same terms as the Company’s standard form of restricted award, provided that the awards shall vest as to 1/3 of the granted shares of restricted Common Stock on each of the Closing Date, December 31, 2021, and December 31, 2022, subject to continued service through each vesting date. The awards will also fully vest on a “change in control”, subject to continued service through the date of such change in control. In the event of a termination without “cause” or for “good reason” prior to the awards fully vesting, and subject to the executive’s execution of a release of claims, the awards shall vest in the next tranche scheduled to vest and prior to the awards fully vesting, the awards shall vest in the next tranche scheduled to vest and any non-compete or non-solicit obligations shall be shortened in duration to nine months post termination.

The foregoing description of the Credit Agreement and Registration Rights Agreement is qualified in its entirety by the full text of the Credit Agreement and Registration Rights Agreement which are each attached as Exhibits 10.1 and 4.1, respectively, to this Current Report on Form 8-K and are incorporated herein by reference.

The information set forth in Item 1.01 above relating to the Credit Agreement and Guarantee and Collateral Agreement is incorporated herein by reference into this Item 2.03.

As described in Item 1.01 above, as consideration for agreeing to the provide the Loans, the Company issued the Consideration Shares to certain affiliates of KLIM on the Closing Date. No other commission or other remuneration was paid in connection with the issuance and sale of the Consideration Shares.

The issuance and sale of the Consideration Shares are exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), to Section 4(a)(2) thereof. Each recipient of the Consideration Shares was required to represent that it is (i) an “accredited investor” as defined in Rule 501 of Regulation D under the Securities Act and (ii) was acquiring the Consideration Shares for investment and not with a view to resell or distribute. The Company did not engage in general solicitation or advertising and did not offer securities to the public in connection with such issuances.

The information regarding the issuance of the Common Stock set forth in Item 1.01 above is incorporated herein by reference into this Item 3.02.

The information set forth in Item 1.01 and Item 5.02, respectively, regarding the issuance of the Consideration Shares and the Company’s board of directors (the “Board”) following the Closing Date are incorporated by reference into this Item 5.01.

Appointment of Directors

to the Credit Agreement, the Company and the Board agreed to set the number of directors on the Board at five directors and provide KLIM with the right to nominate three directors to the Board. As a result, effective concurrently with the closing of the Credit Agreement,

Committee membership of the post-Transaction Board members will be determined at the first Board meeting following the Transactions.

Indemnification Agreements

On the Closing Date, the Company entered into indemnification agreements with each of its newly elected directors. to the indemnification agreements, the Company has agreed to indemnify and hold harmless these directors to the fullest extent permitted by the Delaware General Corporation Law. The agreements generally cover expenses that a director incurs or amounts that a director becomes obligated to pay in connection with any proceeding in any way connected with, resulting from or relating to his or her service as a current or former director, officer, employee or agent of the Company or any direct or indirect subsidiary of the Company. The agreements also provide for the advancement of expenses to the directors subject to specified conditions. There are certain exceptions to the Company’s obligation to indemnify the directors, including with respect to “short-swing” profit claims under Section 16(b) of the Securities Exchange Act of 1934, as amended; with respect to conduct by him or her that is established to be knowingly fraudulent or deliberately dishonest or constituted willful misconduct; and, with certain exceptions, with respect to proceedings that he or she initiates.

The foregoing description of the indemnification agreements is not complete and is subject to and qualified in its entirety by reference to the form of indemnification agreement, which is attached as Exhibit 10.4 hereto and incorporated herein by reference.

TOWN SPORTS INTERNATIONAL HOLDINGS INC Exhibit
EX-4.1 2 brhc10018444_ex4-1.htm EXHIBIT 4.1  Exhibit 4.1 REGISTRATION RIGHTS AGREEMENT   by and among   TOWN SPORTS INTERNATIONAL HOLDINGS,…
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About Town Sports International Holdings, Inc. (NASDAQ:CLUB)

Town Sports International Holdings, Inc. (Town Sports) is an owner and operator of fitness clubs in the Northeast and Mid-Atlantic regions of the United States. The Company, through its subsidiaries, operates over 150 fitness clubs (clubs) and approximately three BFX Studio (studio) locations. The Company’s operating segments include New York Sports Clubs (NYSC), Boston Sports Clubs (BSC), Philadelphia Sports Clubs (PSC), Washington Sports Clubs (WSC), Swiss Sports Clubs and BFX Studio. It owns and operates over 105 clubs under the NYSC brand name within New York City, including in approximately 40 locations in Manhattan. It owns and operates approximately 30 clubs in the Boston region under BSC brand name, over 10 fitness clubs in the Washington, District of Columbia region under WSC brand name, and approximately five clubs in the Philadelphia region under PSC brand name. In addition, it owns and operates approximately three fitness clubs in Switzerland.