**2. COMPENSATION**     2.1 COMPENSATION.          a. Base Salary. TSI shall pay to Employee as compensation for her services a salary of$2,884.61 per week, subject to applicable withholdings and deductions, including for taxes, FICA,medicaid and other similar matters, payable in accordance with TSI’s customary payroll practices.Executive’s salary shall be reviewed annually by TSI, at which time Executive’s salary may beincreased as mutually agreed upon by Executive and TSI.          b. Guaranteed Bonus. To provide greater incentive for Executive, and as furtherinducement for Executive to join TSI, Executive shall receive a guaranteed bonus in the amount ofFifty Thousand Dollars ($50,000.00), which shall be deemed earned on December 31, 2000, and whichshall be payable on February 15, 2001 In subsequent years, Executive shall receive an annualguaranteed bonus of Sixty Thousand Dollars ($60,000.00), which shall be deemed earned on December31st of each year, and shall be paid in arrears by no later than February 15 of thefollowing year, the first such $60,000.00 guaranteed bonus shall be paid to Executive on or beforeFebruary 15, 2002 for the year ended 12/31/2001.          c. Performance Bonus. As additional compensation and incentive for Executive, sheshall be eligible to receive an additional company performance bonus annually of up to FortyThousand Dollars ($40,000.00). This bonus shall be payable in arrears no later than February 15 ofthe following year during which the company performance bonus is earned.          d.Fringe Benefits. During the term of this Agreement, Executive shall be entitled toall fringe benefits and/or benefit plans offered generally to the TSI’s full-time employees asestablished or modified from time to time by TSI, including but notlimited to, participation inTSI’s contributory health plan and 401K plan, subject always to the rules in effect regardingeligibility and participation in such plans. TSI shall provide Executive with a company cellulartelephone, laptop computer, and all other technical and logistical support as are reasonablynecessary and appropriate as determined by agreement between TSI and Executive.          e. Business Expenses. Except as otherwise provided herein, TSI shall pay, eitherdirectly or by reimbursement to Executive, such reasonable and necessary business expenses incurredby Executive in the course of her employment with TSI as are consistentwith the company’s policies in existence from time to time, subject to such verification and recordkeeping requirements as may be established from time to time by the Corporation.          f. Relocation, Housing and Travel Expenses. As additional inducement to Executive, and toensure that Executive shall be available and able to render servicesto TSI in a timely fashionupon execution of this Agreement, TSI shall pay to Executive a one-time relocation expense of up toTwenty Thousand Dollars ($20,000.00). During Executive’s employment with TSI, Executive’s officeshall be located at the TSI Corporate Office, located at 888 7th Avenue, New York, NewYork. During Executive’s employment, TSI shall pay for Executive’s accommodations in New York in theexisting accommodations presently being provided to Executive or of a substantially similar nature,as well as for any and all related travel between New York and Executive’s place of residence ineither Colorado or Florida.
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          g. Vacation, Holiday Pay and Sick Leave. Executive shall be eligible to receive three(3) weeks of paid vacation per annum, such paid vacation time to increase in accordance with TSI’spolicy related to length of service. All vacations shall be taken by Executive at such time or times as may beapproved by the Corporation. Additionally, Executive shall be entitled to eight (8) paid holidaysper year, in accordance with TSI’s Employee Handbook. Executive shall also be entitled to six (6)paid sick days per year. In September, 2000, Executive shall also be entitled to take two (2)weeks of personal leave, such time shall not be treated as vacation leave.          h. Authorized Time Off. Executive shall be entitled to such time off with pay forattendance at seminars, courses, meetings and conventions as is authorized by TSI from time totime. The specific seminars, courses, meetings and conventions to be attended by Executive shallbe subject tothe TSI’s prior approval.     2.2 STOCK OPTIONS. Upon the commencement of her employment, Executive shall be issuedFour Thousand (4,000) performance vesting options, such options to vest over a five (5) yearperiod in accordance with TSI’s Employee Common Stock Option Plan. Executive’s participation inthis plan shall be based upon the same performance targets established for all employees and asdetailed by TSI in its April 24, 2000 Memorandum to Stock Option Participants and/or as otherwiseoutlined in TSI’s Employee Common Stock Option Plan. The strike price of Executive’s options shallbe $75.00 per share, in accordance with the strike price previously established for all TSIemployees who received options in the year 2000 grant. During Executive’s employment with TSI,Executive may become eligible to receive additional performance vesting options, at the discretionof TSI.**3. TERMINATION OF EMPLOYMENT**     3.1 TERMINATION OF EMPLOYMENT.               a. Voluntary Termination. Executive or TSI may voluntarily terminateExecutive’s employment with TSI at any time, without cause, by delivering to the other partywritten notice of such intention not less than thirty (30) days prior to the effective date of termination. Inthe event of a termination of Executive by TSI for any reason other than “for cause” as defined insubsection 3.1(b) of this Agreement, Employee shall receive a guaranteed, lump-sum, severance payment equal to 50% ofExecutive’s annual salary for the year immediately preceding the termination and 50% ofExecutive’s guaranteed bonus for the year immediately preceding the termination. This guaranteedseverance payment shall be in addition to any guaranteed and/or performance bonus earned by andowed to the Executive, but that have not yet been paid by TSI prior to any such termination in accordance with Paragraph 2.1(b) and 2.1(c) herein.The parties acknowledge and agree that this guaranteed severance provision is a material term of this Agreement, andshall be binding upon TSI’s successors and assigns.               b. Termination for Cause. TSI may immediately terminate Executive’semployment with the TSI “for cause” by giving written notice (without regard to the thirty (30) dayperiod provided above) of such termination to Executive specifying the specific grounds therefore. A termination “for cause” shall only be for any one or more of the following reasons:          (1) Willfully and materially damaging TSI’s property, business,reputation or goodwill, provided that any such damage must be actually incurred,quantifyable
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and documented by TSI prior to any termination “for cause”. There shall beabsolutely no termination of Executive for “cause” under this Agreement based uponalleged damages to TSI’s business, reputation or goodwill which are purelyprospective and/or speculative in nature. Such damages, merely alleged by TSI,shall in no way constitute grounds for termination “for cause” under this Agreement.Executive expressly reserves the right to pursue any and all remedies and damagesavailable in equity and at law in the event that TSI breaches this provision, andTSI shall pay the reasonable attorneys’ fees and costs incurred by Executive thatresult from any such breach by TSI;          (2) Willfully injuring any employee of TSI;          (3) Willfully injuring any person in the course of the performance ofservices for TSI;          (4) Executive’s lawful conviction and adjudication of the commissionof a felony involving stealing, dishonesty, fraud or embezzlement.               The decision to terminate Executive’s employment “for cause” shall be made by TSI’s ChiefExecutive Officer (“CEO”) in his reasonable discretion.               c. Termination Upon Death, Incompetency or Disability.Notwithstanding Paragraph 3.l(a) above, TSI shall have the right toterminate Executive’s employment with TSI immediately and without prior written notice toExecutive in the event that Executive dies, isadjudicated incompetent or is permanently disabled. If as a result of sickness or accidentExecutive becomes unable to adequately perform her regular duties hereunder for a period exceeding120 days, and such condition appears to be permanent, Executive shall be considered permanentlydisabled. In such event, or in the event that Executive is adjudicated incompetent, Executiveshall receive the guaranteed severance payment as outlined in Paragraph 3.l(a) of this Agreement, inaddition to receiving any applicable disability insurance benefits under the disability insurancecoverage, if any, furnished by TSI to the Executive.**4. GENERAL PROVISIONS**     4.1 SEVERABILITY. If any provision of this Agreement shall be declaredinvalid or unenforceable by a court of competent jurisdiction, the invalidity or unenforceability of suchprovision shall not affect the other provisions hereof, and this Agreement shall be construed and enforced in allrespects as if such invalid or unenforceable provision was omitted.     4.2 RESTRICTIVE COVENANT. TSI and Executive each acknowledge and agree that theservices to be performed by Executive under this Agreement are of a special, unique,extraordinary and intellectual character. Accordingly, Executive hereby agrees that during Executive’semployment with TSI, and for a period of up to one (1) year after the termination of Executive’s employment (the“non-compete period”), Executive shall be under a restrictive covenant prohibiting Executive from owning,operating, managing, participating in or being employed by any person, business or entity that is engagedin a competing business with TSI and which has competing businesses located within a five (5) mileradius of any of TSI’s U.S. operations; provided that TSI shall continue to pay Executive’s fullsalary and guaranteed bonus during any portion of the non-compete period that it wishes toenforce. The parties agree that the duration and geographic parameters of this restrictive covenantare reasonable to protect TSI’s legitimate business interests.
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Additionally, Executive agrees that for a period of two (2) years following the termination ofExecutive’s employment with TSI, Executive shall not recruit, solicit and/or employ any member ofTSI’s Information Technology (“IT”) staff, either for the benefit of Executive or any other thirdparty.     4.3 ATTORNEYS’ FEES AND COSTS. In the event a dispute arises between the partieshereto relating to the enforcement of any term or condition of this Agreement the prevailing party inany such dispute and/or resulting litigation shall be entitled to recover its reasonable attorneys’ fees andother costs and expenses from the non-prevailing party, whether incurred during initial settlement negotiations,mediation, trial or in any appellate proceeding.     4.4 GOVERNING LAW & VENUE. This Agreement shall be governed by and construed inaccordance with the laws of the State of New York. Jurisdiction and venue for any legalproceeding or action at law or in equity arising out of this Agreement shall be placed in the State of New York,unless otherwise mutually agreed upon by the parties.     4.5 ENTIRE AGREEMENT. This Agreement constitutes the full understanding and entireagreement between the parties with respect to Executive’s employment with TSI and supersedesall previous understandings, promises, representations and agreements, whether written or oral, heretoforemade between TSI and Executive. No change or modification may be made to this Agreement except byinstrument in writing duly executed by the parties hereto.     4.6 NOTICE. Any and all notices or other communications provided for herein shall begiven in writing and shall be hand delivered or sent by United States Mail, postage prepaid,registered or certified, return receipt requested, addressed as follows:       If to TSI: Town Sports International, Inc.