Document:

EX-10.17

 

Exhibit 10.17

Execution Copy

EXECUTIVE STOCK AGREEMENT

          EXECUTIVE STOCK 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”), (the “Executive”), BRUCKMANN, ROSSER, SHERRILL & CO., L.P., a Delaware limited
partnership (“BRS”), FARALLON CAPITAL PARTNERS, L.P., a
California limited partnership (“FCP”),
FARALLON CAPITAL INSTITUTIONAL PARTNERS, L.P., a California limited partnership, RR CAPITAL
PARTNERS, L.P., a Delaware limited partnership, and FARALLON CAPITAL INSTITUTIONAL PARTNERS II,
L.P., a California limited partnership (together with FCP, FCIP and RRC, the “Farallon
Investors”, and individually, a “Farallon Investor”). BRS and each Farallon Investor
is referred to herein as an “Investor” and
collectively, as the “Investors”. Capitalized
terms used herein but not otherwise defined shall have the meanings assigned to such terms in
Section 1.

          WHEREAS, TSI, the Company, the Executive and the other stockholders of TSI a Party thereto
(the “Stockholders”) entered into a Restructuring Agreement, dated as of February 4, 2004
(the “Restructuring Agreement”), pursuant to which TSI was reorganized as a wholly
owned subsidiary of the Company and all Stockholders contributed and exchanged all of their
respective shares of capital stock in TSI for an equal number of shares of capital stock in the
Company (the “Restructuring”);

          WHEREAS, as a result of the Restructuring, the Executive owns shares of Class A Common (the
“Shares”);

          WHEREAS, the Executive may have also entered into certain common stock option agreement(s),
with the Company (as amended, restated or modified from time to time, the “Common Option
Agreements”) pursuant to which the Company may have granted the Executive certain Common
Options; and

          WHEREAS, TSI, the Investors and the Executive have entered into an Executive Stock Agreement
(the “Existing Executive Stock Agreement”) which governed certain terms of the capital
stock of TSI (and options therefor) held by Executive, and as a result of the Restructuring, the
parties hereto have agreed to replace the terms of the Existing Executive Stock Agreement with the
terms of 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:

          “Accredited Investor” has the meaning ascribed to such term in Regulation D of the
Securities Act, as amended.

 

 

          “Achieved Equity Value” means, as of any date of determination, (a) the Actual
EBITDA for the four consecutive fiscal quarter period ending on the fiscal quarter ending
immediately prior to such date multiplied by 5.5 minus (b) the sum of (i) all outstanding
Indebtedness of the Company and its Subsidiaries, less cash and cash equivalents held by the
Company and its Subsidiaries, as of such date, and (ii) the aggregate Liquidation Value of all
Preferred Stock (plus all accrued and unpaid dividends thereon) outstanding as of such date.

          “Actual EBITDA” means the Consolidated EBITDA of the Company and its Subsidiaries
for any particular four fiscal quarter period, derived from the Company’s consolidated financial
statements for such four fiscal quarter period certified by the Company’s chief financial
officer.

          “Board” means the Company’s board of directors, as in effect from time to time. “Cause” means
any of the following with respect to the Executive: (i) a material breach of the Executive’s
covenants under this Agreement or any other agreement with the Company or its Subsidiaries
(including, without limitation, this Agreement, the Common Option Agreements, if applicable, the
Stockholders Agreement and the Registration Rights Agreement) not cured within 15 days after the
receipt of written notice of such breach from the Company; (ii) the commission by the Executive 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 Executive’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 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 on the date hereof and after giving effect of the Restructuring, as the same may be
amended, restated or modified from time to time.

          “Class A Common” means the Company’s Class A Common Stock, par value $.01 per
share.

          “Common Option Shares” means any shares of Class A Common (or any other securities)
issued or issuable upon exercise of Common Options granted to the Executive.

          “Common Options” means, collectively, the options to purchase Common Stock, if any,
granted to the Executive pursuant to any Common Option Agreement.

          “Common Stock” means collectively, the Class A Common, the Company’s Class B Common
Stock, par value $.001 per share 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.

          “Consolidated EBITDA” means, for any period, (a) the sum of (1) the net income of
the Company and its Subsidiaries for such period taken as a single accounting period determined
in conformity with GAAP, (ii) provisions for cash taxes based on income, (iii) total interest
expense, (iv) amortization or write-off of deferred financing costs to the extent included in net
income, (v) depreciation expense, (vi) amortization expense, (vii) deferred rent expenses,

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(viii) without duplication, all other non-cash charges included in determining net income
for such period, (ix) losses on sales of assets (excluding sales in the ordinary course of
business) and other extraordinary or nonrecurring losses, minus (b) the amount for such period of
gains on sales of assets (excluding sales in the ordinary course of business) and other
extraordinary or nonrecurring gains, all as determined on a consolidated basis in accordance with
GAAP.

          “Executive Shares” means, collectively, (i) the Shares, the Common Option Shares, and
any other shares of Common Stock held by the Executive, and (ii) any shares of the Company’s
capital stock issued with respect to 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. Executive Shares shall continue to be Executive Shares in the hands of any holder
other than such Executive (including, without limitation, any Permitted Transferee of the
Executive), except for the Company, the Investor or any transferee in an underwritten public
offering registered under the Securities Act. Except as otherwise provided herein, each such other
holder of Executive Shares will succeed to all rights and obligations attributable to the Executive
as a holder of Executive Shares hereunder.

          “Fair Market Value” means, as of any date of determination, 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 Achieved Equity
Value divided by all shares of Common Stock outstanding on a fully diluted basis as determined in
good faith by the Board and set forth in a written notice to the Executive; provided, that
with respect to such determination, if the Executive objects to such determination in writing
within 10 days of the receipt of such determination from the Board, the Fair Market Value of each
share of Common Stock shall be determined by an accounting firm mutually selected by the Board and
the Executive; and the costs of such accounting firm shall be borne by the party whose
determination is farther from the determination of such accounting firm.

          “GAAP” means the generally accepted accounting principles in the United States of
America as in effect on the date hereof, consistently applied.

          “Indebtedness” means all indebtedness of the Company or any of its Subsidiaries
determined on a consolidated basis including, without limitation (i) all obligations for borrowed
money or evidenced by bonds, debentures, notes, letters of credit or other similar instruments,
(ii) obligations as lessee under capital leases, (iii) obligations to pay the deferred purchase
price

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of property or services, except accounts payable arising in the ordinary course of
business and (iv) all indebtedness of other Persons guaranteed or otherwise supported by the
Company or any of its Subsidiaries to the extend classified as debt in accordance with GAAP, it
being understood that all obligations with respect to any items listed in clauses (i) through
(iv) above include, without limitation, obligations for interest, principal, prepayment
penalties, premiums, fees, expenses, indemnities and breakage or similar charges.

          “Initial Public Offering” means the sale of shares of Common Stock in an underwritten
initial public offering registered under the Securities Act 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.

          “Liquidation Value” means, with respect to any share of Preferred Stock, the
Liquidation Value thereof as determined in accordance with the Company’s Certificate of
Incorporation, as in effect from time to time.

          “Original Cost” means the amounts per share paid by the Executive to the
Company as the purchase price for any share of Common Stock held by the Executive, and
(iii) for each Common Option Share, the per share exercise price paid by the Executive to the
Company upon exercise of the Common Option pursuant to which such Common Option Share
was issued, in each case, adjusted for any merger, consolidation, reclassification, stock
split, reverse stock split, stock dividend or other recapitalization.

          “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, or a
government entity (or any department, agency or political subdivision thereof).

          “Preferred Stock” means any class or series of the Company’s preferred stock, or if
such outstanding Preferred Stock is hereafter changed into or exchanged for different securities
of the Company, such other securities.

          “Registration Rights Agreement” means the Registration Rights Agreement, dated as of
February 4, 2004, by and among the Company, the Executive and certain stockholders of the Company,
as the same may be amended, restated or modified from time to time.

          “Sale of the Company” means the sale of the Company, in a single transaction or a
series of related transactions, to an Unaffiliated Third Party pursuant to which such Unaffiliated
Third Party acquires 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.

          “Securities Act” means the Securities Act of 1933, as amended.

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          “Stockholders Agreement” means the Stockholders Agreement, dated as of February 4,
2004, by and among the Company, the Executive and certain stockholders of the Company, 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.

          “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”, 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.
Repurchase of Shares.

          (a) Repurchase Option. In the event of the Executive’s termination of
employment with the Company for any reason (the date on which such termination occurs, the
“Termination Date”), the Company and the Investors shall have an option (a
“Repurchase Option”), exercisable within 90 days following the Termination Date (the “Expiration
Date”), to purchase from the Executive and his or her Permitted Transferees, if any, any of the Executive
Shares held by the Executive at a price per share as determined pursuant to Section 2(e)
below. In connection with such Repurchase Option, the Company shall provide written notice to the
Investors promptly after the Termination Date of (i) such Executive’s termination, (ii) the
number of Executive Shares subject to the Repurchase Option, and (iii) the purchase price for
each such Executive Share. Any Investor may transfer its rights under this Section 2 to any of
its Permitted Transferees.

          (b) Repurchase by the Company. Within 45 days after the Termination Date,
the Company may exercise its Repurchase Option by delivery of written notice (each, a
“Repurchase Notice”) to the holder or holders of Executive Shares. The Repurchase
Notice shall set forth the number of Executive Shares to be acquired from such holder or holders of
Executive Shares, and the aggregate consideration to be paid for such Executive Shares. The number of
Executive Shares to be repurchased by the Company shall first be satisfied to the extent
possible from the Executive Shares held by the Executive at the time of delivery of the Repurchase
Notice. If the number of Executive Shares held by the Executive is less than the total number
of Executive Shares the Company has elected to purchase, the Company shall purchase the

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remaining Executive Shares elected to be purchased from the Permitted Transferee(s) of the
Executive Shares, pro rata according to the number of Executive Shares held by such Permitted
Transferee(s) on the Termination Date (determined as nearly as practicable to the nearest share).

          (c) Repurchase by the Investor. If for any reason the Company does not elect
to purchase all of the Executive Shares pursuant to the Repurchase Option, then the Investors
shall be entitled to exercise the Repurchase Option for all or any portion of the number of
Executive Shares the Company has not elected to purchase (the “Available Shares”).
Each of the Investors shall have a right to purchase a pro rata portion of the Available Shares based on
the total number of shares of Common Stock then held by each
Investor; provided, that if any
Investor elects not to purchase its pro rata portion of the Available Shares, the other
Investor shall have the right to purchase any such remaining Available Shares. As soon as
practicable after the Company has determined that there will be Available Shares, but in any event within
45 days after the Termination Date, the Company shall deliver a written notice to each holder of
Executive Shares and the Investors as to the number of Executive Shares being purchased from
each such holder by the Company and each Investor and the time and place of the closing of
the transaction (which in no event shall be after the 90th day following the Termination Date)
(the “Supplemental Repurchase Notice”). At the time the Company delivers the Supplemental
Repurchase Notice to each such holder of Executive Shares, each Investor shall also
receive written notice from the Company setting forth the number of Available Shares it has
elected to purchase, the aggregate purchase price and the time and place of the closing of
the transaction. The Repurchase Option with respect to any Executive Shares not repurchased
on or prior to the Expiration Date shall terminate (provided Executive complies with the
provisions of this Section 2).

          (d) Closing of Repurchase of Executive Shares. The purchase of Executive
Shares pursuant to this Section 2 will be closed at the Company’s executive offices at the
time specified in the Supplemental Repurchase Notice. At the closing, the purchaser or
purchasers shall pay the purchase price in the manner specified in Section 2(c) and the holder or
holders of the Executive Shares being so purchased shall deliver the certificate or certificates (or
duly executed affidavits of lost certificates in accordance with the Certificate of Incorporation)
representing any such Executive Shares to the purchaser or purchasers or their nominees, accompanied by duly executed stock powers. Any purchaser of Executive Shares under this
Section 2 shall be entitled to receive customary representations and warranties from such holder
or holders of the Executive Shares being so purchased regarding good title to such Executive
Shares, free and clear of any liens or encumbrances.

          (e) Repurchase Option Purchase Price. In the event of the Executive’s
termination of employment with the Company for any reason other than for Cause, the purchase
price per share of the Executive Shares repurchased pursuant to this Section 2 shall be the
Fair Market Value thereof. In the event of the Executive’s termination of employment with the
Company for Cause, the purchase price per share of the Executive Shares repurchased pursuant
to this Section 2 shall be the lower of the Fair Market Value thereof. For purposes of this
Section 2(e), Fair Market Value shall be determined as of the Termination Date. The purchase
price for the Executive Shares repurchased pursuant to the Repurchase Option shall be paid by
a transfer of immediately available funds or certified check which shall be delivered to the
Executive at the closing of such purchase.

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          (f) Termination of Repurchase Option. All rights and obligations created pursuant to
this Section 2 shall be extinguished upon the earlier of (i) a Sale of the Company or (ii) the
consummation of an Initial Public Offering.

          3. Non-Compete; Nonsolicitation.

          (a)
Noncompetition.

          (i) As an inducement to the Company to enter into this Agreement and issue
the Shares hereunder, the Executive agrees that, during (A) his/her period of employment with
the Company, and (B) in the event that Executive resigns or Executive’s employment is
terminated by the Company for any reason, during the period which the Company is paying the
Executive severance compensation (which shall be at a rate and an amount equal to the
Executive’s salary and health and other insurance benefits received by the Executive
immediately prior to the Termination Date), such period not to exceed
one year (the “Noncompete Period”),
he shall not directly or indirectly own, manage, control, participate in, consult with,
render services for, or in any manner engage in, any business competing directly or indirectly with
the business as now or hereafter conducted by the Company or any of its Subsidiaries which are
logical extensions of the Company’s current business, within any metropolitan area in which
the Company or any of its Subsidiaries engages or has definitive plans to engage in such
business; provided, that (x) the Executive shall not be precluded from purchasing or
holding publicly-traded securities of any such entity so long as the Executive shall hold less than
2% of the outstanding units of any such class of securities and has no active participation in the
business of such entity and (y) the Company shall have notified the Executive of its agreement to
provide such severance compensation (1) in the event of resignation, within five days after the
Termination Date, and (2) in the event of termination, on or before the Termination Date).
Notwithstanding anything contained herein to the contrary, the Executive’s agreement set forth in
clause (B) above shall not apply in the event that the Termination Date occurs after the fifth
anniversary of the date of this Agreement.

          (ii) During the Noncompete Period, the Executive shall not directly or indirectly through
another entity (i) induce or attempt to induce any employee of the Company or any of its
Subsidiaries to leave the employ of the Company or any of its Subsidiaries, or in any way
interfere with the relationship between the Company or any of its Subsidiaries and any employee
thereof, (ii) hire any person who was an employee of the Company or any of its Subsidiaries at any
time during Executive’s employment period except for such employees who have been terminated for
at least six months or (iii) induce or attempt to induce any customer, supplier, licensee,
franchisor or other business relation of the Company or any of its Subsidiaries to cease doing
business with such member, or in any way interfere with the relationship between any such
customer, supplier, licensee, franchisor or business relation, on the one hand, and any member of
the Company or any of its Subsidiaries, on the other hand.

          (iii) The provisions of this Section 3(a) shall survive any termination of this Agreement.

          (iv) If, at the time of enforcement of this Section 3(a), a court of competent jurisdiction
shall hold that the duration, scope or area restrictions stated herein are unreasonable

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under circumstances then existing, the parties hereto agree that the maximum duration, scope
or area reasonable under such circumstances shall be substituted for the stated duration, scope or
area and that such court shall be allowed to revise the restrictions contained herein to cover the
maximum period, scope and area permitted by law.

          (b) Confidential Information. The Executive acknowledges that he may have
access to certain confidential, non-public and proprietary information (the
“Confidential Information”), concerning the Company and its Subsidiaries and their respective
officers, directors, stockholders, employees, agents and representatives and agrees that: (i) unless
pursuant to prior written consent by the Company, the Executive shall not disclose any Confidential
Information or the provisions of this Agreement or knowledge of this Agreement’s existence to
any Person for any purpose whatsoever unless compelled by court order or subpoena; (ii) the
Executive shall treat as confidential all Confidential Information and shall take reasonable
precautions to prevent unauthorized access to the Confidential Information; (iii) the
Executive shall not use the Confidential Information in any way detrimental to the Company or any of its
Subsidiaries and shall use the Confidential Information for the exclusive purpose of effecting
his duties of employment with the Company; and (iv) the Executive agrees that the Confidential
Information obtained during his employment with the Company shall remain the exclusive property of the Company and its Subsidiaries, and the Executive shall promptly return to the
Company all material which incorporates, or is derived from, all such Confidential Information
immediately following the Termination Date. The Executive shall be responsible for any breach
of the terms of this Section 3(b) by any holder of the Executive Shares. It is hereby agreed
that Confidential Information does not include information generally available and known to the
public or obtained from a source not bound by a confidentiality agreement with the Company.

          (c) Inventions and Patents. The Executive hereby agrees that all inventions,
innovations or improvements in the method of conducting the business (including improvements,
ideas and discoveries, whether patentable or not) of the Company or any of its Subsidiaries
whether prior to the date hereof or thereafter, in each case conceived or made by him in the
course of his employment with the Company, belong to the Company and its Subsidiaries, except
for such inventions, innovations and improvements that have become part of the public domain
and are not entitled to statutory or common law protection. The Executive will promptly
disclose such inventions, innovation or improvements to the Board and perform all actions
reasonably requested by the Board to establish and confirm such ownership by the Company or
any of its Subsidiaries.

          4.
Restrictions on Transfer.

          (a) Stockholders Agreement. The Executive hereby acknowledges and
understands that the Executive is a party to the Stockholders Agreement which governs and
restricts the Executive’s ability to transfer any Executive Shares and other matters relating
to the Executive as a stockholder of the Company.

          (b) Legend. The certificates representing the Executive Shares will bear the
following legend (in addition to the legend set forth in Section 7 of the Stockholders
Agreement):

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“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO CERTAIN RESTRICTIONS ON TRANSFER AND REPURCHASE OPTIONS SET
FORTH IN AN EXECUTIVE STOCK AGREEMENT DATED AS OF [DATE] BETWEEN
THE ISSUER THEREOF AND THE HOLDER HEREOF.”

          5.
Representations and Warranties of the Company. As a material
inducement to the Executive to enter into this Agreement, the Company hereby represents and
warrants to the Executive as follows:

          (a) Organization. It is a corporation duly organized, validly existing and in
good standing under the laws of Delaware.

          (b)
Authorization. It has full corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by it
and constitutes the valid and binding agreement of it, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency and other
similar laws affecting the enforceability of creditors’ rights
generally, general equitable principles and the discretion
of courts in granting equitable remedies.

          (c) No Conflict. The execution, delivery and performance by it of this
Agreement, the performance by it of the transactions contemplated thereby and the fulfillment
by it of and compliance by it with the terms and conditions hereof does not and will not, violate
or conflict with any terms or provisions of (i) its articles of incorporation, bylaws or other
organizational documents, (ii) any contract, deed, lease or other agreement to which it is a
party or to which any of its assets are subject or (iii) any judgment, decree, order, statute, rule
or regulation applicable to it or any of its assets, except for such violations which could not
reasonably be expected to materially impair or delay its ability to consummate the
transactions contemplated hereby. No consent, approval, order or authorization of, or
registration, declaration or filing with, any government agency or public or regulatory unit, agency, body
or authority with respect to it is required in connection with its execution, delivery or
performance of this Agreement or the consummation of the transactions contemplated hereby other than any
of the foregoing, the failure of which to receive or make, as the case may be, could not
reasonably be expected to materially impair or delay its ability to consummate the
transactions contemplated hereby.

          (d) Capitalization. The Shares have been validly authorized, issued and are
fully paid and nonassessable. The Common Options have been validly authorized and issued.

          6.
Representations and Warranties of the Executive. As an inducement to
the Company to enter into this Agreement, the Executive hereby represents and warrants to the
Company as follows:

          (a) Capacity and Power. The Executive has full capacity, power and authority to
execute and deliver this Agreement, to perform his or her obligations under this Agreement

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and to consummate the transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Executive and constitutes a valid and binding agreement, enforceable against him
or her in accordance with its terms, subject to applicable bankruptcy, insolvency and other
similar laws affecting the enforceability of creditors’ rights generally, general equitable
principles and the discretion of courts in granting equitable remedies.

          (b) No Conflict. The execution, delivery and performance by the Executive
of this Agreement and the transactions contemplated hereby and the fulfillment by him or her
of and compliance by him or her with the terms and conditions of this Agreement do not and will
not, violate or conflict with any terms or provisions of (i) any contract, deed, lease or
other agreement to which he or she is a party or to which any of his or her assets are subject or
(ii) any judgment, decree, order, statute, rule or regulation applicable to, him or her or any of his
or her assets, except for such violations which could not reasonably be expected to materially impair
or delay his or her ability to consummate the transactions contemplated hereby. No consent,
approval, order or authorization of, or registration, declaration or filing with, any
government agency or public or regulatory unit, agency, body or authority with respect to him or her is
required in connection with his or her execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby other than any of the foregoing, the
failure of which to receive or make, as the case may be, could not reasonably be expected to materially impair or delay his or her ability to consummate the transactions contemplated
hereby.

          (c) Investment. The Executive (i) understands that the Executive Shares have
not been, and will not be, registered under the Securities Act, or under any state securities
laws, and are being offered and sold in reliance upon federal and state exemptions for transactions
not involving any public offering, (ii) is acquiring the Executive Shares solely for his or her
own account for investment purposes, and not with a view to the distribution thereof, (iii) is a
sophisticated investor with knowledge and experience in business and financial matters, has
received certain information concerning the Company and has had the opportunity to obtain
additional information as desired in order to evaluate the merits and the risks inherent in
holding the Executive Shares, (v) is able to bear the economic risk and lack of liquidity inherent in
holding the Executive Shares, and (vi) is an Accredited Investor.

          7. 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, the Stockholders Agreement, the Common Option Agreement (if applicable), and
the Registration Rights Agreement 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

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may have related to the subject matter hereof in any way, including, without limitation,
the Existing Executive Stock Agreement which is hereby terminated in its entirety by the parties
hereto and shall no further force and effect as of the date hereon.

          (c) Successors and Assigns. This Agreement shall bind and inure to the
benefit of and be enforceable by the parties hereto and their respective successors and permitted
assigns. No party may assign either this Agreement or any of its rights, interests, or
obligations hereunder without the prior written approval of the other.

          (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 Company and the Executive each acknowledges that the Executive Shares are unique and recognizes and affirms that in the event of a breach of this
Agreement by the Company or the Executive, money damages may be inadequate and the Executive, or the Company, as the case may be, may have no adequate remedy at law.
Accordingly, the Company and the Executive each agrees that the Executive, or the Company, as “the case may be, shall have the right, in addition to any other rights and remedies existing in
its favor at law or in equity, to enforce its rights and the obligations of the Company or the Executive (as the case may be) hereunder not only by an action or actions for
damages but also by an action or actions for specific performance, injunctive and/or other
equitable relief (without posting of bond or other security).

          (f) Notices. All notices, demands, or other communications to be given or
delivered under or by reason of the provision of this Agreement will be in writing and will
be deemed given when delivered personally, mailed by certified or registered mail, return receipt requested, postage prepaid, or sent via 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:

          If to the Executive:

The
address for the Executive listed on the signature page hereto.

          If to the Company, to:

Town Sports International, Inc.

888 Seventh Avenue, Suite 1801

New York, New York 10106

Attention: Richard Pyle

Facsimile No.: (212) 246-8422

11

 

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

Citicorp Center

153 East 53rd Street

New York, New York 10022-4675

Attention: Eunu Chun, Esq.

Facsimile No.: (212) 446-4900

          If to BRS:

c/o Bruckmann, Rosser, Sherrill & Co., Inc.

l26-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):

Kirkland & Ellis LLP

Citicorp Center

153 East 53rd Street

New York, New York 10022-4675

Attention: Eunu Chun, Esq.

Facsimile No.: (212) 446-4900

          If 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

12

 

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) 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.

          (h) Amendment and Waiver. The provisions of this Agreement may be amended and waived
only with the prior written consent of the parties. No waiver by either party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty
or covenant hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.

          (i) Waiver of Jury Trial. Each of the parties hereto waives any right it may
have to trial by jury in: respect of any claim, demand, action or cause of action 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.

          (j) Time 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.

          (k) Descriptive Headings. The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.

* * * * *

13

 

          IN
WITNESS WHEREOF, the parties have executed
this          Executive Stock
Agreement on the date first above written.

	 	 	 	 	 	 	 
	 	 	TOWN SPORTS INTERNATIONAL, HOLDINGS, INC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: RICHARD PYLE	 	 
	 

	 	 	 	Title: CFO	 	 
	 
	 	 	 	 	 	 
	 	 	TOWN SPORTS INTERNATIONAL, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	BY:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: ROBERT S. HERBST	 	 
	 

	 	 	 	Title: VICE PRESIDENT	 	 
	 
	 	 	 	 	 	 
	 	 	BRUCKMANN, ROSSER, SHERRILL & CO.,
L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	     BRS Partners, Limited Partnership	 	 
	 

	 	Its:
	 	     General Partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	FARALLON CAPITAL PARTNERS, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 

14

 

          IN WITNESS WHEREOF, the parties have executed this 2003 Executive Stock Agreement on the
date first above written.

	 	 	 	 	 	 	 
	 	 	TOWN SPORTS INTERNATIONAL,
HOLDING, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	TOWN SPORTS INTERNATIONAL, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	BRUCKMANN ROSSER, SHERRILL & CO., L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	     BRS Partner, Limited Partnership	 	 
	 

	 	Its:
	 	      General Partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	FARALLON CAPITAL PARTNERS, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	     Farallon Partners, L.L.C.	 	 
	 

	 	Its:
	 	     General Partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 

 

15

 

	 	 	 	 	 	 	 
	 	 	FARALLON CAPITAL INSTITUTIONAL
PARTNERS, L.P.
	 
	 	 	 	 	 	 
	 

	 	By:
	 	     Farallon Partners, L.L.C.	 	 
	 

	 	 	 	     Its: General Partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Mark C. Wehrly	 	 
	 

	 	 	 	Title: Managing Member	 	 
	 
	 	 	 	 	 	 
	 	 	RR CAPITAL PARTNERS, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	     Farallon Partners, L.L.C.	 	 
	 

	 	 	 	     Its: General Partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Mark C. Wehrly	 	 
	 

	 	 	 	Title: Managing Member	 	 
	 
	 	 	 	 	 	 
	 	 	FARALLON CAPITAL INSTITUTIONAL
PARTNERS II, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	      Farallon Partners, L.L.C.	 	 
	 

	 	 	 	     Its: General Partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Mark C. Wherly	 	 
	 

	 	 	 	Title: Managing Member	 	 
	 
	 	 	 	 	 	 
	 	 	EXECUTIVE	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	Name:	 	 
	 
	 	 	 	 	 	 
	 

	 	Address:	 	 	 
	 

	 	 	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 
	 	 

16EX-10.18

 

Exhibit 10.18

 SEPARATION AGREEMENT AND GENERAL RELEASE

     This Separation Agreement and General Release (“Agreement”) is made and entered into by and
between Mark Smith, an individual residing at 31 Hidden Cove Court, Southampton, New York 11968
(the “Executive”) on the one hand, and Town Sports International Holdings, Inc., Town Sports
International, Inc., their parents, subsidiaries, affiliates, and related entities (collectively
referred to as the “Company”) on the other.

W I T N E S S E T H:

     WHEREAS, the Executive and the Company are separating from their employment relationship,
effective March 23, 2006;

     WHEREAS, the Executive has resigned his positions as an officer and director of the Company,
effective March 23, 2006;

     WHEREAS, the Company and the Executive wish to set forth certain understandings in this
Agreement and Release with respect to the Executive’s separation from the Company;

     NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter provided,
and for other good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and the Executive, intending to be legally bound, agree as follows:

     1. Payments and Benefits to be Received by the Executive From the Company.

     In exchange for agreeing to and complying with the terms of this Agreement (including the
General Release it contains), the Executive will receive the following payments and benefits:

          (a) The Company will make payments to the Executive at an annual rate equal to his current
base salary, effective January 1, 2006, which is $465,716, through March 31, 2007, less statutory
and other usual or customary payroll deductions such as FICA and Medicare. The payments will be
made in equal installments every two weeks through March 31, 2007;

 

 

          (b) The Company will pay the Executive a bonus for calendar year 2006 (the “Bonus”) at or
about the same time the bonuses for calendar year 2006 are paid to other executives. The amount of
the Bonus shall be based on Company performance and calculated in accordance with the Bonus Bands
attached hereto as Exhibit A;

          (c) The Company shall pay for the Executive and his eligible dependents to continue to
participate in the Company’s group health care benefits through March 31, 2007, on the same basis
and terms as the Company provided to the Executive and his eligible dependants when the Executive
was an active employee;

          (d) The Company will continue to pay the Executive on a biweekly basis an amount equal to his
Executive Car Allowance ($9,217 per year) through March 31, 2007; and

          (e) The Company will provide to the Executive, and his wife, Alexandra Brinsmade, and their
children, a Lifetime Family Premium Passport Membership or the then current highest level
membership, which is valid indefinitely unless Executive is employed by a competing health club in
a metropolitan area where the Company does business after December 31, 2007.

     2. Company Equity Owned By the Executive. The parties intend to enter into a separate
agreement of even date with respect to both the Executive’s ownership of stock in Town Sports
International Holdings, Inc. (“Stock”) and the Executive’s options to purchase Stock (the “Equity
Agreement”). The parties acknowledge and agree that the Equity Agreement is contingent on the
execution of this Agreement.

2

 

     3. The Executive’s Consultancy Obligations.

          (a) In consideration of the payments and benefits to be received by the Executive pursuant to
Section 1(a)-(e), the Executive agrees to serve in good faith as a consultant for the Company
through March 31, 2007 on an as-needed basis as determined by the Company’s CEO and as is mutually
agreed and without additional compensation.

          (b) The Executive agrees that, upon the expiration of the Executive’s period of consultancy
for the Company on March 31, 2007, he will sign a General Release for the period of the consultancy
substantially similar in form to the document attached hereto as Exhibit B if the Company deems it
necessary or appropriate.

     4. Return of Property. 

          (a) The Executive hereby confirms and acknowledges that he has returned to the Company or
destroyed as may be appropriate any and all files or other property (both tangible and
intellectual) of the Company’s (said property includes, but is not limited to, files, monthly
management financial booklets, projections, forecasts, balance sheets, income statements, audited
financial statements, total cost development budgets, actual or prospective purchaser or customer
lists, written proposals and studies, plans, drawings, specifications, reports to creditors, books,
accounts, reports to directors, minutes, resolutions, certificates, bank account numbers,
passwords, rolodexes, credit cards, computers, fax machines, cellular or other telephones, beepers,
PDA’s, keys, deeds, contracts, office equipment and supplies, records, computer disks, any other
documents or things received or acquired in connection with the Executive’s employment with the
Company, etc.) without retaining any copies or extracts thereof.

3

 

          (b) Notwithstanding the above, the Executive is permitted to keep his current Company cell
phone number and will make arrangements to have it transferred to his name as soon as possible and
will reimburse the Company for all charges incurred with respect to that phone number from March
23, 2006 through the date the transfer is effective.

          (c) Notwithstanding the above, the Executive, if he has chosen to do so, is keeping his office
computer, printer, and related accessories.

     5. Resignation From All Offices and Boards of Directors. The Executive represents and
warrants that he will submit the appropriate written documentation to effectuate the resignation of
his positions as an officer and/or a member of Boards of Directors of the Company and any
committees thereto.

     6. The Executive’s Future Conduct and Obligations.

          (a) The Executive, on behalf of himself, his agents, attorneys, heirs, executors,
administrators, and assigns, agrees that he shall not at any time engage in any form of conduct, or
make any statements or representations, that disparage or otherwise impair the reputation,
goodwill, or commercial interests of the Company, its management, stockholders, subsidiaries,
parents, and/or other direct or indirect affiliates. The Executive may truthfully describe to
current employees of the Company the circumstances which led to his leaving the Company.

          (b) The Executive agrees to assist and cooperate with the Company in connection with the
defense or prosecution of any claim that may be made against or by the Company, or in connection
with any ongoing or future investigation or dispute or claim of any kind involving the Company,
including any proceeding before any arbitral, administrative,

4

 

judicial, legislative, or other body or agency, including preparing for and testifying in any
proceeding to the extent such claims, investigations or proceedings relate to services performed or
required to be performed by the Executive, pertinent knowledge possessed by the Executive, or any
act or omission by the Executive. The Executive further agrees to perform all acts and execute and
deliver any documents that may be reasonably necessary to carry out the provisions of this
subsection. The time spent pursuant to this Section shall count as time spent pursuant to Section
3(a) hereof. For reasonable time spent pursuant to this section after March 31, 2007, the
Executive shall be compensated at a rate of $300 per hour. Upon submission of appropriate written
documentation, the Company shall reimburse the Executive for reasonable, pre-approved expenses
incurred in carrying out the provisions of this paragraph.

     7. General Release.

          (a) The Executive, with the intention of binding himself, his agents, attorneys, heirs,
executors, administrators and assigns, does hereby irrevocably and unconditionally release, acquit,
remise and forever discharge the Company, its subsidiaries, parents, and other direct or indirect
affiliates, as well as each of their respective stockholders, partners, heirs, executors,
administrators, agents, employees, officers, directors, successors, insurers, assigns and
attorneys, of and from any and all manner of actions, cause or causes of action, suits, debts, sums
of money, costs, interests, attorneys’ fees, liabilities, contracts, accounts, reckonings, bonds,
bills, specialties, covenants, controversies, agreements, promises, variances, trespasses, damages,
judgments, executions, charges, claims, counterclaims and demands, whatsoever, in law or in equity
or otherwise, that the Executive now has or may have, whether mature, direct, derivative,
subrogated, personal, assigned, both known and unknown, foreseen or unforeseen, contingent or
actual, liquidated or unliquidated, arising from the beginning of the world until the date that the

5

 

Executive signs this Agreement, including, but not limited to, any claims arising in any way
out of his hiring by the Company, his employment with the Company, or his separation from the
Company. The Executive hereby expressly waives the benefits of any statute or rule of law which,
if applied to this General Release, would otherwise exclude from its binding effect any claims not
now known by the Executive to exist. The foregoing release of claims by the Executive includes,
but is not limited to, any and all claims for damages, attorneys’ fees, or costs under the Age
Discrimination in Employment Act (“ADEA”), 29 U.S.C. § 621 et seq., the Americans with Disabilities
Act (“ADA”), 42 U.S.C. § 12101 et seq., the Civil Rights Act of 1991, 42 U.S.C. § 1981a et seq.,
the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq., the Fair Labor
Standards Act (“FLSA”), 29 U.S.C. § 201 et seq., the Family and Medical Leave Act (“FMLA”), Title
VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., the Sarbanes-Oxley Act of 2002, the
United States Constitution, the Constitution of the State of New York, or of any other state or
country, the New York Human Rights Law, the New York City Civil Rights Act, and all other similar
federal, state, or municipal statutes or ordinances prohibiting discrimination or pertaining to
employment, and any contract, tort, or common law theories with respect to the Executive’s hiring
by the Company, the terms and conditions of his employment with the Company, and his separation
from the Company.

          (b) The Company and the Executive acknowledge and agree that the General Release set forth in
subsection 7(a) above does not in any way affect the rights of either party to take whatever steps
may be necessary to enforce the terms of this Agreement or the Equity Agreement or to obtain
appropriate relief in the event of any breach of the terms of such Agreements.

6

 

     8. No Existing Suit. The Executive represents and warrants that, as of the Effective
Date of this Agreement, he has not filed or commenced any suit, claim, charge, complaint, action,
arbitration, or legal proceeding of any kind against the Company.

     9. No Participation in Third Party Civil Litigation. The Executive agrees and
promises not to voluntarily participate, without receiving the prior written approval of the
Company, in any pending or future civil case, arbitration, agency proceeding, or other legal
proceeding brought against the Company by a third party (“Third Party Civil Litigation”) with
respect to any issues whatsoever. The Executive also agrees that he will not intentionally cause,
encourage, or participate in any Third Party Civil Litigation maintained or instituted against the
Company. Specifically, among other things, this Section is intended to preclude the Executive from
(a) voluntarily providing any party involved in a Third Party Civil Litigation, as defined above,
against the Company with any statement, oral or written, sworn or unsworn, to be used in connection
with that Third Party Civil Litigation and/or (b) voluntarily appearing for the purpose of
providing deposition or trial testimony at such party’s request without the prior written approval
of the Company.

     10. Release by the Company. The Company does hereby irrevocably and unconditionally
release, acquit, remise and forever discharge the Executive, his agents, attorneys, heirs,
executors, administrators and assigns, of and from any and all manner of actions, cause or causes
of action, suits, debts, sums of money, costs, interests, attorneys’ fees, liabilities, contracts,
accounts, reckonings, bonds, bills, specialties, covenants, controversies, agreements, promises,
variances, trespasses, damages, judgments, executions, charges, claims, counterclaims and demands,
whatsoever, in law or in equity or otherwise, (i) the facts of which are known by the Company as of
the date this Agreement, and (ii) for those matters the facts of which are not

7

 

known by the Company as of the date of this Agreement or which are not yet ripe;
provided, however, notwithstanding the generality of the foregoing, for purposes of
clause (ii) above, nothing herein will be deemed to release the Executive from any acts or
omissions constituting gross negligence or willful misconduct.

     11. Covenant Not to Compete. In consideration of the payments and benefits received
pursuant to Section 1 above, the Executive agrees that through August 15, 2007, he shall not
directly or indirectly own, manage, control, participate in, consult with, be employed by, render
services for, or in any manner engage in, any business competing directly or indirectly with the
business as now or hereafter conducted by the Company or the businesses which are logical
extensions of the Company’s current business, within any metropolitan area in which the Company
engages or has definitive plans to engage in such business as of the date hereof; provided, that
the Executive shall not be precluded from purchasing or holding publicly traded securities of any
such entity so long as the Executive shall hold less than 2% of the outstanding units of any such
class of securities and has no active participation in the business of such entity.

     12. Covenant Not to Solicit Employees. In consideration of the payments and benefits
received pursuant to Section 1 above, the Executive agrees that through August 15, 2007, he shall
not: (i) induce or attempt to induce any employee or consultant of the Company to leave the employ
or services of the Company, or in any way interfere with the relationship between the Company and
any employee or consultant thereof; or (ii) hire any person who was an employee of the Company at
any time during Executive’s employment period for a position which would compete with the business
of the Company in the Company’s markets as of the date hereof, except for such employees who have
been terminated for at least six months.

8

 

     13. Covenant Not to Solicit Customers, Vendors, etc. In consideration of the payments
and benefits received pursuant to Section 1 above, the Executive agrees that through August 15,
2007, he shall not, directly or indirectly: (i) solicit or attempt to enter into a contractual
relationship with any customer, supplier, vendor, licensee, franchisee or other business relation
of the Company, which relationship will have an impact on the Company in a market in which the
Company does business on the date hereof, without prior approval from the Company; or (ii) induce
or attempt to induce any customer, supplier, vendor, licensee, franchisor or other business
relation of the Company to cease doing business with the Company, or in any way interfere with the
relationship between any such customer, supplier, vendor, licensee, franchisor or business
relation, on the one hand, and the Company, on the other hand.

     14. Nondisclosure of Confidential Information. The Executive acknowledges and agrees
that, in the course of his employment with the Company, he has acquired certain Confidential
Company Information which the Executive knew or understood was confidential or proprietary to the
Company and which, as used in this Agreement, means: information belonging to or possessed by the
Company which is not available in the public domain, including, without limitation, (a) information
received from the customers, suppliers, vendors, employees, or agents of the Company under
confidential conditions; (b) confidential account information regarding customers of the Company;
(c) the Company’s confidential accounting, tax, or financial information results, procedures and
methods; and (d) other confidential technical, marketing, or business information, or policies
received because of the Executive’s employment by the Company. The Executive understands and
agrees that such Confidential Company Information has been disclosed to the Executive for the
Company’s use only. The Executive understands and agrees that he: (i) will not disclose or
communicate Confidential Company Information to any

9

 

person or persons except that the restrictions in this sentence will only apply with respect
to clause (d) above with respect to the Company’s markets as of the date hereof; and (ii) will not
make use of Confidential Company Information on the Executive’s own behalf, or on behalf of any
other person or persons except that the restrictions in this sentence will only apply with respect
to clause (d) above with respect to the Company’s markets as of the date hereof. The Executive
agrees to give immediate written notice to the Company at Town Sports International, Inc., 888
Seventh Avenue, 25th Floor, New York, NY 10106, Attn: Robert S. Herbst, Esq., Vice
President & General Counsel, with a copy to Brian S. Cousin, Esq., Greenberg Traurig LLP, 200 Park
Avenue, New York, New York 10166 in the event he is ordered by a court or otherwise compelled by
law to reveal any Confidential Company Information to any third party. In view of the nature of
the Executive’s employment and the nature of the Confidential Company Information he has had access
to, the Executive agrees that any unauthorized disclosure to any person or persons of Confidential
Company Information, or other violation or threatened violation of this Agreement, will cause
irreparable damage to the Company and that, therefore, the Company shall be entitled to an
injunction prohibiting the Executive from any further disclosure, attempted disclosure, violation,
or threatened violation of this Agreement.

     15. Certain Forfeitures in Event of Breach or Other Liability to the Company. The
Executive acknowledges and agrees that, notwithstanding any other provision of this Agreement, in
the event the Executive breaches any material obligation under this Agreement, which breach has a
material impact on the Company, or there is a final determination by a Court of competent
jurisdiction, or an agreement by the Executive as part of a settlement, that the Executive is
otherwise liable to the Company, the Company retains the right to recoup any and all payments and
benefits provided for in Section 1 of this Agreement, any damages suffered by

10

 

the Company, plus reasonable attorneys’ fees incurred in connection with such recovery and, to
the extent that such payments and/or benefits have not been fully disbursed to the Executive, the
Company reserves its rights to stop all future disbursements of such payments and/benefits.

     16. Internal/External Announcement. The parties agree to work together in good faith
to jointly draft mutually agreeable language for any internal and external announcements regarding
the Executive’s separation from the Company.

     17. Confidentiality of this Agreement. Except as discussed in Sections 6(a) and 16
above, the Executive, on behalf of himself and his agents, attorneys, heirs, executors,
administrators, and assigns, agrees that this Agreement, and any and all matters concerning his
separation from the Company, will be regarded as confidential communications between the parties,
and that he will not reveal, disseminate by publication of any sort, or release in any manner or
means this Agreement or any matters, factual or legal, concerning this Agreement to any other
person, nor to any members of the public, newspaper, magazine, radio station, television station,
cable TV operation, Internet, or other mass communications medium, except as required by law or
legal process (in which case(s), the Executive agrees to forthwith provide immediate written notice
of said legal process to the Company as set forth below prior to the production of the requested
information). Notwithstanding the language above, the Executive is permitted to disclose the terms
of this Agreement to his immediate family members, attorneys, financial advisors, and/or
accountants as long as such individuals are informed of and agree to be bound by the terms of this
confidentiality provision.

     18. Entire Agreement. Except as stated herein, this Agreement and the Equity
Agreement set forth the entire agreement of the parties and supersedes all prior promises or
agreements made by, to, or between the parties, whether oral or written. This Agreement may

11

 

not be amended except by a writing signed by both parties. There are no other promises,
agreements, or commitments made by, to, or between the parties, other than those set forth in the
written text of this Agreement.

     19. No Transfer by Executive. The Executive represents and warrants that he has not
sold, assigned, transferred, conveyed or otherwise disposed of to any third party, by operation of
law or otherwise, any action, cause of action, suit, debt, obligations, account, contract,
agreement, covenant, guarantee, controversy, judgment, damage, claim, counterclaim, liability or
demand of any nature whatsoever relating to any matter covered by this Agreement. This Agreement is
personal to the Executive and he may not assign, pledge, delegate or otherwise transfer any of his
rights, obligations or duties under this Agreement.

     20. Choice of Law, Jurisdiction, Venue. This Agreement shall be governed by,
construed in accordance with, and enforced pursuant to the laws of the State of New York without
regard to principles of conflict of laws. The parties hereto waive any defense of lack of
jurisdiction or venue as not being a resident of New York County, New York, and hereby specifically
authorize any action brought by either party to this Agreement to be instituted and prosecuted in
either the Supreme Court of the State of New York, County of New York, or in the United States
District Court for the Southern District of New York, at the election of the party bringing such
action.

     21. Counterparts. This Agreement may be executed in counterparts, each of which
together constitute one and the same instrument.

     22. Notices. Any notice to be given hereunder shall be delivered as follows: (a) in
the case of the Company, by both electronic mail and first class mail delivery, or delivery by a
recognized overnight commercial courier which guarantees delivery to the addressee by the end

12

 

of the next business day, addressed to Robert S. Herbst, Esq., Vice President & General
Counsel, Town Sports International, Inc., 888 Seventh Avenue, 25th Floor, New York, NY
10106 (email address: Robert.Herbst@town-sports.com), with a copy to Brian S. Cousin, Esq.,
Greenberg Traurig, LLP, 200 Park Avenue, New York, New York 10166 (email address:
cousinb@gtlaw.com); and (b) in the case of the Executive, by both electronic mail and first class
mail delivery, or delivery by a recognized overnight commercial courier which guarantees delivery
to the addressee by the end of the next business day, addressed to both (i) 31 Hidden Cove Court,
Southampton, New York 11968 and (ii) c/o Alan and Jane Smith, Herbert Gardens, Apt. 13D, 186 The
Terrace, Wellington, New Zealand (email address msmith1155@gmail.com). Notices served by mail
shall be deemed given when they are mailed.

     23. Nonadmissibility. Nothing contained in this Agreement, or the fact of its
submission to the Executive, shall be admissible evidence against the Company in any judicial,
administrative, or other legal proceeding (other than an action for breach of this Agreement), or
be construed as an admission of any liability or wrongdoing on the part of the Company of any
violation of federal, state, or local statutory law, common law or regulation.

     24. Knowing and Voluntary Waiver. By signing this Agreement, the Executive expressly
acknowledges and agrees that (a) he has carefully read it and fully understands what it means; (b)
he is hereby advised in writing to discuss this Agreement with an Attorney before signing it; (c)
he has been given at least 21 calendar days to consider this Agreement; (d) he has agreed to this
Agreement knowingly and voluntarily and was not subjected to any undue influence or duress; (e) he
may revoke his acceptance of this Agreement within seven (7) days after he signs it by sending
written Notice of Revocation as set forth below; and (f) on the eighth day after he signs this
Agreement, this Agreement becomes effective and enforceable. The

13

 

parties agree that the Executive may revoke this Agreement within seven (7) days after the
Executive executes the Agreement. Any revocation within this period must be submitted, in writing,
to Robert S. Herbst, Esq., Vice President & General Counsel at Town Sports International, Inc., 888
Seventh Avenue, New York, NY 10106, stating “I hereby revoke my acceptance of our Agreement.” The
revocation must be personally delivered to Mr. Herbst or mailed to him and postmarked within seven
(7) days of the Executive’s execution of the Agreement. If the last day of the revocation period
is a Saturday, Sunday, or legal holiday, the revocation period shall be extended to the following
day which is not a Saturday, Sunday, or legal holiday. The Executive agrees that if he does not
execute the Agreement or, in the event of revocation, he will immediately return to the Company any
of the additional payments or benefits provided to him by the Company pursuant to this Agreement.

     25. Review Time; Effective Date. This Agreement shall not become effective or
enforceable until seven (7) days after the date of execution by the Executive (the “Effective
Date”).

     26. Arbitration of Disputes. Any controversy or claim arising out of or relating to
this Agreement shall be finally settled by arbitration conducted in accordance with the Arbitration
Rules of JAMS. The arbitration shall be conducted in New York City. Judgment upon the arbitration
award may be entered in any court having jurisdiction over the parties. The parties may conduct
discovery in aid of the arbitration in accordance with the Federal Rules of Civil Procedure. The
arbitration award shall be in writing and shall specify the factual and legal bases of the award.
Each of the parties reserves the right to file with a court of competent jurisdiction an
application for temporary or preliminary injunctive relief.

14

 

     IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement and Release
as of the day and year set forth below.

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Town Sports International Holdings, Inc.
	 
	 	 	 	 	 	 	 	 
	Dated:

	 	As of March 23          ,2006
	 	 	 	By:
	 	/S/ RICHARD PYLE
	 

	 	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Name: Richard Pyle
	 

	 	 	 	 	 	 	 	Title: Chief Financial Officer
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Town Sports International, Inc.
	 
	 	 	 	 	 	 	 	 
	Dated:

	 	As of March 23          , 2006
	 	 	 	By:
	 	/S/ RICHARD PYLE
	 

	 	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Name: Richard Pyle
	 

	 	 	 	 	 	 	 	Title: Chief Financial Officer
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	/S/ MARK SMITH
	 	 	 	 	 	 	 
	Dated:	 	As of March 23          , 2006	 	 	 	Mark Smith
	 

	 	 	 	 	 	 	 	 

[Signature Page to Separation Agreement and Release]

 

 

EXHIBIT A

BONUS BANDS

	 	 	 
	Incentive Bonus

	 	                                         
                          
                 Mark Smith

Year 2006 bonus range:

Ebitda

	 	 	 	 	 	 	 	 	 
	 	 	% of Budget	 	 	Bonus	 
	$72,971 Minimum return on capital invested
	 	 	77	%	 	$	200,000	 
	95,184 Budget
	 	 	100	%	 	$	540,000	 
	99,943 5% over budget
	 	 	105	%	 	$	560,000	 
	104,702 10% over budget
	 	 	110	%	 	$	621,000	 
	109,461 15% over budget
	 	 	115	%	 	$	645,000	 

1) Definition of Ebitda to exclude extraordinary or non-recurring items and deferred compensation expense.

2) Between, or above bands, bonus pool is allocated on a pro rata basis.

A-1

 

EXHIBIT B

GENERAL RELEASE

     In exchange for good and valuable consideration provided for in the Separation Agreement and
General Release between Mark Smith (“Mr. Smith”) and Town Sports International Holdings, Inc., Town
Sports International, Inc., their parents, subsidiaries, affiliates, and related entities, dated
March 23, 2006, (the “Separation Agreement”), the receipt and sufficiency of which is hereby
acknowledged, and to supplement the General Release in the Separation Agreement, Mr. Smith, with
the intention of binding himself, his agents, attorneys, heirs, executors, administrators and
assigns, does hereby irrevocably and unconditionally release, acquit, remise and forever discharge
Town Sports International, Inc., its parent, subsidiaries, affiliates, and related entities, as
well as each of their respective stockholders, partners, heirs, executors, administrators, agents,
employees, officers, directors, successors, insurers, assigns and attorneys (the “Releasees”), of
and from any and all manner of actions, cause or causes of action, suits, debts, sums of money,
costs, interests, attorneys’ fees, liabilities, contracts, accounts, reckonings, bonds, bills,
specialties, covenants, controversies, agreements, promises, variances, trespasses, damages,
judgments, executions, charges, claims, counterclaims and demands, whatsoever, in law or in equity
or otherwise, that Mr. Smith now has or may have, whether mature, direct, derivative, subrogated,
personal, assigned, both known and unknown, foreseen or unforeseen, contingent or actual,
liquidated or unliquidated, arising from March 23, 2006 until the date that Mr. Smith signs this
Agreement, covering any claims arising from this period with respect to Mr. Smith’s relationship
with the Releasees. Mr. Smith hereby expressly waives the benefits of any statute or rule of law
which, if applied to this General Release, would otherwise exclude from its binding effect any
claims not now known by Mr. Smith to exist. The foregoing release of claims by Mr. Smith includes,
but is not limited to, any and all claims for damages,

B-1

 

attorneys’ fees, or costs under the Age Discrimination in Employment Act (“ADEA”), 29 U.S.C. §
621 et seq., the Americans with Disabilities Act (“ADA”), 42 U.S.C. § 12101
et seq., the Civil Rights Act of 1991, 42 U.S.C. § 1981a et seq.,
the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq.,
the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201 et seq., the Family and
Medical Leave Act (“FMLA”), Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et
seq., the Sarbanes-Oxley Act of 2002, the United States Constitution, the Constitution of
the State of New York, or of any other state or country, the New York Human Rights Law, the New
York City Civil Rights Act, and all other similar federal, state, or municipal statutes or
ordinances prohibiting discrimination or pertaining to contract, tort, or common law theories with
respect to Mr. Smith’s relationship with the Releasees from March 23, 2006 through the signing of
this General Release. For the avoidance of doubt, this General Release is not intended to cover
claims which may have arisen under the Equity Agreement.

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Dated:

	 	                                        , 2006
	 	 	 	Mark Smith

B-2

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