Document:

exv10w1

 

Exhibit 10.1

RESTRUCTURING SUPPORT AGREEMENT

     This RESTRUCTURING SUPPORT AGREEMENT is made and entered into as of June 15, 2007 (the
“Agreement”) by and among (i) Bally Total Fitness Holding Corporation, a Delaware
corporation (“BTF”) and each of its affiliates that may or will constitute one of the
debtors in the Chapter 11 Cases (collectively, “Bally”), (ii) each of the holders
identified on Exhibit A hereto (each, a “Consenting Subordinated Noteholder”) of
Subordinated Notes, and (iii) each of the holders identified on Exhibit A hereto (each, a
“Consenting Senior Noteholder”) of Senior Notes.

W H E R E A S :

     A. Bally contemplates a restructuring (the “Restructuring”) pursuant to the terms of
the term sheet (the “Term Sheet”) attached hereto as Exhibit B.

     B. Bally and each Plan Support Party (each a “Party” and collectively, the
“Parties”) anticipate that the Restructuring will be implemented through a prepackaged or
prenegotiated chapter 11 plan of reorganization.

     NOW, THEREFORE, in consideration of the covenants and agreements contained herein, and for
other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each
Party, intending to be legally bound hereby, agrees as follows:

1. Definitions. Capitalized terms used but not defined herein shall have the meaning
ascribed to them in the Appendix to this Agreement.

2. Agreement Effective Date. This Agreement shall be effective at 12:01 a.m. prevailing
Eastern Time on the date on which the following conditions have been satisfied (the “Agreement
Effective Date”): (a) Bally shall have executed and delivered counterpart signature pages to
this Agreement to the Plan Support Parties and (b) each of the Plan Support Parties (constituting
holders of not less than 50% of the outstanding principal amount of the Senior Notes and 80% of the
outstanding principal amount of the Subordinated Notes) shall have delivered to Bally an executed
counterpart of this Agreement, in each instance, on or before June 17, 2007.

3. Commitment of Plan Support Parties. Subject to (i) the occurrence of the Agreement
Effective Date, but prior to the occurrence of the Termination Date (if applicable), and (ii)
delivery and review of the Definitive Documents, including, but not limited to, the Plan and the
Disclosure Statement, and so long as the Definitive Documents are consistent with the terms of the
Restructuring as set forth in the Term Sheet, each Plan Support Party shall:

(a) vote all Senior Notes and Subordinated Notes beneficially owned by such Plan Support
Party or for which it is the nominee, investment manager, or advisor for beneficial holders
thereof in favor of the Plan in accordance with the applicable procedures set forth in the
Disclosure Statement and accompanying voting materials, and return a duly-executed Ballot in
connection therewith no later than the deadline for voting on the Plan;

(b) not withdraw or revoke its vote;

 

 

(c) following the commencement of the Chapter 11 Cases, not (i) object, on any grounds, to
confirmation of the Filing Entities’ Plan, except to the extent that the terms of such Plan
are inconsistent with the terms contained in the Term Sheet, or (ii) directly or indirectly
seek, solicit, support or encourage (x) any objection to the Plan or (y) any other plan of
reorganization or liquidation; and

(d) not take any other action, including, without limitation, initiating any legal
proceeding that is inconsistent with, or that would delay consummation of, the transactions
embodied in the Term Sheet, and upon completion, the Definitive Documents.

4. Bally Commitment. Subject to the provisions of paragraph 5 of this Agreement, Bally
shall use its reasonable best efforts to (i) support and complete the transactions embodied in the
Term Sheet, (ii) do all things reasonably necessary and appropriate in furtherance of the
transactions embodied in the Term Sheet, including, without limitation (y) taking all steps
reasonably necessary and desirable to obtain an order of the Bankruptcy Court confirming the Plan
on or before August 21, 2007, and (z) taking all steps reasonably necessary and desirable to cause
the effective date of the Plan to occur on or before August 31, 2007, (iii) obtain any and all
required regulatory and/or third-party approvals for the transactions embodied in the Term Sheet,
and (iv) not take any action that is inconsistent with, or is intended or is reasonably likely to
interfere with or impede or delay consummation of, the Restructuring and the transactions embodied
in the Term Sheet. Regardless of whether the Restructuring is consummated, Bally shall promptly
pay in cash upon demand any and all reasonable accrued and unpaid out-of-pocket expenses incurred
by the Plan Support Parties and the Informal Committee, including, without limitation, all
reasonable fees and out-of-pocket expenses of legal and financial advisers to the Plan Support
Parties including Akin Gump Strauss Hauer & Feld LLP and Houlihan Lokey Howard & Zukin Capital,
Inc.; provided, however, that Bally shall not be obligated to pay any such
out-of-pocket expenses incurred by any Plan Support Party that has breached (and not cured) any of
its obligations under this Agreement.

5. Right to Solicit Better Alternative Transactions. Notwithstanding anything to the
contrary herein, or in the Plan, the Subscription and Backstop Purchase Agreement, or any other
Definitive Document, Bally shall be entitled, at any time prior to the date on which the Plan is
confirmed by the Bankruptcy Court, and nothing in this Agreement, the Plan, the Subscription and
Backstop Purchase Agreement, or any other Definitive Document shall restrict Bally’s rights to
solicit, encourage or initiate any offer or proposal from, enter into any agreement with, engage in
any discussions or negotiations with or provide any information to (except as otherwise limited by
the terms of this Agreement), any person or entity concerning any actual or proposed transaction
involving any or all of (i) a competing plan of reorganization or other financial and/or corporate
restructuring of any or all of the Bally entities, (ii) the issuance, sale or other disposition of
any equity or debt interests, or any material assets, or (iii) a merger, consolidation, business
combination, liquidation, recapitalization, refinancing or similar transaction involving any or all
of the Bally entities (an “Alternative Transaction”), in each case, to the extent the board
of directors of Bally (the “Board of Directors”) determines in good faith that such
Alternative Transaction best maximizes value for Bally and its stakeholders. At all times prior
to, on, or after the date of the commencement of the Chapter 11 Cases, Bally shall be obligated to
promptly deliver to the advisors for the Informal Committee all written communications delivered to
or received by Bally or its advisors making or materially modifying any alternative offers,
including, without limitation, copies of all expressions of interest, term sheets, letters of
interest, offers, proposed agreements or

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otherwise, and shall regularly update (not less than once every week) the advisors for the Informal
Committee concerning such matters.

6. Termination.

     (a) This Agreement may be terminated and shall thereafter be of no further force or effect (i)
as to any Consenting Senior Noteholder who so notifies Bally in writing, or (ii) as to all
Consenting Subordinated Noteholders if the Requisite Subordinated Noteholders so notify Bally in
writing, in each case, upon the first to occur of (x) any of the following events, in the case of
the Consenting Senior Noteholders, or (y) any of the following events other than the events
described in clause (ix) below (each a “Termination Event”):

	 	i.	 	if Bally fails to commence the Chapter 11 Cases by 11:59 p.m.
prevailing Eastern Time on (x) July 14, 2007, or (y) if the Chapter 11 Cases are
filed as prepackaged bankruptcy cases, July 31, 2007, in the event a prepackaged
solicitation is commenced by June 30, 2007;
	 
	 	ii.	 	if the effective date of the Plan does not occur by 11:59 p.m.
prevailing Eastern Time on September 30, 2007 (the “Outside Date”);
	 
	 	iii.	 	in the event that votes on the Plan are not solicited prior to
the
filing of the Chapter 11 Cases, if the Disclosure Statement relating to the Plan
has not been approved by the Bankruptcy Court by 11:59 p.m. prevailing Eastern
Time on August 30, 2007;
	 
	 	iv.	 	if Bally unilaterally (1) withdraws the Plan, (2) moves to
voluntarily dismiss any of the Chapter 11 Cases, (3) moves for conversion of any
of the Chapter 11 Cases to Chapter 7 of the Bankruptcy Code, or (4) moves for
appointment of an examiner with expanded powers pursuant to Section 1104 of the
Bankruptcy Code in any of the Chapter 11 Cases, except as permitted by paragraph
7 hereof;
	 
	 	v.	 	if (1) a trustee or an examiner with expanded powers is appointed
in any of the Chapter 11 Cases, (2) any of the Chapter 11 Cases is converted to
a case under Chapter 7 of the Bankruptcy Code, (3) Bally’s exclusive right to
file a Chapter 11 plan pursuant to section 1121 of the Bankruptcy Code shall
have terminated, or (4) Bally shall have announced its intention to pursue a
transaction that is not consistent with the Restructuring as set forth in the
Term Sheet;
	 
	 	vi.	 	if (a) Bally files a petition in chapter 11 without the Backstop
Purchasers having entered into the Subscription and Backstop Purchase Agreement,
or (b) the Subscription and Backstop Purchase Agreement is terminated, waived,
or amended in any material respect and for any reason during the Chapter 11
Cases;
	 
	 	vii.	 	if the Plan proposed by Bally, including any exhibit, amendment,
modification or supplement to such Plan, contains terms that are inconsistent
with the terms set forth in the Term Sheet;

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	 	viii.	 	if there shall be a breach by Bally of any material
representation, warranty, covenant or agreement contained in this Agreement
which breach has not been cured by the earlier of (1) five Business Days after
the giving of written notice by such Consenting Senior Noteholder or the
Requisite Subordinated Noteholders to Bally of such breach and (2) the Outside
Date; or
	 
	 	ix.	 	if any change, effect, event, occurrence, development,
circumstance or state of facts occurs, on or after the date of this Agreement,
which has or would reasonably be expected to have a materially adverse effect on
the business, properties, operations, financial condition or results of
operations of Bally (including its foreign subsidiaries and their respective
businesses), taken as a whole, or which materially impair Bally’s ability to
perform its obligations under this Agreement or have a materially adverse effect
on or prevent or materially delay the consummation of the transactions
contemplated by this Agreement; provided, that in no event shall any of
the following, alone or in combination, be taken into account in determining
whether there has been, or would reasonably likely be, a material adverse
effect: (i) any effect directly resulting from the public announcement of and
compliance with the terms and conditions of this Agreement or the transactions
contemplated hereby (including, without limitation, the commencement of chapter
11 bankruptcy cases for Bally and the consequences thereof); (ii) any effect
that results from events, circumstances or situations affecting the fitness
industry and/or the United States economy generally, so long as such effect does
not disproportionately affect Bally; or (iii) any effect that results from
events, circumstances or situations affecting general worldwide economic or
capital market conditions, including acts of war, acts of terrorism or natural
disasters, so long as such effect does not disproportionately affect Bally.

     As to any Plan Support Party, the date on which such Plan Support Party delivers a notice to
Bally of the occurrence of a Termination Event shall be referred to as the “Termination
Date”.

     (b) Notwithstanding anything to the contrary herein, any right to terminate this Agreement as
to the Consenting Subordinated Noteholders may be exercised only by the Requisite Subordinated
Noteholders on behalf of all Consenting Subordinated Noteholders, and may not be exercised by one
or more individual Consent Subordinated Noteholders not constituting the Requisite Subordinated
Noteholders.

7. Transfer of Notes. If, following execution of this Agreement by a Plan Support Party,
such Plan Support Party hypothecates, pledges, conveys, transfers, assigns or sells (collectively,
a “Transfer”) all or a part of the Notes held by such Plan Support Party to any Person
(each such Person, a “Transferee”), Transferee must, as a condition precedent to the
settlement of such Transfer, execute an assumption in substantially the form set forth hereto as
Exhibit C (the “Assumption Agreement”). To the maximum extent permitted by
applicable law, any Transfer that is made in violation of the immediately preceding sentence shall
be null and void. A Plan Support Party shall provide to Bally a copy of the executed Assumption
Agreement within three Business Days of the execution of an agreement (or trade confirmation) in
respect of such Transfer.

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8. Plan Support Party Representations. Each Plan Support Party severally and not jointly
represents and warrants to each other Party that:

	 	a)	 	as of the date of this Agreement, it is the beneficial owner of the face amount
of the Notes, or is the nominee, investment manager or advisor for beneficial holders of
the Notes, as such Plan Support Party has represented in writing to counsel for the
Informal Committee, which amount Bally and each Plan Support Party understands and
acknowledges is proprietary and confidential to such Plan Support Party;
	 
	 	b)	 	other than pursuant to this Agreement, such Notes are free and clear of any
pledge, lien, security interest, charge, claim, equity, option, proxy, voting
restriction, right of first refusal or other limitation on disposition or encumbrances
of any kind, that would adversely affect in any way such Plan Support Party’s
performance of its obligations contained in this Agreement at the time such obligations
are required to be performed; and
	 
	 	c)	 	as of the date of this Agreement, it is not aware of any event that, due to any
fiduciary or similar duty to any other person, would prevent it from taking any action
required of it under this Agreement.

9. Informal Committee/Cooperation. The Informal Committee is hereby authorized by each
Plan Support Party to continue to pursue and negotiate the terms of the Definitive Documents
containing terms (i) substantially in accordance with the terms set forth in the Term Sheet and
(ii) with respect to terms not set forth in, and not inconsistent with, the Term Sheet, reasonably
satisfactory to each of the Plan Support Parties. Subject to the occurrence of the Effective Date
and until the occurrence of the Termination Date (if applicable), and subject to the provisions of
paragraph 5 of this Agreement, Bally will (x) negotiate in good faith with the Informal Committee
the Definitive Documents necessary to implement the transactions embodied in the Term Sheet, which
shall be, in all material respects, substantially in accordance with the terms and conditions
contained in the Term Sheet, and (y) expeditiously take all actions necessary or appropriate to
implement the Restructuring. Without limiting the generality of the foregoing, prior to the
commencement of and during the Chapter 11 Cases, Bally shall, except (a) in an emergency where it
is not reasonably practicable or (b) upon consent of counsel to the Informal Committee, provide
draft copies of all motions or applications and other documents Bally intends to file with the
Bankruptcy Court to counsel for the Informal Committee no later than three Business Days prior to
the date when Bally intends to file any such document and shall consult in good faith with counsel
to the Informal Committee regarding the form and substance of any such proposed filing with the
Bankruptcy Court.

10. Service on Official Committee. Notwithstanding anything herein to the contrary, if a
Plan Support Party is appointed to and serves on an official committee in the Chapter 11 Cases, the
terms of this Agreement shall not be construed to limit such Plan Support Party’s exercise of its
fiduciary duties in its role as a member of such committee, and any exercise of such fiduciary
duties shall not be deemed to constitute a breach of the terms of this Agreement; provided,
however, that serving as a member of such committee shall not relieve the Plan Support
Party of any obligations to vote in favor of the Plan; provided, further, that
nothing in this Agreement shall be construed as requiring any Plan Support Party to serve on any
official committee in the Chapter 11 Cases.

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11. Party Representations. Each Party represents to each other Party that, as of the date
of this Agreement, such Party is duly organized, validly existing, and in good standing under the
laws of the state of its organization, and has all requisite corporate, partnership, or limited
liability company power and authority to enter into this Agreement and to carry out the
transactions contemplated by, and perform its respective obligations under, this Agreement.

12. Entire Agreement. This Agreement, including schedules and annexes, constitutes the
entire agreement of the Parties with respect to the subject matter of this Agreement, and
supersedes all other prior negotiations, agreements and understandings, whether written or oral,
among the Parties with respect to the subject matter of this Agreement; provided,
however, that any confidentiality agreement executed by any Plan Support Party shall
survive this Agreement and shall continue to be in full force and effect, in accordance with the
terms thereof, irrespective of the terms hereof; provided, further, that the
Parties shall enter into various definitive documents upon the effective date of the Plan to give
effect to the transactions contemplated in this Agreement.

13. Survival of Agreement. Each of the Parties acknowledges and agrees that this Agreement
is being executed in connection with negotiations concerning a possible financial restructuring of
Bally and in contemplation of a possible bankruptcy filing by Bally, and (a) the rights granted in
this Agreement are enforceable by each signatory hereto without approval of the Bankruptcy Court,
(b) the exercise of such rights will not violate the automatic stay provisions of the Bankruptcy
Code and (c) Bally hereby waives its right to assert a contrary position in the Bally bankruptcy
cases, if any, with respect to the foregoing.

14. Acquisition of Additional Notes. This Agreement shall in no way be construed to
preclude any Plan Support Party from acquiring additional Notes; provided, however,
that any such additional Notes automatically shall be deemed to be subject to the terms of this
Agreement. A Plan Support Party shall notify counsel for the Informal Committee, in writing, of
any Notes acquired by it within three Business Days of the execution of an agreement (or trade
confirmation) in respect of such acquisition.

15. Public Announcements. Except as required by applicable law or regulation, or the rules
of any applicable stock exchange or regulatory body, or in filings to be made with the Bankruptcy
Court, neither Bally nor the Plan Support Parties shall, nor shall they permit any of their
respective affiliates to, make any public announcement or otherwise communicate with any news media
in respect of this Agreement or the transactions contemplated hereby or by the Definitive Documents
without the prior written consent of the other parties hereto (which consent shall not be
unreasonably withheld or delayed); provided, however, that notwithstanding the
forgoing Bally shall issue a press release no later than 8:00 a.m. prevailing Eastern Time on June
18, 2007 substantially in the form attached hereto as Exhibit D, and shall promptly
thereafter, file with the SEC a current report on Form 8-K filing the press release, this
Agreement, and the Term Sheet. Notwithstanding the forgoing, if Bally fails to issue a press
release in compliance with the previous sentence, any of the Plan Support Parties may issue a press
release containing all material information relating to the transactions contemplated hereby.

16. Waiver. If the transactions contemplated herein are not consummated, or following the
occurrence of the Termination Date, if applicable, nothing shall be construed herein as a waiver by
any Party of any or all of such Party’s rights and the Parties expressly reserve any and all of
their

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respective rights. Pursuant to Federal Rule of Evidence 408 and any other applicable rules of
evidence, this Agreement and all negotiations relating hereto shall not be admissible into evidence
in any proceeding other than a proceeding to enforce its terms.

17. Counterparts. This Agreement may be executed in one or more counterparts, each of
which, when so executed, shall constitute the same instrument and the counterparts may be delivered
by facsimile transmission or by electronic mail in portable document format (.pdf).

18. Amendments. Except as otherwise provided herein, this Agreement may not be modified,
amended or supplemented without prior written consent of Bally and each Plan Support Party.

19. Headings. The headings of the sections, paragraphs, subsections and subparagraphs of
this Agreement are inserted for convenience only and shall not affect the interpretation hereof.

20. Specific Performance. It is understood and agreed by the Parties that money damages
would be an insufficient remedy for any breach of this Agreement by any Party and each
non-breaching Party shall be entitled to specific performance and injunctive or other equitable
relief as a remedy of any such breach, including, without limitation, an order of the Bankruptcy
Court or other court of competent jurisdiction requiring any Party to comply promptly with any of
its obligations hereunder.

21. Relationship Among Parties. Notwithstanding anything herein to the contrary, the duties
and obligations of the Plan Support Parties under this Agreement shall be several, not joint.
Furthermore, it is understood and agreed that no Plan Support Party has any duty of trust or
confidence in any form with any other Plan Support Party, and there are no commitments among or
between them. In this regard, it is understood and agreed that any Plan Support Party may trade in
the Notes or other debt or equity securities of Bally and its Subsidiaries without the consent of
Bally or any other Plan Support Party, subject to applicable securities laws and paragraphs 7 and
14 of this Agreement. No Plan Support Party shall have any responsibility for any such trading by
any other entity by virtue of this Agreement. No prior history, pattern or practice of sharing
confidences among or between Plan Support Parties shall in any way affect or negate this
understanding and agreement.

22. Confidential Treatment of Plan Support Party Holdings. Bally and each Plan Support
Party agrees to keep confidential the names of the Plan Support Parties and the amount of Notes
held (beneficially or otherwise) by any Plan Support Party, except to the extent required by
applicable law or unless otherwise agreed to in writing with a Plan Support Party (and then, only
with respect to such agreeing Plan Support Party’s holdings); provided that if disclosure
is required by applicable law, advance notice of the intent to disclose (unless it shall not be
practicable to give such advance notice) shall be given by the disclosing Party to each Plan
Support Party who shall have the right to seek a protective order prior to disclosure. If Bally
determines that it is required to attach a copy of this Agreement to any Definitive Document, it
will redact any reference to a specific Plan Support Party and such Plan Support Party’s holdings.
Notwithstanding the foregoing, Bally shall not be required to keep confidential the aggregate
holdings of all Plan Support Parties.

23. Governing Law. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York, without regard to such state’s choice of law provisions which

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would require the application of the law of any other jurisdiction. By its execution and delivery
of this Agreement, each of the Parties irrevocably and unconditionally agrees for itself that any
legal action, suit or proceeding against it with respect to any matter arising under or arising out
of or in connection with this Agreement or for recognition or enforcement of any judgment rendered
in any such action, suit or proceeding, may be brought in the United States District Court for the
Southern District of New York, and by execution and delivery of this Agreement, each of the Parties
irrevocably accepts and submits itself to the exclusive jurisdiction of such court, generally and
unconditionally, with respect to any such action, suit or proceeding. Notwithstanding the
foregoing consent to New York jurisdiction, if the Chapter 11 Cases are commenced, each Party
agrees that the Bankruptcy Court shall have exclusive jurisdiction of all matters arising out of or
in connection with this Agreement.

24. Notices. All notices, requests and other communications hereunder must be in writing
and will be deemed to have been duly given only if delivered personally or by facsimile or
electronic transmission or mailed (first class postage prepaid) to the parties at the following
addresses, email addresses, or facsimile numbers:

     If to a Plan Support Party, to the address set forth beneath such Plan Support Party’s name
below, with a copy to:

Akin Gump Strauss Hauer & Feld LLP

590 Madison Avenue

New York, NY 10022

Attn: Daniel Golden, Esq. (dgolden@akingump.com)

Attn: David Botter, Esq. (dbotter@akingump.com)

Facsimile: (212) 872-1002

If to Bally:

Bally Total Fitness Holding Corporation

8700 West Bryn Mawr Avenue

Chicago, IL 60631

Attn: Marc D. Bassewitz

Facsimile: (773) 399-0126

with a copy to:

Latham & Watkins LLP

Sears Tower, Suite 5800

233 South Wacker Drive

Chicago, IL 60606

Attn: Mark D. Gerstein, Esq. (mark.gerstein@lw.com)

Attn: David S. Heller, Esq. (david.heller@lw.com)

Facsimile: (312) 993-9767

25. No Third-Party Beneficiaries. The terms and provisions of this Agreement are intended
solely for the benefit of the Parties hereto and their respective successors and permitted assigns,
and it is not the intention of the Parties to confer third-party beneficiary rights upon any other
person.

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26. Not a Solicitation. This Agreement does not constitute (a) an offer for the purchase,
sale, exchange, hypothecation, or other transfer of securities for purposes of the Securities Act
of 1933 and the Securities Exchange Act of 1934, or (b) a solicitation of votes on a chapter 11
plan of reorganization for purposes of the Bankruptcy Code.

[Signature Pages Follow]

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     IN WITNESS WHEREOF, Bally and the Plan Support Parties have executed this Agreement
as of the date first written above.

	 	 	 	 	 
	 	BALLY TOTAL FITNESS HOLDING CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	On behalf of the Subsidiary Guarantors listed on Exhibit D hereto:

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

 

 

The undersigned agrees to this Restructuring Support Agreement and to become a Consenting
Subordinated Noteholder.

	 	 	 	 	 
	 	CONSENTING SUBORDINATED NOTEHOLDER:

	 
	 	 	 
	 
	 	By:  	 	 
	 	Name:  	 	 
	 	Title:  	 	 
	 	Address:  	 	 
	 	 	 	 
	 	 	 	 
	 	 	Facsimile No.: 	 
	 	 	Attn.: 	 

 

 

The undersigned agrees to this Restructuring Support Agreement and to become a Consenting Senior
Noteholder.

	 	 	 	 	 
	 	CONSENTING SENIOR NOTEHOLDER:

	 
	 	 	 
	 
	 	By:  	 	 
	 	Name:  	 	 
	 	Title:  	 	 
	 	Address:  	 	 
	 	 	 	 
	 	 	 	 
	 	 	Facsimile No.: 	 
	 	 	Attn.: 	 

 

 

Appendix — Defined Terms

The following terms shall have the following definitions:

“Backstop Purchasers” means, collectively, Tennenbaum Capital Partners, LLC, Goldman Sachs
& Co., and Anschutz Investment Company.

“Ballot” means the ballot distributed with the Disclosure Statement for voting on the Plan.

“Bankruptcy Code” means title 11 of the United States Code.

“Bankruptcy Court” means the United States Bankruptcy Court for the Southern District of
New York.

“Business Day” means a day (other than a Saturday or Sunday) on which banks are open for
general business in New York City.

“Chapter 11 Cases” means the voluntary chapter 11 proceedings to be commenced by the Filing
Entities for the principal purpose of consummating the Plan.

“Definitive Documents” means the Subscription and Backstop Purchase Agreement, the
Disclosure Statement, the Plan, the DIP Financing, the Exit Financing, and all related documents,
exhibits, annexes, and schedules, as such documents may be amended, modified or supplemented from
time to time in accordance with the terms hereof, reflecting the transactions embodied in the Term
Sheet, which documents shall contain terms (i) substantially in accordance with the terms set forth
in the Term Sheet and (ii) with respect to terms not set forth in, and not inconsistent with, the
Term Sheet, reasonably acceptable to each of the Plan Support Parties, which acceptance shall not
be unreasonably withheld or delayed.

“DIP Financing” means that certain debtor in possession financing to be described in the
DIP Term Sheet (which shall be attached to the Disclosure Statement).

“Disclosure Statement” means the disclosure statement in respect of the Plan describing,
among other things, the transactions contemplated by the Term Sheet.

“Exit Financing” means that certain exit financing to be described in the Exit Financing
Term Sheet (which shall be attached to the Disclosure Statement).

“Indentures” means, collectively, the Senior Notes Indenture and the Subordinated Notes
Indenture.

“Informal Committee” means the informal committee of certain unaffiliated holders of the
Senior Notes and Subordinated Notes.

“Notes” means, collectively, the Senior Notes and the Subordinated Notes.

“Person” means and includes an individual, a partnership, a joint venture, a limited
liability company, a corporation, a trust, an unincorporated organization, a group, or any legal
entity or association.

 

 

“Plan” means the plan of reorganization, including all exhibits and supplements thereto,
the terms of which are consistent with the Term Sheet.

“Plan Support Parties”, and each individually, a “Plan Support Party”, means the
Consenting Senior Noteholders and the Consenting Subordinated Noteholders; provided, that
in the case of Consenting Senior Noteholder #1 and Consenting Subordinated Noteholder #1, Plan
Support Parties and Plan Support Party includes only the High Yield Distressed Investing Desk of
Consenting Senior Noteholder #1 and Consenting Subordinated Noteholder #1; provided
further, that in the case of Consenting Senior Noteholder #2, Plan Support Parties and Plan
Support Party includes only the Credit Trading Desk of Consenting Senior Noteholder #2;
provided further, that in the case of Consenting Senior Noteholder #3, Plan Support
Parties and Plan Support Party includes only the Bank Loan Distressed Investing Desk of Consenting
Senior Noteholder #3.

“Requisite Subordinated Noteholders” means the holders of at least 50% in principal amount
of the Subordinated Notes held by the Consenting Subordinated Noteholders.

“Rights Offering” means that certain rights offering made by BTF to holders of the
Subordinated Notes to acquire up to $90 million of new senior subordinated notes to be issued by
reorganized BTF, the principal terms of which will be set forth in the Disclosure Statement and the
Subscription and Backstop Purchase Agreement.

“Senior Notes Indenture” means the indenture governing the 101/2% Senior Notes due 2011 among
BTF, the subsidiary guarantors named therein, and U.S. Bank National Association, as trustee, dated
July 2, 2003, as subsequently amended, modified or, supplemented, and the agreements entered into
and documents delivered in connection therewith.

“Senior Notes” means BTF’s $235 million 101/2% Senior Notes due 2011.

“Subordinated
Notes Indenture” means the indenture governing the
97/8% Senior Subordinated
Notes due 2007 among BTF and U.S. Bank National Association, as trustee, dated December 16, 1998,
as subsequently amended, modified, or supplemented, and the agreements entered into and documents
delivered in connection therewith.

“Subordinated
Notes” means BTF’s $300 million
97/8% Senior Subordinated Notes due 2007.

“Subscription and Backstop Purchase Agreement” means the agreement to be executed by Bally
and the Backstop Purchasers, which, among other things, commits the Backstop Purchasers to backstop
the Rights Offering, which Agreement shall be in a form consistent with the Term Sheet and
otherwise on terms and conditions reasonably acceptable to Bally and the Backstop
Purchasers.

 

 

Exhibit A

List of Consenting Senior and Subordinated Noteholders

 

 

Exhibit B

Term Sheet

 

 

Summary of Terms and Conditions of Proposed Restructure

Bally Total Fitness

This Summary of Terms and Conditions of Proposed Restructure outlines the terms of a
potential prepackaged plan of reorganization (the “Plan”)1 for Bally Total
Fitness Holding Corporation (“Bally” or the “Company”) and those subsidiaries
that have guaranteed or are otherwise liable on the Senior Notes (as defined below) (such
subsidiaries, together with Bally, the “Bally Debtors”). The classes of securities that
would be affected by the restructuring (the “Restructuring Transaction”) include the
101/2% Senior Notes due 2011 (the “Senior Notes”) and the 97/8% Senior Subordinated Notes
due 2007 (the “Existing Subordinated Notes,” and together with the Senior Notes, the
“Notes”) and the Company’s common stock. Claims of certain creditors arising from the
rejection of specified executory contracts and unexpired leases would also be affected by the
Restructuring Transaction. This Summary of Terms and Conditions of Proposed Restructure does
not purport to set forth all the terms, conditions, representations, warranties and other
provisions with respect to the transactions referred to herein. This Summary of Terms and
Conditions of Proposed Restructure supersedes any proposed summary of terms or conditions
regarding the subject matter hereof and dated prior to the date hereof.

The table below summarizes the proposed treatment of the Claims and Interests that will be
impaired under the Plan.

	 	 	 
	Description of	 	 
	Claims or Interests:	 	Summary of Proposed Treatment in the Plan
	 
	 	 
	Class 1: Senior
Notes

	 	•   Impaired.

	 
	 	 
	 

	 	•   Class 1 consists of all Senior Notes. Votes from holders of
these notes will be solicited prepetition in accordance with applicable
non-bankruptcy law. It will be a condition to filing the chapter 11
cases of the Bally Debtors (collectively, the “Case”) that sufficient
consents are obtained from the holders of Senior Notes to render this
class a consenting class.

	 
	 	 
	 

	 	•   Interest Rate: 123/8% commencing July 16, 2007 on the
$247,337,500 principal amount outstanding on the Plan Effective Date
(as defined below); provided, that, if the December 31, 2007 audited
financials (including 10-K equivalent, but excluding Sarbanes-Oxley
requirements) are not available by April 15, 2008, the rate will
increase to 153/8% until the first to occur of delivery of such audited
financials or acceleration of the Senior Notes.

	 
	 	 
	 

	 	•   Maturity date: Unchanged

	 
	 	 
	 

	 	•   Guaranties: Unchanged

	 
	 	 
	 

	 	•   Collateral: “Silent” second lien on all assets securing the
post-Plan Effective Date credit facility.

	 
	 	 
	 

	 	•   Amendment Fee: An amendment fee of 2% of the principal amount
of the Senior Notes will be paid to all holders of Senior Notes on the
effective date of the Plan (the “Plan Effective Date”) as consideration
for the modifications to the Senior Note Indenture described below.

 

			
	1	 	The Company reserves the right to implement
the plan of reorganization through a pre-negotiated, instead of a prepackaged,
Plan, in which case conforming changes will be made to the following terms and
mechanics.

 

 

	 	 	 
	 

	 	•   Waiver/Amendments: The Senior Note Indenture will be amended
and restated or otherwise modified to (i) waive the following
defaults: (a) defaults arising from the failure to file the Form 10-K for the
year ended December 31, 2006 and any other failures to file financial
statements or SEC reports due prior to the Plan Effective Date, (b)
cross defaults to defaults under the senior secured credit agreement
and other agreements of the Bally Debtors, (c) cross defaults to
defaults under the Existing Subordinated Notes, including, without
limitation, defaults for failure to pay the interest on the Existing
Subordinated Notes, (d) defaults arising from the prospective failure
to make the interest payment on the Senior Notes due on July 15, 2007,
(e) defaults arising from the filing of the bankruptcy case and the
transactions contemplated hereby; (ii) waive the Change of Control put
option resulting from the change of control caused by the Plan, add
“Permitted Holders” exception to, and delete clause (ii) of, the
definition of Change of Control; (iii) eliminate the requirement that
the Company provide public reporting statements. The Company shall be
required to provide after the Plan Effective Date, within the time
periods specified in the SEC’s rules and regulations, all current,
quarterly unaudited and annual audited financial information that would
be required to be contained in a filing with the SEC on Forms 8-K,
10-Q, and 10-K if the Company were required to file such Forms,
including MD&A and footnotes (including 10-K equivalent, but excluding
Sarbanes-Oxley requirements) and also all 8-K reportable events on a
restricted website to beneficial owners of Senior Notes and prospective
purchasers of Senior Notes who certify that they are (a) considering
the acquisition of Senior Notes as an investment, (b) in the business
of buying securities such as the Senior Notes, and (c) not competitors
of the Company. In addition, the Company will be required to hold
quarterly financial calls; (iv) provide that the failure of the Company
to make available December 31, 2007 audited financials (including 10-K
equivalent, but excluding Sarbanes-Oxley requirements) by June 30,
2008, will be an Event of Default; (v) provide that events of default
under any other agreements will not trigger cross-defaults under the
revised Senior Note Indenture until the expiration of any applicable
grace or cure period in such other agreements; (vi) increase the
permitted debt basket for the senior credit facility and the
securitization facility (i.e., clause (i) of the Permitted Indebtedness
definition of the Senior Notes) to $292 million (with a permanent
reduction for any asset sales after June 15, 2007 if proceeds are used
to pay down indebtedness permitted in clause (i) of the Permitted
Indebtedness definition and not redeployed to buy replacement assets as
provided in Section 10.12 within 360 days of date of sale, and increase
the debt basket for purchase money secured indebtedness and capitalized
leases (i.e., clause (vi) of the Permitted Indebtedness definition of
the Senior Notes) to $100 million (with a $50 million capitalized lease
sublimit); (vii) to eliminate replacement refinancing (but not other
types of “refinancings”) under clause (x) of the Permitted Indebtedness
definition; (viii) waive any right to require a prepayment of the
Senior Notes from the proceeds of the Rights Offering (as defined
below); (ix) amend the definition of Permitted Indebtedness to permit
the issuance

 

 

	 	 	 
	 

	 	of New Senior Subordinated Notes (as defined below) and
the New Subordinated Notes (as defined below) described in this Term
Sheet, and PIK issuances with respect thereto, and the issuance of
incremental New Senior Subordinated Notes for cash at not less than par
in an initial principal amount not to exceed $90 million, and PIK
issuances with respect thereto, and to permit the “refinancings” (as
defined in the Senior Note Indenture) of all of the foregoing (subject
to the limitations set forth in clause (vii) above and clause (xiii)
below); (x) permit the holders of the Existing Subordinated Notes to
receive and retain the New Subordinated Notes, the right to participate
in the Rights Offering and other property to be received by them in the
Plan (as defined below); (xi) amend the optional redemption schedule to
permit a redemption prior to July 15, 2008 at a T+50 make whole premium
(including all interest due and payable through July 15, 2008) based
upon a redemption on July 15, 2008 at 106.25%; and thereafter optional
redemption at 106.25% until July 14, 2009; at 102.50% until July 14,
2010; and at 100% after July 14, 2010; (xii) provide that the new
principal amount of the outstanding Senior Notes will be $247,337,500
on the Plan Effective Date, with the increase distributed pro rata to
the holders of the Senior Notes on the Plan Effective Date; (xiii)
amend the Restricted Payments provisions of Section 10.9(b) to place an
additional limitation on the refinancing of the New Senior Subordinated
Notes and the New Subordinated Notes such that the refinancing
indebtedness would have cash interest payment provisions no more
favorable to the holders thereof than the comparable provisions in the
indentures governing the New Senior Subordinated Notes and the New
Subordinated Notes; and (xiv) otherwise permit the consummation of all
transactions contemplated by the Plan (including rescission of any
acceleration of the Senior Notes caused by the commencement of the Case
or otherwise).
	 
	 	 
	 

	 	•   Private Debt. It is contemplated that there would be fewer
than 400 holders of each class of the Company’s securities, so that the
Company would not be subject to the reporting requirements of the 34
Act. The assignment provisions in the Senior Notes and in the
Indenture governing the Senior Notes will be amended to effectuate this
400 holder limitation.

	 
	 	 
	Class 1B:
Subsidiary
Lease/Executory
Contract Rejection
Claims

	 	•   Impaired.

	 
	 	 
	 

	 	•   Class 1B consists of unsecured claims arising from the
rejection of leases or executory contracts of the Company’s
subsidiaries that are rejected with the consent of the holders of the
majority in principal amount of the Existing Subordinated Notes held by
the Backstop Providers (as defined below). The allowed amount of any
Class 1B claims (subject to limitations imposed by Section 502(b)(6) of
the Bankruptcy Code), will be treated in a manner to be determined by
the Company with the consent of the holders of the majority in
principal amount of the Existing Subordinated Notes held by the
Backstop Providers. Votes of this Class will not be solicited; hence,
this Class will be deemed to reject the Plan, and the Plan will be
confirmed pursuant to Section 1129(b) of the Bankruptcy Code as to this
Class.

 

 

	 	 	 
	Class 2A: Existing
Subordinated Notes
held by Backstop
Providers:

	 	•   Impaired.

	 
	 	 
	 

	 	•   Class 2A consists of all Existing Subordinated Notes held by
the Backstop Providers.2 Votes from the holders of Class 2A
claims will be solicited pre-petition pursuant to the Plan and the
Consent Solicitation Materials (as defined below). It will be a
condition to the filing of the Case and the effectiveness of the Plan
that this Class votes as a class to accept the Plan. These holders
will also be solicited pre-petition to subscribe to the Rights Offering
(as defined below), which will be offered in the Consent Solicitation
Materials.

	 
	 	 
	 

	 	•   Backstop Providers will receive, in exchange for 100% of their
Existing Subordinated Notes, (i) New Subordinated Notes, (ii) New
Common Stock (as defined below), and (iii) rights to participate in the
Rights Offering, each with the following terms:

	 
	 	 
	 

	 	New Subordinated Notes:
	 
	 	 
	 

	 	New subordinated notes (the “New Subordinated Notes”) in the aggregate
principal amount of $150 million (50% of the principal amount of the
Existing Subordinated Notes), plus an incremental amount for Class 2C
allowed claims, will be issued to holders of claims in Classes 2A, 2B
and 2C. The New Subordinated Notes3 will have the following
terms:
	 
	 	 
	 

	 	•   Principal Amount: $150 million (50% of original principal
amount of the Existing Subordinated Notes) plus an incremental amount
for Class 2C allowed claims.

	 
	 	 
	 

	 	•   Maturity date: 5 years, 9 months from Plan Effective Date.

	 
	 	 
	 

	 	•   Interest Rate: 135/8% PIK, payable annually. The PIK will be
tied to a toggle covenant of LTM $200 million cash EBITDA and $75
million minimum liquidity, on a pro forma basis after giving effect to
the proposed payment of interest on the New Subordinated Notes and the
New Senior Subordinated Notes. Whether interest may be paid in cash
will be in the sole discretion of the Company, subject to satisfaction
of the toggle covenant described above. If the interest is paid in
cash, the rate shall be 12% on the portion paid in cash.

	 
	 	 
	 

	 	•   Covenants: Usual and customary for subordinated bonds in
transactions of this type. These covenants (including the debt
baskets) would be consistent with the revised covenants under the
Senior Note Indenture. The subordination provisions, including the
equivalent of Article XIII and the defined terms used therein, will be
no less favorable to the Senior Note holders than the provisions in the
existing Senior Subordinated Indenture. In addition, the indentures
will expressly provide that such subordination provisions, including
the equivalent of Article XIII and the defined terms used therein, may
not be amended in a manner adverse to the holders of the Senior Notes.

 

			
	2	 	The Company reserves the right, subject to
the consent of the Backstop Providers in their sole discretion, to combine
Classes 2A and 2B for purposes of voting on the Plan.
	 
	3	 	These notes may be issued in two series,
which series will be identical in all respects, except that one series will be
subordinated to the other.

 

 

	 	 	 
	 

	 	•   Private Debt. It is contemplated that there would be fewer
than 400 record holders of each class of the Company’s securities, so
that the Company would not be subject to the reporting requirements of
the 34 Act. The assignment provisions in the New Subordinated Notes
and related Indenture will effectuate this 400 holder limitation.

	 
	 	 
	 

	 	New Common Stock
	 
	 	 
	 

	 	•   New common stock will be issued by the reorganized Company (the
“New Common Stock”) to holders of claims in Classes 2A, 2B and 2C.
Holders of claims in Classes 2A, 2B, and 2C will receive 100% of the
New Common Stock.

	 
	 	 
	 

	 	•   The New Common Stock will be subject to a Shareholders
Agreement containing terms that are usual and customary for private
companies, and will include a restriction limiting the number of
shareholders to less than 400. The Shareholders Agreement will govern
the composition of the board, which must be acceptable to the holders
of the New Common Stock. The Shareholders Agreement will include
customary transfer restrictions for the New Common Stock, which
restrictions shall be sufficient to avoid a post-Plan Effective Date
change of control within the meaning of Section 382 of the Internal
Revenue Code. All holders of the New Common Stock and their assignees
will be subject to the terms of the Shareholders Agreement, which shall
be effective on the Plan Effective Date.

	 
	 	 
	 

	 	Rights Offering
	 
	 	 
	 

	 	•   Non-detachable rights to purchase new senior subordinated notes
(the “New Senior Subordinated Notes”) at par from the reorganized
Company (the “Rights Offering”) will be issued to holders of claims in
Classes 2A, 2B and 2C.4 The aggregate principal amount of
notes to be sold will be $90 million, plus an incremental amount for
Class 2C allowed claims. The New Senior Subordinated Notes will rank
senior to the New Subordinated Notes, but will otherwise have the same
interest rate, terms and conditions as the New Subordinated Notes. The
Rights will be non-detachable, but would be subject to oversubscription
rights. TCP and one or more of the holders of the Existing
Subordinated Notes (collectively, the “Backstop Providers”) will agree
to backstop the portion of the Rights Offering made to Classes 2A and
2B in the amount of $90 million (the “Backstop”).

	 
	 	 
	Class 2B: Existing
Subordinated Notes
held by Non-Class 2A
Holders:

	 	•   Impaired.

	 
	 	 
	 

	 	•   Class 2B consists of all
Existing Subordinated Notes that
are not in Class 2A. Under the
Plan, the holders of Class 2B
claims will receive the same
treatment as holders of Class 2A
claims. The votes of this Class
will not be solicited pre- or
post filing; hence, this Class
will be deemed to reject the
Plan, and the Plan will be
confirmed pursuant to Section
1129(b) of the Bankruptcy Code
as to this Class.

 

			
	4	 	The Company reserves the right, subject to
the consent of the Backstop Providers in their sole discretion, to extend the
Rights Offering to Classes other than, or in addition to, Classes 2A, 2B, and
2C, provided, however, that such an extension shall have no
impact on the Backstop (as defined below) or the Backstop Providers’
commitment thereunder.

 

 

	 	 	 
	Class 2C: Other
General Unsecured
Claims against the
Company

	 	•   Impaired.

	 
	 	 
	 

	 	•   Class 2C consists of any
other general unsecured claims
against the Company (but not its
subsidiaries) that are not
guaranteed by, or secured by
assets of, its subsidiaries.
The allowed amount of any Class
2C claims (including, in the
case of lease rejection claims,
subject to limitations imposed
by Section 502(b)(6) of the
Bankruptcy Code), will receive
the same treatment given to
allowed claims in Class 2A and
Class 2B, e.g., New Subordinated
Notes, New Common Stock and the
right to participate in the
Rights Offering. Votes of this
Class will not be solicited;
hence, this Class will be deemed
to reject the Plan, and the Plan
will be confirmed pursuant to
Section 1129(b) of the
Bankruptcy Code as to this
Class.

	 
	 	 
	Class 3: Claims
Subordinated under
Section 510(b):

	 	•   Impaired.

	 
	 	 
	 

	 	•   Class 3 consists of any
securities law claims that are
subordinated pursuant to
Bankruptcy Code Section 510(b).
This class will not receive any
recovery, will not be solicited
and will be deemed to reject the
Plan. The Plan will be
confirmed pursuant to Section
1129(b) of the Bankruptcy Code
as to this Class.

	 
	 	 
	Class 4: Equity
Interests

	 	•   Impaired.

	 
	 	 
	 

	 	•   Class 4 consists of all
common stock, options and
warrants issued by the Company.
This class will not receive any
recovery, will not be solicited
and will be deemed to reject the
Plan. The Plan will be
confirmed pursuant to Section
1129(b) of the Bankruptcy Code
as to this Class.

Mechanics of the Restructuring Transactions

     The Plan would be implemented as follows:

          The Company will prepare and distribute the consent solicitation documents (the “Consent
Solicitation Materials”) containing the documents (or term sheets therefor) related to the Plan
to the holders of Senior Notes in Class 1 and holders of Existing Subordinated Notes in Class 2A,
with the effectiveness being conditioned upon the approval of at least 662/3% of the principal amount
of Senior Notes and more than 50% of the number of holders of the Senior Notes and 662/3% of the
principal amount of Existing Subordinated Notes in Class 2A and more than 50% of the number of
holders of the Existing Subordinated Notes in Class 2A. The Consent Solicitation Materials will be
in a form that satisfies the requirements of Bankruptcy Code Sections 1125 and 1126(b).

          The Backstop Providers will enter into a backstop agreement (the “Backstop Agreement”)
with the Company, which Backstop Agreement shall have usual and customary terms and provisions,
under which the Backstop Providers will agree to the Backstop. The Backstop Agreement will include
(i) provisions governing interim operations of the Company, (ii) restrictions on adoption or
amendment of executive compensation programs, (iii) restrictions on changes to the bank financing
agreements, (iv) a covenant that the Company and the other Bally Debtors operate in the ordinary
course of business, (v) termination rights exercisable by the holders of a majority in principal
amount of the Existing Subordinated Notes held by the

 

 

Backstop Providers, including termination events triggered by the entry into (x) new
consulting agreements or executive employment agreements (including with a CEO) that individually
exceeds $35,000 per month, and (y) new contracts or operating agreements with a term of one year or
longer that are not terminable without penalty on less than 90 days notice or with payments by the
Company that individually exceed $1,000,000 over the term of such contract or agreement, or that
exceed in the aggregate $5,000,000 over the terms of all such contracts and agreements that
individually exceed $500,000 over their respective terms, in the case of each of clause (x) and (y)
other than renewals, extensions or other modifications of any existing contracts or operating
agreements entered into in the ordinary course of business (but excluding material increases in the
amounts payable thereunder), (vi) a requirement that the Company maintain the employment of the
present COO or a replacement COO approved in advance by the Backstop Providers, (vii) a requirement
to pursue the solicitation and the Plan in lieu of other restructuring alternatives (subject to a
standard fiduciary duty limitation, which shall allow the Company to solicit, consider and
consummate better offers), (viii) a prohibition on adoption of a KERP or incentive program (or
making changes to a program previously adopted), other than any KERP or incentive program that is
in effect on the effective date of the Backstop Agreement (the “Senior Executive Bonus
Plan”) in the form disclosed to the Backstop Providers, and (ix) a timetable for the consent
solicitation process and Plan Effective Date, which Plan Effective Date shall be not later than the
60th day after the Petition Date. The Bally Debtors shall be obligated to promptly
deliver to the Backstop Providers all written communications delivered to or received by the
Company or its advisors making or materially modifying any alternative offers, including, without
limitation, copies of all expressions of interest, term sheets, letters of interest, offers,
proposed agreements or otherwise, and shall regularly update (not less than once every week) the
Backstop Providers concerning such matters. Any of the foregoing restrictions contained in the
Backstop Agreement may be waived or modified with the prior written consent of the holders of a
majority in principal amount of the Existing Subordinated Notes held by the Backstop Providers.
Any breach under the Backstop Agreement shall not entitle the non-breaching party(ies) to terminate
the Backstop Agreement unless the breaching party(ies) fails to cure such breach within 5 business
days after delivery of a default notice by the non-breaching party(ies) to the breaching
party(ies), or if the Case is pending and the breaching party(ies) is a debtor(s), within 5
business days after the filing of a motion for relief from the automatic stay by the non-breaching
party(ies) to permit the delivery of such default notice (in which case the Backstop Agreement
shall automatically terminate on the fifth business day unless such default is cured or waived in
writing by holders of a majority in principal amount of the Existing Subordinated Notes held by the
Backstop Providers). As consideration, the Backstop Providers will be entitled to a fee (the
“Backstop Fee”) in the amount of 4.0% of the maximum principal amount of the Backstop,
which will be deemed earned upon execution and delivery of the Backstop Agreement; provided
that no Backstop Fee shall be payable to any Backstop Provider that is in material default under
its obligations under the Backstop Agreement or the Lock-Up Agreement at the time the Backstop Fee
is due. The Backstop Fee shall be paid subject to the rebate provisions described in this
paragraph, upon the earlier of the Plan Effective Date or the termination or rejection of the
Backstop Agreement. The B
ackstop Agreement shall be guarantied by the Company’s subsidiaries,
which guarantee shall be effective immediately, pre-filing, upon the execution of definitive
documents. The Backstop Providers will agree to subscribe to their pro rata share of $90 million
of the New Senior Subordinated Notes. If the Plan is consummated, the Backstop Providers will
rebate to the Company the share of the Backstop Fee charged on the New Senior Subordinated Notes
that they subscribe to, other than New Senior Subordinated Notes purchased by exercise of
oversubscription rights. The Company shall agree in the Backstop Agreement to comply with its
obligations under the Lock-Up Agreement. If the Lock-Up Agreement is terminated, the Backstop
shall automatically terminate, the Backstop Fee shall automatically become due and payable (subject
to the limitations set forth above). If the Plan Effective Date has not occurred by the
60th day after the Petition Date (such date being referred to herein as the
“Backstop Termination Date”), the Backstop shall automatically terminate, the Backstop Fee
shall automatically become due and payable and the Company’s obligations under the Lock-Up
Agreement to pursue confirmation of the Plan shall terminate; provided, however, that
Backstop Providers holding a majority of the Existing Subordinated Notes shall have the right in
their sole discretion to extend the Backstop Termination Date (such new date referred to as the
“New

 

 

Backstop Termination Date”) and the Company shall remain obligated under, and subject
to the provisions of, the Lock-Up Agreement to pursue confirmation and effectiveness of the Plan
through the New Backstop Termination Date (as the same may be thereafter extended by Backstop
Providers holding a majority of the Existing Subordinated Notes), and, if a New Backstop
Termination Date is established, the Backstop Fee shall not become due until the earliest of the
Plan Effective Date, the termination or rejection of the Backstop Agreement or the New Backstop
Termination Date. If the Backstop Fee is earned and becomes payable, but the Plan is never
consummated, the fee shall be paid in cash as an administrative expense under section 503 of the
Bankruptcy Code.

          The solicitation will commence not later than June 30, 2007, and will remain open long enough
to obtain the requisite amount of consents, but in any event not less than the time required by
federal securities law.

          After obtaining the requisite consents from the holders of the Class 1 Claims and the holders
of Class 2A claims, the Company and the other Bally Debtors will file petitions commencing the Case
along with the Plan. The expected filing date is no later than July 14, 2007.

          On the Petition Date, the Company will file with the Court the Consent Solicitation Materials,
and request an order finding that the Consent Solicitation Materials complied with Bankruptcy Code
Sections 1125(g) and 1126(b) as to Classes 1 and 2A and contain “adequate information” as defined
in Bankruptcy Code Section 1125(a) for purposes of extending the Rights Offering contained therein
to the holders of claims in Classes 2B and 2C, and that the securities to be issued thereunder
without registration under the Securities Act of 1933 in reliance on Bankruptcy Code Section 1145.
It is expected that the hearing on the adequacy of the Consent Solicitation Materials and
confirmation of the Plan will be combined, pursuant to Bankruptcy Code Section 105 (d)(2)(vi).

          Confirmation of the Plan will be requested without soliciting the votes of the holders of
claims in Classes 2B or 2C or the common stockholders. The Plan will deem the holders of claims in
Classes 2B or 2C and common stock holders as having rejected the Plan.

          After the Petition Date, and following Court approval of the adequacy of the Consent
Solicitation Materials or authorization for commencement of such solicitation, the members of Class
2B and Class 2C will be given the opportunity to elect to participate in the Rights Offering.
Members of Class 2C will be given the right to participate in the Rights Offering after their
claims become allowed. Rights that are not exercised will be subject to oversubscription rights by
other members of Classes 2A, 2B and 2C. Rights Offering Subscriptions from holders of Class 2A
that were solicited pre-petition will be due by the prepetition voting deadline for Classes 1 and
2A, and payments under such subscriptions shall be due on the Plan Effective Date. Holders of
claims in Classes 2B and 2C that are solicited after Court approval of the Consent Solicitation
Materials will have 20 business days to elect to subscribe to the Rights Offering, and such
subscriptions will be due promptly thereafter. The Rights Offering will not be registered and will
rely on Bankruptcy Code Section 1145. The obligations of the Back Stop Providers under the
Backstop Agreement and the obligations of the subscribers under the Rights Offering will also be
subject to the condition that the Company does not breach the Lock-up Agreement (as defined below)
and the Lock-Up Agreement is not terminated.

          The Consent Solicitation Materials will recite that before the Petition Date the Company
entered into the Senior Executive Bonus Plan. The Consent Solicitation Materials and the Lock-Up
Agreement (as defined below) will provide that the reorganized Company shall assume the Senior
Executive Bonus Plan (but not any other or additional executive compensation program ) as part of
the Plan.

 

 

          The Company will enter into a lock up agreement (the “Lock-Up Agreement”) with the
Backstop Providers and certain holders of the Senior Notes (collectively, the “Lock-Up Note
Holders”). The Lock-Up Agreement will contain usual and customary provisions for agreements of
this kind.

          The Company will enter into an agreement with the senior secured lenders on the terms of use
of cash collateral during the Chapter 11 case, which terms shall be in form and substance
reasonably acceptable to each Backstop Provider and each Lock-Up Note Holder. In addition, the
terms of any DIP financing obtained by the Company shall be in form and substance reasonably
acceptable to each Backstop Provider and each Lock-Up Note Holder, in each instance, as provided in
the Lock-Up Agreement.

          The Plan will contain customary releases (including releases from creditors and other parties
in interest) and other exculpatory provisions in favor of the Company and its present affiliates,
and the Creditors’ Committee (and the ad hoc bondholders committee) and their respective
professionals and other appropriate persons and entities.

          It shall be a condition to effectiveness of the Plan that the Company shall have filed with
the SEC its Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

          This Summary of Terms and Conditions of Proposed Restructure does not constitute (a) an offer
for the purchase, sale, exchange, hypothecation, or other transfer of securities for purposes of
the Securities Act of 1933 and the Securities Exchange Act of 1934, or (b) a solicitation of votes
on a chapter 11 plan of reorganization for purposes of the Bankruptcy Code.

 

 

Exhibit C

Assumption Agreement

 

          Reference is hereby made to that certain Restructuring Support Agreement (as such agreement
may be amended, modified or supplemented from time to time, the “Restructuring Support
Agreement”) among Bally Total Fitness Holding Corporation, the Bally Subsidiaries and the
noteholders party thereto. Capitalized terms not otherwise defined herein shall have the meaning
ascribed to such terms in the Restructuring Support Agreement. As a condition precedent to
becoming the beneficial holder or owner of [          ] dollars ($          ) in [     ] Notes (as
defined in the Restructuring Support Agreement), the undersigned                                (the
“Transferee”), hereby agrees to become bound by the terms, conditions and obligations set
forth in the Restructuring Support Agreement. This Assumption Agreement shall take effect and
shall become an integral part of the Restructuring Support Agreement immediately upon its execution
and the Transferee shall be deemed to be bound by all of the terms, conditions and obligations of
the Restructuring Support Agreement as of the date thereof.

          IN WITNESS WHEREOF, the ASSUMPTION AGREEMENT has been duly executed by each of the undersigned
as of the date specified below.

     Date:                     , 200[_]

	 	 	 
	                                                                          

	 	                                                                          
	Name of Transferor

	 	Name of Transferee
	 
	 	 
	                                                                          

	 	                                                                          
	Authorized Signatory of Transferor

	 	Authorized Signatory of Transferee
	 
	 	 
	                                                                          

	 	                                                                          
	(Type or Print Name and Title of
Authorized Signatory)

	 	(Type or Print Name and Title of Authorized Signatory)
	 
	 	 
	 

	 	Address of Plan Support Party:
	 
	 	 
	 

	 	                                                                          
	 
	 	 
	 

	 	                                                                          
	 
	 	 
	 

	 	                                                                          
	 
	 	 
	 

	 	Attn:                                                                 
	 
	 	 
	 

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Exhibit D

List of Subsidiary Guarantors 

BALLY FITNESS FRANCHISING, INC.

BALLY FRANCHISE RSC, INC.

BALLY FRANCHISING HOLDINGS, INC.

BALLY TOTAL FITNESS CORPORATION

BALLY TOTAL FITNESS HOLDING CORPORATION

BALLY TOTAL FITNESS INTERNATIONAL, INC.

BALLY TOTAL FITNESS OF MISSOURI, INC.

BALLY TOTAL FITNESS OF TOLEDO, INC.

BALLY REFS WEST HARTFORD, LLC

BALLY TOTAL FITNESS OF CONNECTICUT COAST, INC.

BALLY TOTAL FITNESS OF CONNECTICUT VALLEY, INC.

GREATER PHILLY NO. 1 HOLDING COMPANY

GREATER PHILLY NO. 2 HOLDING COMPANY

HEALTH & TENNIS CORPORATION OF NEW YORK

HOLIDAY HEALTH CLUBS OF THE EAST COAST, INC.

BALLY TOTAL FITNESS OF UPSTATE NEW YORK, INC.

BALLY TOTAL FITNESS OF COLORADO, INC.

BALLY TOTAL FITNESS OF THE SOUTHEAST, INC.

HOLIDAY/ SOUTHEAST HOLDING CORP.

BALLY TOTAL FITNESS OF CALIFORNIA, INC.

BALLY TOTAL FITNESS OF THE MID-ATLANTIC, INC.

BTF/CFI, INC.

BALLY TOTAL FITNESS OF GREATER NEW YORK, INC.

JACK LA LANNE HOLDING CORP.

BALLY SPORTS CLUBS, INC.

NEW FITNESS HOLDING CO., INC.

NYCON HOLDING CO., INC.

BALLY TOTAL FITNESS OF PHILADELPHIA, INC.

BALLY TOTAL FITNESS OF RHODE ISLAND, INC.

RHODE ISLAND HOLDING COMPANY

BALLY TOTAL FITNESS OF THE MIDWEST, INC.

BALLY TOTAL FITNESS OF MINNESOTA, INC.

TIDELANDS HOLIDAY HEALTH CLUBS, INC.

U.S. HEALTH, INC.

BALLY TOTAL FITNESS FRANCHISING, INC.exv10w1

 

CONFIDENTIAL SETTLEMENT AGREEMENT AND MUTUAL GENERAL RELEASE

     This Confidential Settlement Agreement and Mutual General Release is made and entered into on
this 13th day of June 2007 (the “Effective Date”), by and between James A. McDonald, on behalf of
himself, his heirs, executors, administrators, successors and/or assigns (hereinafter collectively
referred to as “MCDONALD”), and Bally Total Fitness Holding Corporation, on behalf of itself, its
subsidiaries, affiliates, predecessors, insurers, attorneys, successors, assigns, and their
directors, officers, employees, and agents (hereinafter collectively referred to as the “COMPANY”
or “BALLY”).

     WHEREAS, MCDONALD has been employed by the COMPANY under the title of Senior Vice President
and Chief Marketing Officer of BALLY since May 2, 2005; and

     WHEREAS, MCDONALD and the COMPANY entered into an Employment Agreement dated May 2, 2005 (the
“Employment Agreement”) (attached hereto as Exhibit A); and

     WHEREAS, the COMPANY seeks to terminate MCDONALD’s employment, and the COMPANY and MCDONALD
have agreed that MCDONALD’S employment with the COMPANY shall terminate on June 29, 2007 (the
“Termination Date”);

     NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, it is
agreed as follows:

Employment Status

     1. MCDONALD shall cease to be required to work from the COMPANY’s offices on the date hereof,
but, through the Termination Date, shall remain (i) an employee of the COMPANY and available for
telephone calls, meetings and all transitional issues and (ii) compensated on the COMPANY’s regular
payroll.

 

 

Payments and Benefits to MCDONALD

     2. The COMPANY shall pay MCDONALD two payments equal to $262,500 each, in severance, less
required deductions for state and federal withholding. The first payment shall be paid on the date
hereof and the second payment shall be paid on the Termination Date provided this Agreement is not
revoked in accordance with the provisions of Paragraph 31 below.

     3. Upon execution of this Agreement, MCDONALD shall immediately vest in 55,000 shares of
restricted stock previously granted to him on November 29, 2005. Notwithstanding any provision to
the contrary in any other agreement governing such shares of restricted stock, MCDONALD may only
sell shares of the restricted stock which have become vested with the permission of Marc Bassewitz,
the COMPANY’s Senior Vice President, Secretary and General Counsel, which permission shall not be
unreasonably withheld.

     4. The COMPANY shall provide a monthly payment, on the first payroll date of each month but
not beginning until the first payroll date next following the expiration of the revocation period
of the release (as described in Paragraph 31 below), equal to the premium cost that the COMPANY
would incur during that month to maintain medical coverage for MCDONALD and his eligible
dependents, on substantially the same terms as the coverage that existed immediately prior to
MCDONALD’s Termination Date, as the same may be changed from time to time for employees generally,
for a period of 18 months or until the date on which MCDONALD is eligible for coverage under a plan
maintained by a new employer (including self-employment but excluding where MCDONALD would be
required to pay for or bear the full cost of the coverage), whichever is sooner, less the amount
that MCDONALD would be required to contribute for medical coverage, if any, if MCDONALD were an
active employee of

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the COMPANY. MCDONALD shall notify the COMPANY within five (5) business days of the date
MCDONALD is eligible to receive benefits under the medical plan of a new employer (including
self-employment). The COBRA health care continuation coverage period under section 4980B of the
Internal Revenue Code of 1986, as amended (the “Code”), shall run concurrently with the foregoing
eighteen-month period.

     5. On each date on which a payment is made under Paragraph 4 above, the COMPANY will pay
MCDONALD an additional tax gross-up amount equal to the federal, state and local income and payroll
taxes that MCDONALD incurs on the amount paid under Paragraph 4 and on the amount paid under this
Paragraph 5, on that date. This gross up payment will be made with respect to each payment under
Paragraph 4, and will cease when payments under Paragraph 4 cease.

     6. The COMPANY shall reimburse MCDONALD for the cost to store his household goods currently in
storage for a period not to exceed six (6) months following the Termination Date. In addition,
Bally shall reimburse MCDONALD for the cost of having such household goods moved to a new location.
Reimbursement payments shall be made to MCDONALD within two (2) weeks of the receipt of written
documentation supporting the charge.

     7. All reimbursements and in kind benefits, if any, provided under this Agreement shall be
made or provided in accordance with the requirements of section 409A of the Code, including, where
applicable, the requirement that (i) the amount of expenses eligible for reimbursement, or in kind
benefits provided, during a fiscal year may not affect the expenses eligible for reimbursement, or
in kind benefits to be provided, in any other fiscal year, (ii) the reimbursement of an eligible
expense will be made on or before the last day of the fiscal year

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following the year in which the expense is incurred, and (iii) the right to reimbursement or
in kind benefits is not subject to liquidation or exchange for another benefit.

     8. The COMPANY shall provide life insurance coverage to MCDONALD to the same extent and under
the same terms as provided in Section 4(i) of the Employment Agreement for a period of eighteen
(18) months following the Termination Date.

     9. Contemporaneous with the execution hereof, the COMPANY shall pay MCDONALD the sum of
$9,000.00 for his attorneys’ fees incurred in connection with the review, negotiation and
preparation of this Agreement.

Release to the COMPANY

     10. In exchange for the consideration provided pursuant to this Agreement, and expressly
excluding their obligations under this Agreement, MCDONALD and the COMPANY each hereby release the
other from any and all claims or causes of action arising out of or relating in any way to
MCDONALD’S employment with the COMPANY and/or the termination of that employment. The claims
released include, but are not limited to: (a) the Illinois Revised Statutes, the Illinois Human
Rights Act, Illinois Public Act, Title VII of the Civil Rights Act of 1964, the Age Discrimination
in Employment Act, the Americans with Disabilities Act, the Rehabilitation Act, the Employee
Retirement Income Security Act, the Uniformed Services Employment and Reemployment Rights Act of
1994, the Sarbanes-Oxley Act of 2002, and the Family and Medical Leave Act; (b) all claims arising
under the United States or Illinois Constitutions, or any Executive Order, or derived from or based
upon any federal or state regulations; (c) all common law claims including claims for wrongful
discharge, violation of public policy, breach of an express or implied contract, breach of an
implied covenant of good faith and fair dealing, negligent or intentional infliction of emotional
distress, defamation,

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conspiracy, tortuous interference with contract or prospective economic advantage, promissory
estoppel, equitable estoppel, fraud, misrepresentations, detrimental reliance, retaliation, and
negligence; (d) all claims for any compensation including back wages, front pay, bonuses or awards,
commissions, fringe benefits, car allowance, car expenses, disability benefits, severance benefits,
reinstatements, retroactive seniority, pension benefits, profit-sharing, contributions to 401(k)
plans, or any other form of economic loss; (e) all claims for personal injury, including physical
injury, mental anguish, emotional distress, pain and suffering, embarrassment, humiliation, damage
to name or reputation, interest, liquidated damages, and punitive damages; and (f) all claims for
costs and attorneys’ fees.

     Notwithstanding the foregoing, nothing in this Paragraph 8 is intended, nor shall be
construed, to release any future claims arising after the date of execution of this Agreement or to
limit any existing right or vested benefits which MCDONALD may possess in accordance with the terms
of any of the COMPANY’s welfare benefit plans or pension plans in which MCDONALD is a participant.

     MCDONALD further represents that he will not provide information concerning the COMPANY or his
employment at the COMPANY to any person involved in any threatened or actual claims against the
COMPANY except pursuant to a lawful subpoena. Further, except concerning any Securities and
Exchange Commission or Department of Justice proceeding, MCDONALD will not testify in any
proceedings or participate in any manner in proceedings against the COMPANY absent a lawful
subpoena and will not testify concerning the terms of this Agreement, including the negotiations
leading up to this Agreement, absent a lawful subpoena or a court order compelling such testimony,
or permission from the Company (which shall not be unreasonably withheld). MCDONALD further agrees
to notify the COMPANY,

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through Bally’s Senior Vice President, Secretary and General Counsel, that he is served with any
subpoena relating to his employment at the COMPANY.

Restrictive Covenants

     11. MCDONALD reaffirms that the restrictive covenants contained in Section 5 of the Employment
Agreement are incorporated in this Agreement and shall continue to apply to MCDONALD after the
Termination Date in accordance with the terms of the Employment Agreement.

No Other Charges or Complaints

     12. The COMPANY represents that as of the Effective Date it has no knowledge of any grounds on
which to file any complaint, charge or lawsuit against MCDONALD with any government agency or any
court, and that it has not filed any complaint, charge or lawsuit against MCDONALD with any
government agency or any court. The COMPANY further represents that it will not do so at any time
hereafter in connection with any known claims based on any event preceding the execution of this
Agreement, including any claim related to MCDONALD’s employment, termination or association with
the COMPANY.

Indemnification

     13. The Company agrees to indemnify MCDONALD to the same extent as MCDONALD is currently
eligible to be indemnified under the bylaws and charter of the COMPANY, as in effect on the date
hereof and without regard to any subsequent changes. Copies of the relevant provisions of the
by-laws and charter of the COMPANY as in effect on the date hereof are attached hereto as Exhibit
A.

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Non-Disparagement

     14. MCDONALD agrees not to make any statements to, or engage in any conduct in the presence
of: (i) any media (broadcast, print or internet); (ii) any current or former employees of the
COMPANY; or (iii) any current, former or prospective COMPANY customer, business associate, vendor,
consultant, financial institution, accountant, investor, shareholder, bondholder, investment banker
or any other person or entity, if such statement or conduct may reasonably be expected to have the
effect of disparaging the COMPANY or its current or former directors, officers or employees.
Notwithstanding the foregoing, nothing in this Paragraph shall prohibit MCDONALD from making
truthful statements when required by subpoena or order of a court or other governmental body having
jurisdiction.

     15. The COMPANY further agrees that no officer or director shall make any statement or engage
in any conduct in the presence of any third party, if such conduct may reasonably be expected to
have the effect of disparaging MCDONALD. Notwithstanding the foregoing, nothing in this Paragraph
shall prohibit the COMPANY from making any truthful statements when required by order of a court or
other governmental body having jurisdiction.

Non-Admission of Liability

     16. This Settlement Agreement and General Release shall not constitute and shall not be
considered an admission or acknowledgment of any wrongdoing or liability by MCDONALD and/or the
COMPANY, the same being expressly denied.

Non Disclosure

     17. Unless the COMPANY publicly discloses the terms of this Agreement, MCDONALD agrees that
the existence, terms and content of this General Release and Settlement Agreement shall be and
remain confidential and shall not be disclosed to any other

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person, corporation or organization, except: (i) members of MCDONALD’s immediate family, and
MCDONALD’s accountant(s), financial advisor(s) and attorney(s) (all of whom shall be directed to
refrain from disclosing the existence, terms and content of this Agreement); (ii) the Internal
Revenue Service and/or applicable state agency, and any applicable courts or administrative
agencies as necessary in connection with tax returns, tax audits or other requests for information
from such agencies; or (iii) as required by law or the rules and regulations of the Securities and
Exchange Commission in connection with that agency’s inquiries into actions by the COMPANY or
MCDONALD other than as permitted by this Paragraph 17. MCDONALD shall be liable for any breach to
the extent of any damages proven and/or sustained by BALLY, and BALLY further shall be entitled to
injunctive relief based on any breach of this provision, it being understood and agreed that the
COMPANY may seek to proceed to expedited arbitration based on an alleged breach of this provision.

No Other Consideration

     18. MCDONALD and the COMPANY agree that the only consideration they have received for
executing this Agreement is the consideration set forth herein; that no promise, inducement,
threat, agreement or understanding of any kind or description has been made with them or to them or
their attorneys to cause them to enter into this Agreement other than as expressly set forth
herein; and that they neither are entitled to nor will seek any further or additional
consideration.

Breach and/or Enforcement of Agreement

     19. Any disputes relating to enforcement and/or breach of this Agreement shall be resolved
through binding arbitration held in Chicago, Illinois, in accordance with the rules of the

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American Arbitration Association and the prevailing party shall be entitled to costs and
reasonable attorneys’ fees based on the action.

Cooperation

     20. MCDONALD will assist and cooperate with the COMPANY in connection with the defense or
prosecution of any claims 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, judicial, legislative, or other body or agency,
including testifying in any proceeding to the extent that the COMPANY believes that MCDONALD’S
testimony is relevant to the proceeding. MCDONALD will also perform all acts and execute and
deliver any documents that may be reasonably necessary to carry out the provisions of this
Paragraph. In seeking MCDONALD’S cooperation and assistance, the COMPANY will reasonably
accommodate his other personal and business obligations and responsibilities. In addition, subject
to the COMPANY’S prior authorization not to be unreasonably withheld, the COMPANY will reimburse
MCDONALD for reasonable out-of-pocket expenses he incurs while fulfilling his responsibilities
under this Paragraph 20, including any costs associated with legal representation.

Voluntary Agreement

     21. The parties have carefully read and fully understand all the provisions of this Agreement.
The parties are voluntarily executing this Agreement. The parties acknowledge that they have had
the opportunity to obtain the advice of counsel, that they have done so to the extent desired, and
that they have had sufficient time to consider the Agreement and its ramifications without coercion
or intimidation before executing it.

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Entire Agreement

     22. This Agreement contains the entire understanding of the parties and shall supersede all
other oral or written agreements or understandings between the parties, including but not limited
to, the Employment Agreement, with the exception of Section 5 of the Employment Agreement, the
terms of which are incorporated herein. This Agreement shall not be modified, altered or changed
except upon the express written consent of the parties hereto. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respect heirs, legatees,
representatives, successors, and assigns. No party may assign this Agreement or any of the rights
or obligations hereunder, in whole or in part, without the written consent of the parties.

Non-Assignment

     23. Each of the parties to this Agreement warrants that such party has not assigned, conveyed
or transferred any claim, right or cause of action of any kind that the party has or may have in
connection with, relating to or arising out of any fact, allegation or matter which was or could
have been raised or settled in this Agreement.

Construction

     24. Each party to this Agreement has cooperated in the preparation of this Agreement. Hence,
this Agreement shall not be construed against any party on the basis that the party was the
draftsperson.

Effectuation

     25. Each of the parties to this Agreement agrees to execute any and all additional documents
necessary to effectuate the intent and purpose of this Agreement.

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Binding Agreement

     26. This Agreement shall be binding upon and inure to the benefit of each of the parties to
this Agreement and the heirs, executors, conservators, attorneys, administrators, successors and
assigns of each of such parties. Each of the parties to this Agreement represents and warrants
that the party’s own execution and performance of this Agreement does not violate any agreement,
court order or other covenant or restriction binding upon that party.

Choice of Law

     27. This Agreement shall be interpreted in accordance with the laws of the State of Illinois.

Severability

     28. If any provision of this agreement is held to be illegal, void, or unenforceable, such
provision shall be of no force or effect. However, the illegality or unenforceability of such
provision shall have no effect upon, and shall not impair the legality or enforceability of, any
other provision of this Agreement. Notwithstanding the foregoing, MCDONALD agrees that he shall
not at any time attempt to challenge the enforceability of the release, as set forth in Paragraph
10 of this Agreement, or any other portion of this Agreement. The waiver by any party of a breach
or violation of this Agreement shall not operate as, or be construed to be, a waiver of any
subsequent or continuing breach thereof.

Reinstatement of Employment Agreement

     29. In the event that (a) MCDONALD is required to return any payment or benefit received
hereunder to or for the benefit of the COMPANY pursuant to any judgment or settlement in any
proceeding in which the COMPANY is a debtor under Title 11 of the United States Code (“Bankruptcy
Proceedings”), or (b) this Agreement is rejected in any Bankruptcy

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Proceedings, then, at MCDONALD’S option, the Employment Agreement shall be reinstated and
MCDONALD shall be entitled to all benefits and to assert all claims that would otherwise exist
under that Agreement.

Compliance with Section 409A

     30. It is intended that any amounts payable under this Agreement will be exempt from section
409A of the Code and treasury regulations relating thereto, under the short-term deferral exception
and the separation pay exception.

Compliance With Older Workers’ Benefit Protection Act

     31. MCDONALD shall have twenty-one (21) days in which to review this Agreement and have it
reviewed by an attorney, it being understood that, at his option, MCDONALD shall have the right to
execute the Agreement prior to that date. It is also understood and agreed that MCDONALD shall be
bound by the Agreement if not revoked within seven (7) days after execution of the Agreement.
MCDONALD understands and agrees that, by this Agreement, neither MCDONALD nor the COMPANY is
waiving any rights that may arise after entering into this Agreement. MCDONALD also has been
advised of his right to consult with legal counsel prior to executing a copy of this Agreement. In
the event MCDONALD revokes this Agreement, he agrees to repay the Company any amounts advanced
under Paragraphs 2, 4, 5, and 6 above and to forfeit the shares otherwise vested under Paragraph 3
above.

     MCDONALD AND THE COMPANY REPRESENT THAT THEY HAVE CAREFULLY READ AND FULLY UNDERSTAND ALL OF
THE PROVISIONS OF THIS AGREEMENT, THAT THEY HAVE HAD SUFFICIENT OPPORTUNITY TO REVIEW AND DISCUSS
THIS AGREEMENT WITH AN ATTORNEY; THAT THEY HAVE BEEN GIVEN A REASONABLE PERIOD OF TIME WITHIN WHICH
TO CONSIDER THE AGREEMENT

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BEFORE SIGNING IT; AND THAT THEY ARE VOLUNTARILY SIGNING THE AGREEMENT WITHOUT ANY DURESS OR
COERCION.

     IN WITNESS WHEREOF, the parties have executed this Confidential Settlement Agreement and
General Release on the date shown below.

	 	 	 
	/s/ James A. McDonald
 

	 	Date: 6/14/07  
	JAMES A. MCDONALD

	 	 
	 
	 	 
	BALLY TOTAL FITNESS HOLDING CORPORATION
	 
	 	 
	/s/ Harold Morgan
 

	 	Date: 6/14/07  
	By: Harold Morgan, Sr. VP, CAO

	 	 

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