Document:

EX-10.22

 

Exhibit 10.23

TOWN SPORTS INTERNATIONAL HOLDINGS, INC.

2006 ANNUAL PERFORMANCE BONUS PLAN

1. PURPOSE

     The purpose of the Plan is to attract, retain and motivate key employees by providing
performance awards to designated key employees of the Company or its Subsidiaries.

2. DEFINITIONS

     Unless the context otherwise requires, the words that follow shall have the following
meanings:

     (a) “Award” shall mean a performance award under the Plan.

     (b) “Board” shall mean the Board of Directors of the Company.

     (c) “Code” shall mean the Internal Revenue Code of 1986, as amended, and any successor
thereto.

     (d) “Company” shall mean Town Sports International Holdings, Inc. and any successor by merger,
consolidation or otherwise.

     (e) “Committee” shall mean the Compensation Committee of the Board or such other committee of
the Board that is appointed by the Board to administer the Plan that complies with Section 162(m)
of the Code.

     (f) “Common Stock” means the common stock, $0.001 par value per share, of the Company.

     (g) “Effective Date” shall mean the date the Plan is approved by the Board.

     (h) “Participant” shall mean an executive employee of the Company or any Subsidiary selected,
in accordance with Section 4 hereof, to be eligible to receive an Award in accordance with the
Plan.

     (i) “Performance Period” shall mean each fiscal year of the Company or such other period (as
specified by the Committee) over which performance is to be measured, provided, however, the
initial Performance Period under this Plan shall be the Effective Date and ending December 31, 2006
(the “Initial Performance Period”).

     (j) “Plan” shall mean the Town Sports International Holdings, Inc. 2006 Annual Performance
Bonus Plan.

     (k) “Registration Date” shall mean the first date on which any class of common equity
securities of the Company is required to be registered under Section 12 of the Securities Exchange
Act of 1934, as amended.

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     (l) “Section 162(m)” shall mean the exception for performance based compensation under Section
162(m) of the Code (or any successor section) and the Treasury regulations promulgated thereunder.

     (m) “Subsidiary” shall mean any subsidiary corporation of the Company within the meaning of
Section 424(f) of the Code.

3. ADMINISTRATION AND INTERPRETATION OF THE PLAN

     (a) The Plan shall be administered by the Committee. The Committee shall have the exclusive
authority and responsibility to make all determinations and take all other actions necessary or
desirable for the Plan’s administration, including, without limitation, correcting any defect,
supplying any omission or reconciling any inconsistency in the Plan in the manner and to the extent
it shall deem necessary to carry the Plan into effect. The Committee may, in its discretion,
delegate its authority and responsibility under the Plan to the extent permitted by applicable law,
provided that the Committee may not delegate authority or responsibility with respect to
individuals subject to Rule 16b-3 of the Securities Exchange Act of 1934, as amended.

     (b) All decisions of the Committee on any question concerning the selection of Participants
and the interpretation and administration of the Plan shall be final, conclusive and binding upon
all parties. The Committee may rely on information, and consider recommendations, provided by the
Board or the executive officers of the Company.

4. ELIGIBILITY AND PARTICIPATION

     (a) For each Performance Period, the Committee shall select, in its discretion, the employees
of the Company or its Subsidiaries who are to participate in the Plan.

     (b) No person shall be entitled to any Award for a Performance Period unless the individual is
designated as a Participant for the Performance Period. The Committee may add to or delete
individuals from the list of designated Participants at any time and from time to time, in its sole
discretion, provided that once a person is designated as a Participant for a Performance Period
such person shall not be removed as a Participant during such Performance Period.

5. PERFORMANCE AWARD PROGRAM

     5.1 PERFORMANCE AWARDS. Subject to the satisfaction of any conditions on payment imposed by
the Committee, each Participant shall be eligible to receive an Award based on the attainment of
the performance goals described on Exhibit A, attached hereto, during a specified Performance
Period as determined by the Committee in its sole discretion.

     5.2 SECTION 162(m) OF THE CODE. The Plan has been adopted by the Board prior to the
occurrence of a Registration Date. The Plan is intended to constitute a plan described in Treasury
Regulation Section 1.162-27(f)(1), pursuant to which the deduction limits under Section 162(m) of
the Code do not apply during the applicable reliance period.

     5.3 PAYMENT DATE. Awards may be paid at such time(s) as determined by the Committee but in
all events except as provided in the next sentence, shall be paid not later than

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the later of: (i) March 15 after the end of the applicable year; or (ii) two and one-half (2
1/2) months after the expiration of the fiscal year in which the Performance Period with respect to
which they are earned ends. The Committee may defer payment of all or any portion of any Awards
with such conditions as the Committee may determine and may permit a Participant electively to
defer receipt of all or a portion of an Award. Unless otherwise determined by the Committee in its
sole discretion, no Award or pro rata portion thereof shall be payable to any individual whose
employment with the Company or its Subsidiaries has ceased prior to the date such Award is paid.

     5.4 FORM OF PAYMENT. In the sole discretion of the Committee, Awards may be paid in whole or
in part in cash, Common Stock or other property, provided that any Common Stock shall be issued
under the Town Sports International Holdings, Inc. 2006 Stock Incentive Plan as an “other
stock-based award” (or another plan maintained by the Company that was approved by stockholders) or
under another arrangement that is permitted under applicable stock exchange or listing rules.

6. NON-ASSIGNABILITY

     No Award or payment thereof nor any right or benefit under the Plan shall be subject to
anticipation, alienation, sale, assignment, pledge, encumbrance, garnishment, execution or levy of
any kind or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber and to
the extent permitted by applicable law, charge, garnish, execute upon or levy upon the same shall
be void and shall not be recognized or given effect by the Company.

7. NO RIGHT TO EMPLOYMENT

     Nothing in the Plan or in any notice of an Award shall confer upon any person the right to
continue in the employment of the Company or one of its Subsidiaries or affect the right of the
Company or any of its Subsidiaries to terminate the employment of any Participant.

8. AMENDMENT OR TERMINATION

     The Board (or a duly authorized committee thereof) reserves the right to amend, suspend or
terminate the Plan at any time, provided that no amendment, suspension or termination may adversely
affect the rights of any Participant with regard to an Award for a current or prior Performance
Period.

9. EFFECTIVE DATE AND TERM OF PLAN

     The Board approved the Plan effective as of May ___, 2006.

     No Award may be paid under this Plan after the expiration of the reliance period under
Treasury Regulation Section 1.162-27(f)(1), which is the earlier of: (i) first meeting of
stockholders at which directors are to be elected that occurs after December 31, 2010; or (ii) the
date the Plan is materially amended for purposes of Treasury Regulation Section
1.162-27(h)(1)(iii).

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10. SEVERABILITY

     In the event that any one or more of the provisions contained in the Plan shall, for any
reason, be held to be invalid, illegal or unenforceable, in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of the Plan and the Plan shall
be construed as if such invalid, illegal or unenforceable provisions had never been contained
therein.

11. WITHHOLDING

     The Company shall have the right to make such provisions as it deems necessary or appropriate
to satisfy any obligations it may have under law to withhold federal, state or local income or
other taxes incurred by reason of payments pursuant to the Plan.

12. GOVERNING LAW

     The Plan and any amendments thereto shall be construed, administered, and governed in all
respects in accordance with the laws of the State of Delaware (regardless of the law that might
otherwise govern under applicable principles of conflict of laws).

13. SECTION 409A OF THE CODE

     The Plan is intended to comply with the applicable requirements of Section 409A of the Code
and shall be limited, construed and interpreted in accordance with such intent. To the extent that
any Award is subject to Section 409A of the Code, it shall be paid in a manner that will comply
with Section 409A of the Code, including proposed, temporary or final regulations or any other
guidance issued by the Secretary of the Treasury and the Internal Revenue Service with respect
thereto. Notwithstanding anything herein to the contrary, any provision in the Plan that is
inconsistent with Section 409A of the Code shall be deemed to be amended to comply with Section
409A of the Code and to the extent such provision cannot be amended to comply therewith, such
provision shall be null and void.

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EXHIBIT A

Performance Goals

     The performance goals shall be based on the attainment of certain target levels of, or a
specified increase or decrease (as applicable) in the following criteria or such other criteria
determined by the Committee: (i) earnings per share; (ii) operating income; (iii) net income; (iv)
cash flow; (v) gross profit; (vi) gross profit return on investment; (vii) gross margin return on
investment; (viii) gross margin; (ix) working capital; (x) earnings before interest and taxes; (xi)
earnings before interest, tax, depreciation and amortization; (xii) return on equity; (xiii) return
on assets; (xiv) return on capital; (xv) return on invested capital; (xvi) net revenues; (xvii)
gross revenues; (xviii) revenue growth; (xix) total shareholder return; (xx) economic value added;
(xxi) specified objectives with regard to limiting the level of increase in all or a portion of the
Company’s bank debt or other long-term or short-term public or private debt or other similar
financial obligations of the Company, which may be calculated net of cash balances and/or other
offsets and adjustments as may be established by the Committee in its sole discretion; (xxii) the
fair market value of the shares of the Company’s Common Stock; (xxiii) the growth in the value of
an investment in the Company’s Common Stock assuming the reinvestment of dividends; or (xxiv)
reduction in expenses.

     The Committee may, in its sole discretion, also exclude, or adjust to reflect, the impact of
an event or occurrence which the Committee determines should be appropriately excluded or adjusted,
including: (A) restructurings, discontinued operations, extraordinary items or events, and other
unusual or non-recurring charges, (B) an event either not directly related to the operations of the
Company or not within the reasonable control of the Company’s management, or (C) a change in tax
law or accounting standards required by generally accepted accounting principles. Performance
goals may also be based upon individual Participant performance goals, as determined by the
Committee, in its sole discretion.

     In addition, performance goals may be based upon the attainment of specified goals attained
by, or with respect to, the Company, or any subsidiary, division or other operational unit or
business segment of the Company, or based upon performance under one or more of the measures
described above relative to the performance of other corporations. The Committee may: (x)
designate additional business criteria on which the performance goals may be based or (y) adjust,
modify or amend the aforementioned business criteria.

1EX-10.25

 

Exhibit 10.26

INDEMNIFICATION AGREEMENT

     THIS INDEMNIFICATION AGREEMENT (this “Agreement”) is made as of May [___], 2006, between Town
Sports International Holdings, Inc., a Delaware corporation (the “Company,” which for the purposes
of this Agreement shall include any Subsidiary, as defined herein), and the person named as
Indemnitee on the signature page hereto (the “Indemnitee”).

     WHEREAS, the Company desires to attract and retain highly qualified individuals, such as the
Indemnitee, to serve the Company;

     WHEREAS, the Company desires to retain the Indemnitee to provide services to it;

     WHEREAS, the Company and the Indemnitee recognize the significant risk of personal liability
for Agents (as defined herein) that arises from corporate litigation practices;

     WHEREAS, the Company and the Indemnitee further recognize that liability insurance for the
Company’s Agents, when available, is often available only at significant expense and provides for
coverage of limited scope, and that competent and experienced persons are often unable or unwilling
to serve as Agents unless they are protected by comprehensive liability insurance or
indemnification;

     WHEREAS, the Indemnitee is willing to serve the Company, subject to certain conditions,
including execution and delivery of this Agreement by the Company, in order to furnish the
Indemnitee the indemnity provided for herein;

     WHEREAS, the Company’s Certificate of Incorporation, as in effect on the date hereof (the
“Charter”), and its By-Laws, as in effect on the date hereof (the “By-laws”), do not prohibit or
restrict contracts between the Company and its Agents with respect to indemnification of such
Agents; and

     WHEREAS, in view of such considerations, the Company desires to provide, independent from the
indemnification to which the Indemnitee is otherwise entitled by law and under the Charter and
By-Laws, indemnification and the Expense Advances (as defined herein) to the Indemnitee, all as set
forth in this Agreement and to the maximum extent permitted by law.

     NOW, THEREFORE, to induce the Indemnitee to serve the Company and in consideration of the
mutual covenants and agreements set forth in this Agreement, as well as other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the
Indemnitee hereby agree as follows:

1. Definitions. For the purposes of this Agreement,

          (a) Agent. “Agent” means any person who (i) is or was a director, officer, employee,
trustee or other agent or fiduciary of the Company; (ii) is or was serving at the request, for the
convenience, or to represent the interests of the Company or a Company employee benefit plan, its
participants or its beneficiaries, as a director, officer, employee, trustee

 

 

or other agent or fiduciary of another corporation, limited liability company, partnership,
joint venture, trust or other entity (including, without limitation, any employee benefit plan); or
(iii) was a director, officer, employee, trustee or other agent or fiduciary of a corporation,
limited liability company, partnership, joint venture, trust or other entity which was a
predecessor of the Company, or was a director, officer, employee, trustee or other agent or
fiduciary of any other such entity at the request of such predecessor; it being agreed and
understood that the use of the term “Agent” shall not be construed to alter the legal relationship
between an Agent, as defined herein, and the Company.

          (b) Change in Control. “Change in Control” means that, after the date of this
Agreement, any of the following shall occur: (i) any “person” (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Act”)), other than a
trustee or other fiduciary holding securities under an employee benefit plan of the Company acting
in such capacity or a corporation owned directly or indirectly by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the Company, becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities
of the Company representing more than 50% of the total voting power represented by the Company’s
then outstanding voting securities; (ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board of Directors of the Company (the “Board”)
cease to be a majority thereof (otherwise than through death, disability or retirement in
accordance with the Company’s normal retirement policies, or with the approval the Board at the
beginning of such period); (iii) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, limited liability company, partnership, joint venture,
trust or other entity, other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the surviving entity) at
least 50% of the total voting power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such a merger or consolidation; or (iv) the
stockholders of the Company approve a plan of complete or substantial liquidation of the Company or
an agreement for the sale or disposition by the Company of (in one transaction or a series of
related transactions) all or substantially all of the Company’s assets.

          (c) Claim. “Claim” means any threatened, pending or completed action, suit, proceeding
or alternative dispute resolution mechanism, or any hearing, inquiry or investigation, whether
conducted by the Company or any other party, which the Indemnitee believes in good faith might lead
to the institution of any such action, suit, proceeding, alternative dispute resolution mechanism,
hearing, inquiry or investigation, whether civil, criminal, administrative, investigative or any
other type whatsoever, with respect to an Indemnifiable Event.

          (d) Company. “Company” means Town Sports International Holdings, Inc. and any
constituent corporation (including any constituent of a constituent) absorbed in a consolidation or
merger to which Town Sports International Holdings, Inc. (or any of its wholly owned Subsidiaries)
is a party which, if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees, trustees or other agents or fiduciaries, so that if
the Indemnitee is or was a director, officer, employee, trustee or other agent or fiduciary of such
constituent corporation, or is or was serving at the request of such constituent corporation as a
director, officer, employee, trustee or other agent or fiduciary of

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another corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, the Indemnitee shall stand in the same position under the provisions of this Agreement
with respect to the resulting or surviving corporation as the Indemnitee would have with respect to
such constituent corporation if its separate existence had continued.

          (e) Expense Advance. “Expense Advance” means a payment to the Indemnitee of Expenses
in advance of the settlement of or final judgment on any Claim.

          (f) Expenses. “Expenses” means all costs and liabilities of any type or nature
whatsoever (including, without limitation, all attorneys’ fees and related disbursements and other
out-of-pocket costs, judgments, fines, penalties and amounts paid in settlements) paid or incurred
by or imposed upon the Indemnitee in the investigation, defense, settlement or appeal of, or
otherwise in connection with, a Claim (including, without limitation, being a witness) or in
establishing or enforcing a right to indemnification under this Agreement, the Charter or By-Laws,
Section 145 of the General Corporation Law of the State of Delaware (the “DGCL”) or otherwise, and
any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or
deemed receipt of any payments under this Agreement.

          (g) Indemnifiable Event. “Indemnifiable Event” means any event or occurrence related
to the fact that the Indemnitee is or was a director, officer, employee, trustee or other agent or
fiduciary of the Company, or any Subsidiary, or is or was serving at the request of the Company as
a director, officer, employee, trustee or other agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on
the part of the Indemnitee while serving in such capacity.

          (h) Independent Legal Counsel. “Independent Legal Counsel” means an attorney or firm of
attorneys, selected in accordance with the provisions of Section 8(a) herein, whether or not in the
event of a Change in Control.

          (i) Potential Change in Control. “Potential Change in Control” means that after the
date of this Agreement any of the following shall occur: (i) any person or entity publicly
announces an intention to take or to consider taking actions which, if consummated, might result in
a Change in Control or (ii) the Board adopts a resolution to the effect that, for purposes of this
Agreement, a Potential Change in Control has occurred.

          (j) Reviewing Party. “Reviewing Party” means the person or body appointed by the Board
pursuant to Section 11(d) herein and in accordance with applicable law, which person or body shall
be either members of the Board who are not interested in the particular Claim or Independent Legal
Counsel; provided, however, that if there has been a Change in Control or Potential
Change in Control, the Reviewing Party shall be Independent Legal Counsel.

          (k) Subsidiary. “Subsidiary” means any corporation, limited liability company,
partnership, joint venture, trust or other entity of which more than 50% of the outstanding voting
securities are owned, directly or indirectly, by the Company, by the Company and one or more other
Subsidiaries, or by one or more other Subsidiaries.

     2. Agreement to Serve. The Indemnitee agrees to serve or continue to serve the Company
as an Agent, at its will (or under separate agreement if such agreement exists), in the

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capacity in which the Indemnitee serves or has been requested to serve by the Company, so long
as the Indemnitee is duly appointed or elected and qualified in accordance with the Charter and
By-Laws, or until such time as the Indemnitee tenders the Indemnitee’s resignation in writing,
provided, however, that nothing contained in this Agreement is intended to create any
right to continued service by the Indemnitee.

     3. Basic Indemnification. Subject to the terms of this Agreement:

          (a) Claims Other than Derivative Claims in Favor of the Company. As to all Claims
other than derivative Claims in favor of the Company, the Company shall indemnify the Indemnitee
against all Expenses to the fullest extent permitted by applicable law.

          (b) Derivative Claims for Judgment in Favor of the Company. As to all derivative
Claims in favor of the Company, the Company shall indemnify the Indemnitee against all Expenses to
the fullest extent permitted by applicable law; provided that, no indemnification shall be
made as to such derivative Claim if the Indemnitee has been finally adjudged to be liable to the
Company in connection with such Claim or any claim, issue or matter therein, unless and only to the
extent that the Court of Chancery of Delaware or the court in which the Claim was brought shall
determine that, despite the adjudication of liability but in view of all the facts and
circumstances, the Indemnitee is fairly and reasonably entitled to indemnity for such Expenses
which the Court of Chancery or such other court shall deem proper.

          (c) Standard of Conduct Required for Entitlement to Basic Indemnification. The
Indemnitee shall be entitled to indemnification under Sections 3(a) and (b) herein if the
Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company; provided that, in the case of any criminal
action or proceeding, the Indemnitee had no reasonable cause to believe the Indemnitee’s conduct
was unlawful and, in the case of Section 3(b) hereof, subject further to the exclusion set forth
therein. The termination of any Claim by judgment, order, settlement (whether with or without
court approval), conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that (i) the Indemnitee did not act in good faith and in a manner
which the Indemnitee reasonably believed to be in or not opposed to the best interests of the
Company, (ii) the Indemnitee had reasonable cause to believe that the Indemnitee’s conduct was
unlawful or (iii) a court determined that indemnification is not permitted by applicable law or
pursuant to Section 3(b) herein. In addition, neither the failure of any Reviewing Party to have
made a determination as to whether the Indemnitee has met the standard of conduct set forth in this
Section 3(c) or had any particular belief, nor an actual determination by any Reviewing Party that
the Indemnitee has not met such standard of conduct or did not have such belief, shall be a defense
to the Indemnitee’s right to indemnification or create a presumption that the Indemnitee did not
meet any particular standard of conduct or did not have any particular belief. If the Indemnitee
acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to
the best interest of the participants and beneficiaries of an employee benefit plan, the Indemnitee
shall be deemed to have acted in a manner in or not opposed to the best interests of the Company.

          (d) Success on the Merits. To the extent that the Indemnitee has been successful on
the merits or otherwise (including, without limitation, dismissal or withdrawal of a Claim

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with or without prejudice) in defense of any Claim or in defense of any claim, issue or matter
therein, the Company shall indemnify the Indemnitee against Expenses in connection with such Claim
to the fullest extent permitted by applicable law.

     4. Additional Indemnification Rights. The Company further agrees to indemnify the
Indemnitee in connection with any Claim and to make Expense Advances to the Indemnitee, in each
case to the fullest extent as may be provided for under the Charter, By-Laws or applicable law,
vote of either the Company’s stockholders or its disinterested directors, notwithstanding that any
such indemnification or Expense Advance is not specifically authorized by the other provisions of
this Agreement. It is the intent of the parties hereto that (i) in the event of any change, after
the date of this Agreement, in any applicable law, statute or rule which expands the right of a
Delaware corporation to indemnify or make Expense Advances to an Agent to a greater degree than
would be afforded currently under the Charter, By-Laws, pursuant to a vote of either the Company’s
stockholders or its disinterested directors, and this Agreement, the Indemnitee shall enjoy by
virtue of this Agreement, the greater benefits afforded by such change; (ii) in the event of any
change, after the date of this Agreement, in any applicable law, statute or rule which narrows the
right of a Delaware corporation to indemnify or make Expense Advances to an Agent to a greater
degree than would be afforded currently under the Charter, By-Laws or applicable law, pursuant to a
vote of either the Company’s stockholders or its disinterested directors and this Agreement, such
change, to the extent not otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties’ rights and obligations hereunder,
except as set forth in Section 5(a) herein; and (iii) this Agreement be interpreted and enforced so
as to provide indemnification and Expense Advances under such circumstances as set forth in this
Agreement, if any, in which the providing of indemnification or Expense Advances would otherwise be
discretionary. Notwithstanding the foregoing, no Expense Advance under this Agreement shall be
made in violation of Section 402 of the Sarbanes-Oxley Act of 2002.

     5. Exclusions. Any other provision of this Agreement to the contrary notwithstanding,
the Company shall not be obligated to indemnify or provide Expenses Advances to the Indemnitee:

          (a) to the extent any such indemnification or Expense Advance would be prohibited under
applicable law, statute or rule; or

          (b) to the extent that the Indemnitee actually received from any other source (including an
insurer) amounts otherwise payable hereunder;

          (c) to the extent that Claims are initiated or brought voluntarily by the Indemnitee and not
by way of defense, counterclaim or crossclaim, except (i) with respect to actions or proceedings
brought to establish or enforce a right to indemnification under this Agreement or any other
agreement or insurance policy or under the Charter or By-laws now or hereafter in effect relating
to Claims for Indemnifiable Events, (ii) in specific cases, if the Board has approved the
initiation or bringing of such Claim or (iii) as otherwise required under Section 145 of the DGCL,
regardless of whether the Indemnitee ultimately is determined to be entitled to such
indemnification, Expense Advances, or insurance recovery, as the case may be;

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          (d) to the extent that any Expenses are incurred by the Indemnitee with respect to any action
instituted (i) by the Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action makes a final judicial determination (as to which all rights of
appeal therefrom have been exhausted or have lapsed) that each of the material assertions made by
the Indemnitee as a basis for such action was not made in good faith or was frivolous or (ii) by or
in the name of the Company to enforce or interpret this Agreement, if a court having jurisdiction
over such action makes a final judicial determination (as to which all rights of appeal therefrom
have been exhausted or have lapsed) that each of the material defenses asserted by the Indemnitee
in such action was made in bad faith or was frivolous;

          (e) for Expenses and the payment of profits arising from the purchase and sale by the
Indemnitee of securities in violation of Section 16(b) of the Act or any similar successor statute;

provided that, notwithstanding the foregoing provisions of this Section 5, the Indemnitee
shall be entitled under Section 6 herein to receive Expense Advances with respect to any Claim
unless and until a court having jurisdiction over such Claim shall have made a final determination
(as to which all rights of appeal therefrom shall have been exhausted or lapsed) that the
Indemnitee is prohibited from receiving indemnification with respect thereto.

     6. Expense Advances. Within ten (10) business days of receipt by the Company of an
undertaking (the “Undertaking”), substantially in the form attached hereto as Exhibit 1, by
or on behalf of the Indemnitee to repay the amount of any Expense Advance with respect to any Claim
if and to the extent that it shall ultimately be determined that the Indemnitee is not entitled to
indemnification for such amount, the Company shall make Expense Advances to the Indemnitee to the
fullest extent permitted by applicable law. The Undertaking shall be unsecured and shall bear no
interest.

     7. Non-Exclusivity; Continuation. The indemnification and Expense Advances pursuant to
this Agreement shall not be deemed exclusive of any other rights to which the Indemnitee may be
entitled under the Charter or By-Laws, pursuant to any vote of the Company’s stockholders or its
disinterested directors, or under any other agreement, any law or otherwise, both as to actions in
the Indemnitee’s official capacity and as to actions in another capacity while an Agent. All
agreements and obligations of the Company contained in this Agreement shall continue as to the
Indemnitee while the Indemnitee is an Agent and after the Indemnitee has ceased to be an Agent.

     8. Change in Control; Potential Change in Control.

          (a) The Company agrees that if there is a Change in Control, then with respect to all matters
concerning the rights of the Indemnitee to indemnification and Expense Advances under this
Agreement, the Charter or By-Laws, pursuant to any vote of the Company’s stockholders or its
disinterested directors, under any other agreement, any law or otherwise, the Company shall seek
legal advice only from Independent Legal Counsel. For all purposes of this Agreement, such
Independent Legal Counsel shall be such person or firm selected by the Indemnitee and approved by
the Company (which approval shall not be unreasonably withheld) which has not otherwise performed
services for the Company or the Indemnitee within the prior three years (other than in connection
with such matters). The Independent Legal Counsel shall,

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among other things, render its written opinion to the Company and the Indemnitee as to whether
and to what extent the Indemnitee is permitted to be indemnified and receive Expense Advances. The
Company agrees to pay the reasonable fees and expenses of the Independent Legal Counsel relating to
its engagement pursuant to this Agreement.

          (b) In the event of a Potential Change in Control, the Company may, in its sole discretion,
create a trust for the benefit of the Indemnitee and from time to time fund such trust in such
amounts as the Board may determine to satisfy Expenses reasonably anticipated or proposed to be
incurred or paid from time to time in connection with any Claims. The terms of any trust
established pursuant hereto shall provide that upon a Change in Control (i) the trust shall not be
revoked or the principal thereof invaded, without the written consent of the Indemnitee, (ii) the
trustee shall advance (solely to the extent of trust assets), within two business days of a request
by the Indemnitee, all Expenses to the Indemnitee (and the Indemnitee hereby agrees to reimburse
the trust under the circumstances under which the Indemnitee would be required to reimburse the
Company under Section 6 herein), (iii) the trustee shall promptly pay (solely to the extent of
trust assets) to the Indemnitee all amounts for which the Indemnitee shall be entitled to
indemnification pursuant to this Agreement or otherwise and (iv) all unexpended funds in such trust
shall revert to the Company upon a final determination by the Reviewing Party or a court of
competent jurisdiction, as the case may be, that the Indemnitee has been fully indemnified or is
not entitled to be indemnified under the terms of this Agreement as to all Claims. The trustee
shall be a person or entity reasonably satisfactory to the Indemnitee. Nothing in this Section
8(b) shall relieve the Company of any of its obligations under any other provision of this
Agreement.

     9. Partial Indemnification. If the Indemnitee is entitled under any provision of this
Agreement or otherwise to indemnification or Expense Advances by the Company for a portion, but not
all, of any Expenses incurred by the Indemnitee, the Company shall indemnify or provide Expense
Advances to the Indemnitee, as the case may be, for the portion thereof to which the Indemnitee is
entitled.

     10. Contribution. If indemnification is unavailable by reason of a court decision
described in Section 11(e) herein based on grounds other than that set forth in Section 5(a)
herein, then in respect of any Claim in which the Company is jointly liable with the Indemnitee (or
would be if joined in such Claim), the Company shall contribute to the amount of the Indemnitee’s
Expenses in such proportion as is appropriate to reflect (i) the relative benefits received by the
Company on the one hand, and by the Indemnitee on the other hand, from the transaction from which
such Claim arose, and (ii) the relative fault of the Company on the one hand, and of the Indemnitee
on the other hand, in connection with the events which resulted in such Expenses, as well as any
other relevant equitable considerations. The relative fault of the Company on the one hand, and of
the Indemnitee on the other hand, shall be determined by reference to, among other things, the
parties’ relative intent, knowledge, access to information and opportunity to correct or prevent
the circumstances resulting in such Expenses. The Company agrees that it would not be just and
equitable if contribution pursuant to this Section 10 were determined by pro rata allocation or any
other method of allocation which does not take account of the foregoing equitable considerations.

7

 

     11. Procedures.

          (a) Timing of Payments. All payments of Expenses (including, without limitation,
Expense Advances) by the Company to the Indemnitee pursuant to this Agreement shall be made to the
fullest extent permitted by law as soon as practicable after written demand by the Indemnitee
therefor is presented to the Company, but in no event later than thirty (30) business days after
such written demand by the Indemnitee is presented to the Company, except in the case of Expense
Advances, which shall be made no later than ten (10) business days after such written demand by the
Indemnitee is presented to the Company.

          (b) Notice. Promptly after receipt by the Indemnitee of notice of the commencement, or
the threat of commencement, of any Claim, the Indemnitee shall, if the Indemnitee believes that
indemnification or Expense Advances with respect thereto may be sought from the Company by the
Indemnitee pursuant to this Agreement, notify the Company of the commencement or threat of
commencement thereof, which notice may, but need not, be substantially in the form attached hereto
as Exhibit 2. Any failure of the Indemnitee to provide such notice to the Company shall
not, however, relieve the Company of any liability which it may have to the Indemnitee unless and
to the extent such failure materially prejudices the interests of the Company. If, at the time it
receives such notice from the Indemnitee, the Company has directors’ and officers’ liability
insurance in effect, the Company shall give prompt notice of the commencement, or the threat of
commencement, of such Claim to the insurers in accordance with the procedures set forth in the
respective applicable insurance policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as
a result of such Claim in accordance with the terms of such policies; provided that no such
payments by such insurers shall relieve the Company of any liability or obligation which it may
have to the Indemnitee, except as and to the extent expressly provided under this Agreement.

          (c) Assumption of Defense. If the Company shall be obligated to pay Expenses arising
in connection with any Claim against the Indemnitee, the Indemnitee may in its sole discretion (but
shall not be obligated to) allow the Company to assume the defense of such Claim, with counsel
approved by the Indemnitee (whose approval shall not be unreasonably withheld), upon the delivery
to the Company of notice of Indemnitee’s election to so tender the defense of such Claim. After
delivery of such notice, approval of such counsel by the Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to the Indemnitee under this Agreement for
any fees and expenses of counsel subsequently incurred by the Indemnitee with respect to the same
Claim; provided that in any such event (i) the Indemnitee shall have the right to employ the
Indemnitee’s own counsel in connection with any Claim at the Indemnitee’s expense; (ii) if (A) the
employment of counsel by the Indemnitee shall have been previously authorized by the Company, (B)
the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the
Company and the Indemnitee in the conduct of such defense, or (C) the Company shall not, in fact,
have employed counsel to assume the defense of such Claim, in each such case the fees and expenses
of the Indemnitee’s counsel shall be paid by the Company, it being agreed and understood that the
Company shall only be required to pay the fees and expenses of one separate counsel (plus, if
necessary, one local counsel); and (iii) the Company shall not settle any Claim in any manner which
would

8

 

impose any penalty, limitation or unindemnified Expense on the Indemnitee without the
Indemnitee’s consent.

          (d) Determination of Entitlement to Indemnification. In the event of any demand by the
Indemnitee for indemnification under this Agreement or otherwise, the Board shall promptly
designate a Reviewing Party. The Reviewing Party shall determine that indemnification is proper if
it finds that the Indemnitee has met the required standard of conduct set forth in Section 3(c)
herein and that indemnification is not prohibited pursuant to Section 5 herein. If the Reviewing
Party is more than one member of the Board, it shall act by a majority vote. If the Reviewing
Party is Independent Legal Counsel, the determination of the Reviewing Party shall be rendered in
the form of a written legal opinion. Subject to Sections 11(e) and 12 herein, any indemnification
under Sections 3 and 4 herein (unless ordered by a court or pursuant to Section 3(d) herein) shall
be made by the Company only as authorized in the specific case and upon the determination of the
Reviewing Party that the Indemnitee is entitled to indemnification in the circumstances because the
Indemnitee has met the standard of conduct set forth in Section 3(c) herein and that
indemnification is not prohibited pursuant to Section 5 herein. The Indemnitee’s demand for
indemnification shall create a presumption that the Indemnitee is entitled to indemnification and
the Reviewing Party shall have 30 days from the date of receipt of the Indemnitee’s demand in which
to render in writing and deliver to the Indemnitee its determination. If the Reviewing Party makes
no timely determination, the Reviewing Party shall be deemed to have determined that the Indemnitee
is entitled to the indemnification demanded. If the Reviewing Party determines, which
determination shall be based upon clear and convincing evidence sufficient to rebut the aforesaid
presumption of entitlement, that the Indemnitee is not entitled to indemnification, in whole or in
part, in the circumstances because the Indemnitee has not met the standard of conduct set forth in
Section 3(c) herein or because the indemnification is prohibited pursuant to Section 5 herein, the
Indemnitee shall (i) be entitled to obtain a favorable determination or to appeal such negative
determination in the manner provided in Sections 11(e) and 12 herein and (ii) not be required to
reimburse the Company for any Expense Advances or Expenses theretofore paid to or on behalf of the
Indemnitee until a final determination has been made with respect to the Indemnitee’s legal
entitlement to indemnification (as to which all rights of appeal therefrom shall have been
exhausted or shall have lapsed).

          (e) Indemnitee’s Rights on Unfavorable Determination. Notwithstanding a determination
by a Reviewing Party or any forum listed in Section 12 herein that the Indemnitee is not entitled
to indemnification with respect to a specific Claim, or any claim, issue or matter therein, the
Indemnitee shall have the right to apply to the Court of Chancery of Delaware or any other court of
competent jurisdiction for the purpose of determining and enforcing the Indemnitee’s right to
indemnification pursuant to this Agreement or otherwise, and the Company hereby consents to service
of process and agrees to appear in any such proceeding. Such court shall find that the Indemnitee
is entitled to indemnification unless the Company shall prove by clear and convincing evidence that
(i) the Indemnitee did not meet the applicable standard of conduct required to entitle the
Indemnitee to such indemnification or that indemnification is prohibited pursuant to Section 5
herein, and (ii) the requirements of Section 3(d) herein have not been met.

9

 

     12. Appeal of a Reviewing Party’s Determination of No Right to Indemnification.

          (a) The Indemnitee shall be entitled to select from the following alternatives a forum in
which the validity of a Reviewing Party’s determination that the Indemnitee is not entitled to
indemnification will be heard, which forum shall determine that the Indemnitee is entitled to such
indemnification unless such forum determines that there is clear and convincing evidence that (i)
the Indemnitee did not meet the applicable standard of conduct required to entitle the Indemnitee
to such indemnification or that indemnification is prohibited pursuant to Section 5 herein, and
(ii) the requirements of Section 3(d) herein have not been met:

(A) those members of the Board who are disinterested parties with respect to
the Claim, acting by a majority vote;

(B) Independent Legal Counsel, in the form of a written opinion; or

(C) those stockholders of the Company who are disinterested parties with
respect to the Claim, acting by a majority vote.

          (b) As soon as practicable, and in no event later than 30 days after notice of the
Indemnitee’s choice of forum pursuant to Section 12(a) herein, the Company shall, at its own
expense, submit to the selected forum in such manner as the Indemnitee or the Indemnitee’s counsel
may reasonably request, the basis for the determination that the Indemnitee is not entitled to
indemnification, and the Company shall act in good faith to assure the Indemnitee a complete
opportunity to defend against and appeal such determination.

     13. Binding Effect; Successors and Assigns. This Agreement shall bind and inure to the
benefit of the successors, heirs, personal and legal representatives and assigns of the parties
hereto, including any direct or indirect successor by purchase, merger, consolidation or otherwise
to all, substantially all or a substantial part of the business or assets of the Company. The
Company shall require and cause any successor (whether direct or indirect, and whether by purchase,
merger, consolidation or otherwise) to all, substantially all or a substantial part of the business
or assets of the Company, by written agreement in form and substance satisfactory to the Indemnitee
(acting reasonably), expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no such succession had taken
place.

     14. Expenses and Expense Advances to Enforce the Agreement. It is the intent of the
Company that the Indemnitee shall not be required to incur any Expenses arising from any effort to
enforce the Indemnitee’s rights under this Agreement, because incurring such Expenses would
substantially detract from the benefits intended to be extended to the Indemnitee hereunder.
Accordingly, if it should appear to the Indemnitee, that the Company has failed to comply with any
of its obligations under this Agreement or if the Company or any other person or entity (other than
the Court of Chancery of Delaware or any other court of competent jurisdiction in a final
determination, as which all rights of appeal therefrom shall have been exhausted or shall have
lapsed) takes any action to declare this Agreement or any provision hereof void or unenforceable,
or institutes any action, suit or proceeding designed (or having the effect of being designed) to
deny or recover from the Indemnitee the benefits intended to be provided to the

10

 

Indemnitee hereunder, the Company hereby irrevocably authorizes the Indemnitee from time to
time to retain counsel of the Indemnitee’s choice to represent the Indemnitee in connection with
the enforcement of the Indemnitee’s rights under this Agreement. If the Indemnitee is successful
in whole or in part in enforcing the Indemnitee’s rights under this Agreement, the Company shall
pay and be solely responsible for any and all costs and liabilities (including, without limitation,
all reasonable attorneys’ fees and expenses incurred by the Indemnitee in connection therewith.

     15. Insurance; Other Indemnification.

          (a) To the extent that the Company maintains an insurance policy or policies providing
liability insurance for directors, officers, employees, or agents of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other enterprise for which
such person serves at the request of the Company, Indemnitee shall be an insured under such policy
or policies in accordance with its or their terms to the maximum extent of the coverage available
for any such director, officer, employee or agent under such policy or policies.

          (b) The Company shall not be liable under this Agreement to make any payment of amounts
otherwise indemnifiable (or for which advancement is provided hereunder) hereunder if and to the
extent that Indemnitee has otherwise actually received such payment under any insurance policy, the
Charter, the By-laws, contract, agreement or otherwise.

          (c) The Company’s obligation to indemnify or make an Expense Advance hereunder to Indemnitee
who is or was serving at the request of the Company as a director, officer, employee or agent of
any other corporation, limited liability company, partnership, joint venture, trust, employee
benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received as
indemnification or advancement of expenses from such other corporation, limited liability company,
partnership, joint venture, trust, employee benefit plan or other enterprise.

     16. Notices. All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed duly given (i) when delivered by hand or (ii) if
mailed by certified or registered mail with postage prepaid, on the third business day after the
mailing date. Addresses for notice to either party shall be as shown on the signature page of this
Agreement or as subsequently modified by the addressee by such written notice.

     17. Severability. If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever, (i) the validity, legality and
enforceability of the remaining provisions of the Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in
any way be affected or impaired thereby, (ii) to the fullest extent possible, the provisions of
this Agreement (including, without limitation, all portions of any paragraph of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that are not themselves
invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable and (iii) to the fullest extent possible,
any

11

 

such provision held to be invalid, illegal or unenforceable shall be reformed so as to be
valid, legal and enforceable and to give effect to the intent manifested by such provision.

     18. Modifications, Amendments, and Waivers. No modification or amendment of this
Agreement, or waiver of any of the provisions hereof, shall be binding unless executed in writing
by both of the parties hereto, in the case of a modification or amendment, or by the waiving party,
in the case of a waiver. No waiver of any such provision shall be deemed to constitute a waiver of
such provision on any other occasion or a waiver of any other provision.

     19. Consent to Jurisdiction. The Company and the Indemnitee each hereby irrevocably
consent to the non-exclusive jurisdiction of any New York State Court or any United States federal
court sitting in the Borough of Manhattan in the City of New York for any purpose in connection
with any action or proceeding which arises out of or relates to this Agreement.

     20. Governing Law. This Agreement shall be construed in accordance with, and this
Agreement and all matters arising out of or relating in any way whatsoever to this Agreement
(whether in contract, tort or otherwise) shall be governed by, the law of the State of Delaware.

     21. Subrogation. In the event of payment by the Company under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights of recovery of the
Indemnitee, who agrees, at the sole expense of the Company, to execute all papers reasonably
required and to do all other acts and things that may be reasonably necessary on the part of the
Indemnitee to secure such rights, including, without limitation, the execution of documents
necessary to enable the Company to bring suit to enforce such rights.

     22. Integration and Entire Agreement. This Agreement sets forth the entire
understanding between the parties hereto and supersedes and merges all previous written and oral
negotiations, commitments, understandings and agreements relating to the subject matter hereof;
provided that, in the event the Indemnitee has entered into a separate agreement with
respect to employment with the Company, the rights granted hereunder shall be in addition to the
rights granted under any such employment agreement and in the event of any inconsistency between
the terms of this Agreement and the terms of any such employment agreement with respect to the
subject matter hereof, the terms hereof shall control.

     23. No Construction as Employment Agreement. In the case of any Indemnitee who is an
employee of the Company, nothing contained in this Agreement shall be construed as giving the
Indemnitee any right to be retained in the employ of the Company or affiliated entities.

     24. Counterparts. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one and the same
instrument.

12

 

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above
written.

	 	 	 	 	 
	 	 	TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Name:
	 

	 	 	 	Title:
	 
	 	 	 	 
	 

	 	 	 	888 Seventh Avenue, 25th Floor
	 

	 	 	 	New York, New York 10106
	 
	 	 	 	 
	 	 	INDEMNITEE
	 
	 	 	 	 
	 	 	 
	 	 	Name:
	 	 	Address:

 

 

Exhibit 1

UNDERTAKING

     1. This Undertaking is submitted pursuant to the Indemnification Agreement dated as of [DATE],
between Town Sports International Holdings, Inc., a Delaware corporation (the “Company”), and the
undersigned (the “Agreement”). Capitalized terms used but not defined herein shall have the
respective meanings set forth in the Agreement.

     2. I am requesting certain Expense Advances in connection with a Claim.

     3. I hereby undertake to repay such Expense Advances if it shall ultimately be determined that
I am not entitled to be indemnified by the Company therefor under the Agreement or otherwise.

     4. The Expense Advances are, in general, all related to (attach additional pages if
necessary):

 

 

 

 

 

	 	 	 	 	 
	 

	 	Signed:
	 	 
	 

	 	 	 	 

	 	 	 	 	 
	 

	 	Dated:
	 	 
	 

	 	 	 	 

 

 

Exhibit 2

NOTICE AND DEMAND FOR INDEMNIFICATION

     1. This Notice and Demand for Indemnification is submitted pursuant to the Indemnification
Agreement dated as of [DATE], between Town Sports International Holdings, Inc., a Delaware
corporation (the “Company”), and the undersigned (the “Agreement”). Capitalized terms used but not
defined herein shall have the respective meanings set forth in the Agreement.

     2. I am notifying the Company as to the following Claim (attach additional pages if
necessary):

 

 

 

 

 

     3. I am requesting indemnification and Expense Advances with respect to such Claim to the full
extent provided for in the Agreement or to which I may otherwise be entitled.

	 	 	 	 	 
	 

	 	Signed:
	 	 
	 

	 	 	 	 

	 	 	 	 	 
	 

	 	Dated:

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