Schedule 13D Amendment No. 26

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HG6hccjZACe38b+aLKzzSoMOQ4moQNgusaVbjEl5+rpkP6n99bAlv6DrdZRmTGwN kTuhwbpp1JphOF6bDrBulA== 0001193125-07-150636.txt : 20070706 0001193125-07-150636.hdr.sgml : 20070706 20070706103226 ACCESSION NUMBER: 0001193125-07-150636 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20070706 DATE AS OF CHANGE: 20070706 GROUP MEMBERS: EMANUEL R. PEARLMAN GROUP MEMBERS: LIBERATION INVESTMENTS, L.P. GROUP MEMBERS: LIBERATION INVESTMENTS, LTD. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: BALLY TOTAL FITNESS HOLDING CORP CENTRAL INDEX KEY: 0000770944 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEMBERSHIP SPORTS & RECREATION CLUBS [7997] IRS NUMBER: 363228107 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-47769 FILM NUMBER: 07966569 BUSINESS ADDRESS: STREET 1: 8700 WEST BRYN MAWR AVENUE STREET 2: SECOND FLOOR CITY: CHICAGO STATE: IL ZIP: 60631 BUSINESS PHONE: 773-380-3000 MAIL ADDRESS: STREET 1: 8700 WEST BRYN MAWR AVENUE STREET 2: SECOND FLOOR CITY: CHICAGO STATE: IL ZIP: 60631 FORMER COMPANY: FORMER CONFORMED NAME: BALLYS HEALTH & TENNIS CORP DATE OF NAME CHANGE: 19940526 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: LIBERATION INVESTMENT GROUP LLC CENTRAL INDEX KEY: 0001259272 IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: SC 13D/A MAIL ADDRESS: STREET 1: 11766 WILSHIRE BLVD., STREET 2: SUITE 870 CITY: LOS ANGELES STATE: CA ZIP: 90025 SC 13D/A 1 dsc13da.htm SCHEDULE 13D AMENDMENT NO. 26 Schedule 13D Amendment No. 26

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 13D

Information to be Included in Statements Filed Pursuant to Rule

13d-1(a) and Amendments Thereto Filed Pursuant to Rule 13d-2(a)

Under the Securities Exchange Act of 1934

(Amendment No. 26)*

BALLY TOTAL FITNESS HOLDING CORPORATION

(Name of Issuer)

COMMON STOCK, PAR VALUE $.01 PER SHARE

(Title of Class of Securities)

058 73K 10 8

(CUSIP Number)

EMANUEL R. PEARLMAN

LIBERATION INVESTMENT GROUP, LLC

330 MADISON AVE., 6TH FLOOR

NEW YORK, NY 10017

(212) 832-5100

(Name, address and telephone number of person authorized to receive notices and communications)

July 6, 2007

(Date of event which requires filing of this statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box ¨.

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent.

The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).


CUSIP No. 058 73K 10 8


(1)	NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON

	Liberation Investments, L.P.
(2)	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
	(a) x
	(b) ¨
(3)	SEC USE ONLY

(4)	SOURCE OF FUNDS

	N/A
(5)	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)	¨


(6)	CITIZENSHIP OR PLACE OF ORGANIZATION

	Delaware


NUMBER OF SHARES BENEFICIALLY OWNED BY PERSON WITH		(7) SOLE VOTING POWER

		0
		(8) SHARED VOTING POWER

		2,710,042
		(9) SOLE DISPOSITIVE POWER

		0
		(10) SHARED DISPOSITIVE POWER

		2,710,042


(11)	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

	4,619,450
(12)	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES	¨

(13)	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

	11.20%
(14)	TYPE OF REPORTING PERSON

	PN

Page 2


CUSIP No. 058 73K 10 8


(1)	NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON

	Liberation Investments, Ltd.
(2)	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
	(a) x
	(b) ¨
(3)	SEC USE ONLY

(4)	SOURCE OF FUNDS

	N/A
(5)	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)	¨


(6)	CITIZENSHIP OR PLACE OF ORGANIZATION

	Cayman Islands


NUMBER OF SHARES BENEFICIALLY OWNED BY PERSON WITH		(7) SOLE VOTING POWER

		0
		(8) SHARED VOTING POWER

		1,461,838
		(9) SOLE DISPOSITIVE POWER

		0
		(10) SHARED DISPOSITIVE POWER

		1,461,838


(11)	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

	4,619,450
(12)	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES	¨

(13)	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

	11.20%
(14)	TYPE OF REPORTING PERSON

	CO

Page 3


CUSIP No. 058 73K 10 8


(1)	NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON

	Liberation Investment Group, LLC
(2)	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
	(a) x
	(b) ¨
(3)	SEC USE ONLY

(4)	SOURCE OF FUNDS

	N/A
(5)	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)	¨


(6)	CITIZENSHIP OR PLACE OF ORGANIZATION

	Delaware


NUMBER OF SHARES BENEFICIALLY OWNED BY PERSON WITH		(7) SOLE VOTING POWER

		0
		(8) SHARED VOTING POWER

		4,171,880
		(9) SOLE DISPOSITIVE POWER

		0
		(10) SHARED DISPOSITIVE POWER

		4,171,880


(11)	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

	4,619,450
(12)	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES	¨

(13)	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

	11.20%
(14)	TYPE OF REPORTING PERSON

	OO, IA

Page 4


CUSIP No. 058 73K 10 8


(1)	NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON

	Emanuel R. Pearlman
(2)	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
	(a) x
	(b) ¨
(3)	SEC USE ONLY

(4)	SOURCE OF FUNDS

	N/A
(5)	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)	¨


(6)	CITIZENSHIP OR PLACE OF ORGANIZATION

	United States


NUMBER OF SHARES BENEFICIALLY OWNED BY PERSON WITH		(7) SOLE VOTING POWER

		35,000
		(8) SHARED VOTING POWER

		4,206,880
		(9) SOLE DISPOSITIVE POWER

		35,000
		(10) SHARED DISPOSITIVE POWER

		4,206,880


(11)	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

	4,619,450
(12)	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES	¨

(13)	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

	11.20%
(14)	TYPE OF REPORTING PERSON

	IN, HC

Page 5

INTRODUCTORY STATEMENT

This Amendment No. 26 (this “ Amendment “) relates to the Schedule 13D filed on behalf of (i) Liberation Investments, L.P., a Delaware limited partnership (“ LILP “); (ii) Liberation Investments, Ltd. (“ LILTD “), a private offshore investment corporation; (iii) Liberation Investment Group, LLC (“ LIGLLC “), a Delaware limited liability company and general partner of LILP and discretionary investment advisor to LILTD; and (iv) Emanuel R. Pearlman, as General Manager and majority member of LIGLLC (collectively with LILP, LILTD and LIGLLC, the “ Reporting Persons “), with the Securities and Exchange Commission on June 8, 2004, as amended by Amendment No. 1 filed on July 13, 2004, Amendment No. 2 filed on August 27, 2004, Amendment No. 3 filed on September 1, 2004, Amendment No. 4 filed on September 10, 2004, Amendment No. 5 filed on December 13, 2004, Amendment No. 6 filed on April 26, 2005, Amendment No. 7 filed on May 6, 2005, Amendment No. 8 filed on July 19, 2005, Amendment No. 9 filed on July 22, 2005, Amendment No. 10 filed on September 19, 2005, Amendment No. 11 filed on October 11, 2005, Amendment No. 12 filed on October 31, 2005, Amendment No. 13 filed on November 14, 2005, Amendment No. 14 filed on November 22, 2005, Amendment No. 15 filed on December 7, 2005, Amendment No. 16 filed on December 14, 2005, Amendment No. 17 filed on December 23, 2005, Amendment No. 18 filed on December 27, 2005, Amendment No. 19 filed on January 12, 2005, Amendment No. 20 filed on January 17, 2005, Amendment No. 21 filed on January 18, 2005, Amendment No. 22 filed on January 26, 2006, Amendment No. 23 filed on August 14, 2006, Amendment No. 24 filed on August 29, 2006 and Amendment No. 25 filed on June 7, 2007 (the “ Schedule 13D “), relating to shares of common stock (the “ Common Stock “), $.01 par value per share, of Bally Total Fitness Holding Corporation (the “ Company “).

Items 2, 4, 5, 6 and 7 of the Schedule 13D are hereby amended and supplemented as follows:

ITEM 2.

IDENTITY AND BACKGROUND

As discussed further in Item 4, the Reporting Persons have formed a group (the “Group”) with Harbinger Capital Partners Master Fund I, Ltd. (“Harbinger”), Harbinger Capital Partners Offshore Manager, L.L.C., the investment manager of Harbinger, HMC Investors, L.L.C., its managing member (“HMC Investors”), Harbert Management Corporation (“HMC”), the managing member of HMC Investors and the parent of HMCNY, Philip Falcone, a shareholder of HMC and the portfolio manager of Harbinger and the Special Fund, Raymond J. Harbert , a shareholder of HMC, and Michael D. Luce, a shareholder of HMC, for the purpose of (i) opposing the Restructuring; and (ii) proposing the Shareholder Plan described in Item 4 below.

ITEM 4.

PURPOSE OF TRANSACTION

On July 5, 2007 the Reporting Persons formed a Group with Harbinger for the purpose of (i) opposing the Restructuring; and (ii) proposing the Shareholder Plan.

On July 4, 2007, Kasowitz, Benson, Torres and Friedman LLP, counsel to the Reporting Persons and Harbinger, sent a letter (the “Shareholder Plan Letter”) (a copy of which is attached hereto as exhibit 99.38) to the Board in which LILP, LILTD, Harbinger and the Special Fund (the “Shareholders”) propose a plan of reorganization (the “Shareholder Plan”). The Shareholder Plan would adopt the terms of the Restructuring, with the following modifications: (i) existing shareholders would receive 10% of the reorganized equity of the Company and rights to participate in a rights offering for an additional 10% of the reorganized equity, (ii) Harbinger and the Special Fund would backstop the rights offering and own 80% of the reorganized equity of the Company in any event, (iii) holders of Senior Subordinated Notes would receive $60 million in cash in lieu of reorganized equity of the Company, (iv) holders of claims in Class 6-B-1 (Rejection Claims Against Bally) would receive payment in full in cash in the allowed amount of their claims, and (v) holders of claims in Class 7 (Subordinated Claims) would receive payment in full in cash.

In addition, the Shareholder Plan Letter demands that the Company delay the filing of any bankruptcy proceedings in furtherance of the Restructuring to enable the Shareholders to complete their due diligence and sign a definitive agreement with the Shareholders on an expedited basis. The foregoing description of the Shareholder Plan Letter is a summary only and is qualified in its entirety by reference to the Shareholder Plan Letter, which is attached hereto as Exhibit 99.38.

In addition to the foregoing, the Group may engage in discussions with the Company’s stockholders, management, Board or third parties with respect to the Restructuring, the matters set forth in the Shareholder Plan Letter, alternative strategies to maximize stockholder value, the formulation of additional plans or proposals to refinance or restructure the Company’s indebtedness, or means to improve the Company’s governance.

The Group may also engage in discussions with the Company’s stockholders with respect to their investment in the Company, the possible formation of a committee of holders of the Common Stock, measures to actively resist the implementation of the Restructuring and preserve stockholder value, strategies to ensure that the Board and the management of the Company fully and faithfully discharge their fiduciary duties to stockholders, and such other actions with respect to their investment in the Company as the Group may determine to be appropriate.

The Group may determine to attempt to arrange or participate with third parties in an extraordinary corporate transaction with respect to the Company, such as an acquisition, a sale of all or substantially all of the Company’s assets, a reorganization, a recapitalization, liquidation, or a significant debt or equity investment. The Group may or may not participate in such a transaction.

Page 6

In addition to the foregoing, the Group may pursue other alternatives to maximize the value of their investment in the Company. Such alternatives could include, without limitation, the purchase of additional Common Stock in the open market, in privately negotiated transactions or otherwise, and the sale of all or a portion of the Common Stock now owned or hereafter acquired by them in the open market, in privately negotiated transactions or otherwise. The Group may also transfer shares to another member of the Group or one or more third parties.

The Reporting Persons reserve the right to revise their plans or intentions at any time and to take any and all actions that they may deem appropriate to maximize the value of their investment in the Company in light of their general investment policies, market conditions, subsequent developments affecting the Company and the general business and future prospects of the Company.

The Reporting Persons have no plans or proposals as of the date of this filing which, other than as expressly set forth above, relate to, or would result in, any of the actions enumerated in clauses (a) through (j) of Item 4 of Schedule 13D.

ITEM 5.

INTEREST IN SECURITIES OF THE ISSUER

(a) As of the date hereof, the following person have the following interests in the Common Stock of the Company:

(i)

LILP beneficially owns 2, 710,042 shares of Common Stock and is the beneficial owner of 6.57% of the Common Stock, not including the shares of Common Stock beneficially owned by Harbinger. Including shares owned by Harbinger, LILP beneficially owns 4,619,450 shares of Common Stock and is the beneficial owner of 11.20% of the Common Stock.

(ii)

LILTD beneficially owns 1,461,838 shares of Common Stock and is the beneficial owner of 3.54% of the Common Stock, not including the shares of Common Stock beneficially owned by Harbinger. Including shares owned by Harbinger, LILTD beneficially owns 4,619,450 shares of Common Stock and is the beneficial owner of 11.20% of the Common Stock.

(iii)

LIGLLC, as the sole general partner of LILP and the sole investment advisor to LILTD, beneficially owns 4,171,880 shares of Common Stock and is the beneficial owner of 10.11% of the Common Stock, not including the shares of Common Stock beneficially owned by Harbinger. Including shares owned by Harbinger, LIGLLC, beneficially owns 4,619,450 shares of Common Stock and is the beneficial owner of 11.20% of the Common Stock.

(iv)

Mr. Pearlman beneficially owns 35,000 shares of Common Stock and, as the majority member and General Manager of LIGLLC, beneficially owns 4,206,880 shares of Common Stock, and is the beneficial owner of 10.20% of the Common Stock, not including the shares of Common Stock beneficially owned by Harbinger. Including shares owned by Harbinger, Mr. Pearlman beneficially owns 4,619,450 shares of Common Stock and is the beneficial owner of 11.20% of the Common Stock.

(v)

Based on information provided by Harbinger, Harbinger beneficially owns 412,570 shares of Common Stock, and is the beneficial owner of 1.0% of the Common Stock, not including the shares of Common Stock owned by the Reporting Persons. Including shares owned by the Reporting Persons, Harbinger beneficially owns 4,619,450 shares of Common Stock and is the beneficial owner of 11.20% of the Common Stock.

The Reporting Persons in the aggregate may be deemed to own 11.20% of the Common Stock of the Company.

(b) The table below sets forth for each Reporting Person the numbers of shares of Common Stock for which there is sole or shared power to vote or to direct the vote, or sole or shared power to dispose or to direct the disposition, of the Company Stock:


	LILP	LILtd	LIGLLC	Mr. Pearlman
Sole Power to Vote/Direct Vote	0	0	0	35,000
Shared Power to Vote/Direct Vote	2,710,042	1,461,838	4,171,880	4,206,880
Sole Power to Dispose/Direct Disposition	0	0	0	35,000
Shared Power to Dispose/Direct Disposition	2,710,042	1,461,838	4,171,880	4,206,880

(c) The following is a list of all purchases or sales of the Company’s Common Stock by the Reporting Persons within the past 60 days:

(i) On July 5, 2007, (i) LILP sold 268,171 shares of Common Stock pursuant to the Purchase and Sale Agreement, at a price of $0.50 per share, and (ii) LILTD sold 144,399 shares of Common Stock pursuant to the Purchase and Sale Agreement, at a price of $0.50 per share.

(d) No person other than each respective owner of Common Stock referred to in this Amendment is known to have the right to receive or the power to direct the receipt of dividends from or the proceeds from the sale of such Common Stock.

(e) Not applicable.

Page 7

ITEM 6.

CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER

On July 5, 2007, LILP, LILTD and Harbinger entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) pursuant to which LILP sold 268,171 shares of Common Stock of the Company and LILTD sold 144,399 shares of Common Stock of the Company (together, the “Purchased Shares”) to Harbinger in exchange for (i) a purchase price of $0.50 per share, or an aggregate purchase price of $206,285.00 (ii) contingent post closing consideration in the form of a right to receive 10% of any return received by Harbinger or its affiliates on its investment in the Company in connection with a reorganization of the Company by Harbinger and sellers which reorganization is actually consummated within 360 days of the sale under the Purchase and Sale Agreement (an “Acceptable Reorganization”), after certain expenses, in excess of the amount required to provide Harbinger with an annual internal rate of return of 20% on such investment, and (iii) a right to receive additional cash compensation based on the increase in value of the Common Stock of the Company from $0.60 per share to the fair market value at the Measurement Date in respect of 4,171,880 shares of Common Stock or such other number of shares equivalent to the number of shares a 10% owner of the Company as of June 30, 2007 would be entitled to receive in an Acceptable Reorganization (x) upon a disposition by Harbinger of equity securities of the Company as a result of which Harbinger will own less than 10% of the total common stock of the Company or (y) upon the second anniversary of the closing of an investment pursuant to an Acceptable Reorganization, each of (x) or (y), as applicable, a “Measurement Date”.

Pursuant to the Purchase and Sale Agreement the parties have further agreed, as soon as practicable after the closing date under the Purchase and Sale Agreement, to enter into a joint defense agreement pursuant to which the parties will agree to engage and be represented by the same legal counsel (i) in connection with any matter concerning the parties joint interests with respect to the Company’s restructuring, and (ii) in connection with any bankruptcy proceeding.

In addition, pursuant to the Purchase and Sale Agreement the parties agreed to cooperate and work together in pursuing a restructuring and/or reorganization of the Company, whether in-court or out-of-court, on mutually-agreeable terms. The parties further agree to cooperate and work together in undertaking appropriate due diligence relating to a reorganization, and in negotiating and drafting, appropriate documentation in relation to such reorganization. .The foregoing description of the Purchase and Sale Agreement is a summary only and is qualified in its entirety by reference to the Purchase and Sale Agreement, which attached hereto as Exhibit 99.36.

LILP, LILTD and Harbinger also entered into a Letter Agreement, dated July 5, 2007 (the “Letter Agreement”) pursuant to which the parties recognized, among other things, that Harbinger has entered into one of more prior transactions with the Company as a result of which Harbinger may have or may later come into possession of non-public information related to the Company that may not be known to LILP or LILTD. The foregoing description of the Letter Agreement is a summary only and is qualified in its entirety by reference to the Letter Agreement, which is attached hereto as Exhibit 99.37.

ITEM 7.

MATERIAL TO BE FILED AS EXHIBITS

The following exhibits are filed with this Amendment:


Exhibit 99.36.		Purchase and Sale Agreement, dated July 5, 2007, among Liberation Investments, L.P., Liberation Investments, Ltd. and Harbinger Capital Partners Master Fund 1, LTD.

Exhibit 99.37.		Letter Agreement, dated July 5, 2007, among Liberation Investments, L.P., Liberation Investments, Ltd. and Harbinger Capital Partners Master Fund 1, LTD.

Exhibit 99.38.		Letter to the Board of Directors of the Company, dated July 4, 2007.

Page 8

SIGNATURE

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

Dated: July 6, 2007


LIBERATION INVESTMENTS, L.P.
By:		Liberation Investment Group LLC, general partner

By:		/s/ Emanuel R. Pearlman
		Emanuel R. Pearlman
		General Manager

LIBERATION INVESTMENTS, LTD.

By:		/s/ Emanuel R. Pearlman
		Emanuel R. Pearlman
		Director

LIBERATION INVESTMENT GROUP, LLC

By:		/s/ Emanuel R. Pearlman
		Emanuel R. Pearlman
		General Manager

EMANUEL R. PEARLMAN

/s/ Emanuel R. Pearlman

Page 9

EX-99.36 2 dex9936.htm PURCHASE AND SALE AGREEMENT Purchase and Sale Agreement

Exhibit 99.36

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT, dated as of July 5, 2007 (this “Agreement”), is made by each of LIBERATION INVESTMENTS, L.P. and LIBERATION INVESTMENTS, Ltd. (each, a “Seller” and together, the “Sellers”) and HARBINGER CAPITAL PARTNERS MASTER FUND I, LTD. (the “Purchaser”). Capitalized terms not otherwise defined herein shall be defined in Schedule I attached hereto.

WHEREAS, the Sellers have heretofore acquired approximately 11% of the outstanding common stock , par value $0.01 per share (the “Sellers’ Shares) of Bally’s Total Fitness Holding Corporation, a Delaware corporation (the “Company”); and

WHEREAS, Purchaser has agreed to purchase 412,570 shares or 1% of the shares of outstanding common stock of the Company (the “Purchased Shares”) from the Sellers, and the Sellers have agreed to sell the Purchased Shares for the Purchase Price (defined below);

WHEREAS, in connection with the purchase of the Purchased Shares, Purchaser and Sellers have agreed to certain post closing arrangements, including but not limited to, Sellers’ right to receive certain contingent compensation in the form of a contingent payment and an option right pursuant to the terms set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises, warranties, covenants and agreements contained herein, the parties, intending to be legally bound, hereby agree as follows:

1. Purchase and Sale. On the terms and subject to the conditions of this Agreement, Purchaser shall purchase from Sellers, and Sellers shall indefeasibly sell, transfer, assign, convey and deliver to the Purchaser, the Purchased Shares for a price equal to fifty cents ($0.50) per share for an aggregate purchase price payable to Sellers of $206,285.00 (the “Purchase Price”).

2. Conditions Precedent. The parties agree that Purchaser’s obligation to pay the Purchase Price to Sellers to acquire the Purchased Shares shall be subject to the satisfaction of the following conditions prior to the Closing Date (as defined below):

(a) Sellers shall cause indefeasible delivery and transfer of the Purchased Shares to Purchaser pursuant to Purchaser’s DTC instructions specified in Schedule II;

(b) Each of Purchaser and each Seller shall have received a fully executed copy of this Agreement, and

3. Settlement. The parties agree that the following shall be the settlement procedure for the purchase and sale of the Purchased Shares:

(a) Upon Purchaser’s indefeasible receipt of (i) the Purchased Shares, and (ii) a copy of this Agreement and the Big Boy Letter each duly executed by each Seller, Purchaser shall forward the Purchase Price to Sellers in immediately available funds pursuant to Sellers’ instructions set forth below. The date on which Sellers receive the Purchase Price shall be the “Closing Date”.

DTC transfer instructions for each Seller and Purchaser (including the portion of the Purchase Price payable to such Seller) are as provided to each Seller and Purchaser in writing.

4. Post Closing Seller Compensation. The parties hereby agree that as of the date that is the earlier of (a) the date Purchaser sells equity securities in the Company if after giving effect to such sale Purchaser owns less than 10% of the total common stock of the Company that Purchaser owned as of the effective date of an Acceptable Reorganization (the “ Purchaser Disposition Date”) or (b) the date that is the second anniversary of the closing of an investment pursuant to an Acceptable Reorganization, (the “Optional Measurement Date, and together with the Purchaser Disposition Date, each a “Contingent Payment Date”), Purchaser will pay Sellers additional amounts, if any (the “Contingent Purchase Price”), equal to ten percent (10%) of the Net Excess Return that has been received or earned by Purchaser as of the relevant Contingent Payment Date. In order to calculate the Net Excess Return, the Purchaser shall determine the Fair Market Value of its aggregate investment in the Company on the relevant Contingent Payment Date, based on the Market Price Average of the Purchaser’s investment in the Company or, if no Market Price Average is available, as determined by an opinion of a reputable investment banking firm that is mutually agreeable to the parties. Both parties acknowledge and agree that there is no guarantee that (a) Purchaser will ever realize a Net Excess Return, (b) any Contingent Purchase Price will ever be paid to Sellers, and/or (c) an Acceptable Reorganization will be consummated within 360 days of the Closing Date. Each Seller further acknowledges and agrees that Purchaser makes no warranties or representations as to whether a Net Excess

-2-

Return and/or Contingent Purchase Price will be realized. Notwithstanding anything to the contrary in the foregoing, at any time on or immediately before the Optional Measurement Date, each Seller may request in writing that Purchaser retain the Contingent Purchase Price and each Seller shall thereafter receive the Contingent Purchase Price only upon Purchaser’s sale of the equity securities in the Company if after giving effect to such sale Purchaser owns less than 10% of the total common stock of the Company that Purchaser owned as of the effective date of an Acceptable Reorganization and at such time Purchaser shall determine the Contingent Purchase Price on terms set forth herein. The right to receive the Contingent Purchase Price is solely personal to the Seller, and under all circumstances, cannot be transferred, assigned, sold, hypothecated or encumbered.

5. Seller Purchase Option. (a) For a period of three trading days after Sellers receive notice from Purchaser of the occurrence of a Purchaser Disposition Date or of a pending Optional Measurement Date, then Seller shall have the right to exercise its option to purchase the Option Shares from the Purchaser (the “Option”) at a price of sixty cents ($0.60) per share (the “Option Price”). In the event the Company’s Shares are cancelled as a result of any bankruptcy proceeding or other reorganization and Purchaser receives at least ten percent (10%) of the new common stock of the Company as part of an Acceptable Reorganization, Seller shall be entitled to instead purchase from Purchaser at a price that is equivalent to sixty cents ($0.60) per share for the shares issued prior to any bankruptcy proceeding or reorganization involving the Company, the number of shares of the new common stock of the Company or its successor that is equivalent to the number of shares a ten percent (10%) owner of the Company as of June 30, 2007 (the “Record Date”) would have received or retained in the newly reorganized Company or its successor as part of the Acceptable Reorganization; provided however, that such number of shares the Seller shall be entitled to purchase shall be determined by excluding any rights or shares that a ten percent (10%) owner would be entitled to after the Record Date. For the avoidance of doubt, Sellers rights as set forth in this Section 5(a) shall not be applicable or otherwise relate to any common stock of the Company purchased by the Purchaser after a reorganization by the Company.

(b) The Option shall be a one-time, all-or-nothing right, exercisable by Seller as a “cashless” exercise by Seller, pursuant to the terms set forth in Section 5(a). The cash amount to be delivered to Seller in connection with the exercise of the Option, for the purposes of this Agreement, shall be equal to the Current Market Price of the common stock of the Company minus the Option Price, times the number of Option Shares. The Option is solely personal to the Seller, and under all circumstances, cannot be transferred, assigned, sold, hypothecated or encumbered.

6. Purchaser Conditions for Contingent Payment and Option Exercise. The Purchaser and each Seller hereby agrees that each Seller’s right to (i) receive the Contingent Purchase Price and (ii) exercise the Option, pursuant to the terms set forth in Sections 4 and 5 above, shall not apply if (x) Purchaser does not make an investment in the Company other than Purchaser’s purchase of the Purchased Shares, (y) Sellers fail to satisfy their obligations to cooperate with Purchaser as set forth in Sections 7 and 8 below, and/or (z) an Acceptable Reorganization is not consummated within 360 days of the Closing Date.

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7. Joint Defense in Bankruptcy Proceeding. (a) The parties hereby agree that in the event the Company and/or any of its affiliates or subsidiaries is subject to a bankruptcy, liquidation, reorganization, insolvency or restructuring proceeding, under Chapter 11, Chapter 7, state law or any other similar or related proceeding (the “Bankruptcy Proceeding”), the parties have a common interest in preparing for and conducting a common defense; the parties therefore agree to engage the same counsel to represent the parties’ interests in connection with any Bankruptcy Proceeding and as soon as practicable after the Closing Date, the parties shall duly execute and enter into a joint defense agreement which further details the terms with respect to the parties’ common defense.

(b) Notwithstanding anything to the contrary set forth in the foregoing, the parties further agree that without regard to whether the Company is subject to a Bankruptcy Proceeding, any joint/common defense agreement shall include the parties’ obligation to cooperate and use the same counsel in connection with any matter concerning the parties’ joint interests with respect to the Company.

8. Cooperation. (a) The parties agree to cooperate and work together in pursuing a restructuring and/or reorganization of the Company, whether in-court or out-of-court, on mutually-agreeable terms. The parties further agree to cooperate and work together in undertaking appropriate due diligence relating to an Acceptable Reorganization, and in negotiating, and then drafting, appropriate documentation in relation to an Acceptable Reorganization. The parties acknowledge that such cooperation will require that they each potentially receive restrictive, material and/or non-public information in relation to the Company. The parties further acknowledge and agree that in order to maximize the value of the investment contemplated under this Agreement, including but not limited to maximizing the value of the Contingent Purchase Price and the Option, the time period for such cooperation described in this section and/or section 7 above, shall commence at the Closing Date and continue after any reorganization and operational turnaround by the Company and through the Optional Measurement Date. From and after the Closing Date any expenses incurred by the parties in connection with the obligations set forth in this section and/or section 7 above, including legal and financial advisory fees (the “Transaction Expenses”) shall be the sole responsibility of the Purchaser and each of the Sellers shall not incur any Transaction Expenses without Purchaser’s prior written consent. Any Transaction Expenses incurred by Seller without Purchaser’s prior written consent shall be the sole responsibility of Seller.

(b) Notwithstanding anything to the contrary set forth in subsection (a) above, Purchaser shall not be obligated to pay any Transaction Expenses for any period after which Purchaser has notified Seller in writing that Purchaser has terminated its efforts to effectuate an Acceptable Reorganization.

Notwithstanding the terms and agreements contained in Section 7 and this Section 8, Purchaser and each Seller further agree that at any time after Purchaser completes it cash investment in connection with (i) the reorganization of the Company, as a sponsor of a plan in the relevant bankruptcy proceeding or otherwise or (ii) a rights offering by the Company, each Seller shall be entitled at any time in its sole discretion to sell or otherwise dispose of, in whole or in part, any securities of the Company or its successors held by such Seller and no such sale or disposition shall be deemed to be a failure to cooperate or other breach of any of the terms contained in Section 7 and this Section 8; provided however, that any sale of the Company’s securities by such Seller shall not include such Seller’s right to receive the Contingent Purchase Price and/or exercise the Option pursuant to the terms set forth in Sections 4 and 5 above. Each Seller further acknowledges and agrees that its obligations under Section 7 and this Section 8 shall remain in full force and effect without regard to any sale by such Seller.

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9. Representations and Warranties of each Seller. Each Seller represents and warrants to, and covenants with, the Purchaser as of the date hereof, and as of the date the purchase and sale of the Purchased Shares is completed, that:

(a) Such Seller is an entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, has the requisite right, power and authority, and has taken all actions necessary to execute, deliver and perform its obligations under this Agreement. This Agreement has been duly executed and delivered by such Seller and (assuming the due authorization, execution and delivery hereof by Purchaser) is a valid and binding obligation of such Seller, enforceable against it in accordance with its terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general applicability relating to or affecting creditors’ rights and to general equity principles. The execution and delivery of this Agreement, the compliance by such Seller with all the provisions of, and the performance by such Seller of its obligations under, this Agreement and the consummation of the transactions contemplated in this Agreement will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, (i) the constitutive documents of such Seller, (ii) any material instrument, contract or other agreement to which such Seller or by which such Seller or any of its material properties or assets or the Purchased Shares may be bound or subject, in each case, the breach or violation of which or default under which would be reasonably expected to have a material adverse effect on the ability of such Seller to comply with its obligations hereunder, or (iii) any law, statute or any order, rule, regulation, order, writ, injunction, determination, award, judgment or decree of any court or governmental agency or body having jurisdiction over such Seller or the applicable Purchased Shares, or any stock exchange authority or self-regulatory organization (each, a “Governmental Authority”); and no consent, approval, authorization, order, registration, clearance, or qualification or notification is required for the sale and delivery of the Purchased Shares by such Seller under this Agreement;

(b) The offer and sale of the Purchased Shares by such Seller hereunder is exempt from the registration requirements of any applicable state or federal securities laws and the Purchased Shares were purchased by the Seller in one or more public sale transactions;

(c) Such Seller has and will indefeasibly transfer to Purchaser valid and marketable title to the Purchased Shares, free and clear of any liens, claims or encumbrances of any kind (unless created by Purchaser) (together, the “Lien”). Other than as contemplated by this Agreement, such Seller shall not sell, assign, or otherwise transfer all or any portion of its right, title and interest in and to the Purchased Shares, or create, incur, assume or permit to exist any Lien on the Purchased Shares;

(d) Such Seller (i) is a sophisticated seller with respect to the sale of the Purchased Shares, (ii) has adequate information concerning the business and financial condition of the Company to make an informed decision regarding the sale of the Purchased Shares, and (iii) has independently and without reliance upon Purchaser, and based on such information as such Seller has deemed appropriate, made its own analysis and decision to enter into this Agreement and sell the Purchased Shares;

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(e) Such Seller is not an “affiliate” of the Company (as such term is defined in Rule 144 of the Securities Act; and

(f) Such Seller acknowledges that neither the Purchaser nor any of their respective members, officers, directors, employees, agents or affiliates has made any representation or warranty, express or implied, regarding the Company or the Purchased Shares, other than the representations and warranties set forth herein.

10. Representations and Warranties of Purchaser. Purchaser represents and warrants to, and covenants with, the Sellers as of the date hereof, and as of the date the purchase and sale of the Purchased Shares is completed, that:

(a) Purchaser is an entity duly organized, validly existing and in good standing under the laws of its state of organization, has the requisite right, power and authority, and has taken all actions necessary to execute, deliver and perform its obligations under this Agreement. This Agreement has been duly executed and delivered by Purchaser and (assuming the due authorization, execution and delivery hereof by the Sellers) is a valid and binding obligation of Purchaser, enforceable in accordance with its terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general applicability relating to or affecting creditors’ rights and to general equity principles. The execution and delivery of this Agreement by Purchaser, the compliance by Purchaser with all the provisions of, and the performance by Purchaser of its obligations under, this Agreement and the consummation of the transactions contemplated in this Agreement will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, (i) the constitutive documents of Purchaser, (ii) any material instrument, contract or other agreement to which Purchaser is a party or by which Purchaser or any of its material properties or assets may be bound or subject, in each case, the breach or violation of which or default under which would be reasonably expected to have a material adverse effect on the ability of Purchaser to comply with its obligations hereunder, or (iii) any law, statute or any order, rule, regulation order, writ, injunction, determination, award, judgment or decree of any Governmental Authority; no consent, approval, authorization, order, registration, clearance or qualification or notification is required for the purchase of the Purchased Shares by Purchaser under this Agreement;

(b) Purchaser is an “accredited investor” within the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”);

(c) Purchaser (i) is a sophisticated investor with respect to the purchase of the Purchased Shares, (ii) can bear the economic risk of its investment in the Purchased Shares and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment of the Purchased Shares, (iii) has adequate information concerning the business and financial condition of the Company to make an informed decision regarding the purchase of the Purchased Shares, and (iv) has independently and without reliance upon Sellers, and based on such information as Purchaser has deemed appropriate, made its own analysis and decision to enter into this Agreement and purchase the Purchased Shares;

(d) Purchaser acknowledges that neither Sellers nor any of their respective members, officers, directors, employees, agents or affiliates has made any representation or warranty, express or implied, regarding the Company or the Purchased Shares, other than the representations and warranties set forth herein.

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11. Acts and Decisions. Until such time as Purchaser receives the Purchased Shares, if for any reason any Seller is entitled to exercise any voting and/or other rights and remedies with respect to the Purchased Shares, such Seller shall take (or refrain from taking) any action with respect to the Purchased Shares in accordance with the prior written instructions of Purchaser, except as prohibited under applicable law, rule or order.

12. Confidentiality. No party will, without the prior written consent of the other party hereto, directly or indirectly, make any disclosure with respect to this Agreement except as may be required by applicable law or any order, rule or regulation of any Governmental Authority, or its accountants, attorneys, administrators, brokers, representatives and/or other service providers as may be necessary in the ordinary course of its business.

13. Further Assurances. The parties to this Agreement agree to execute, acknowledge and deliver such further instruments and to do all such other acts, as may be necessary or appropriate in order to perfect title of Purchaser and its successors and assigns to the Purchased Shares or otherwise to carry out the purposes and intent of this Agreement.

14. Assignment. This Agreement shall not be assigned by any Seller or Purchaser without the other party’s prior written consent.

15. Costs and Expenses. Each party to this Agreement shall be responsible for such party’s own expenses in connection with this Agreement.

16. Governing Law. This Agreement shall be governed by and construed under the laws of the State of New York without giving effect to the conflicts of laws principles thereof.

17. Counterparts, Entire Agreement, No Oral Modification. This Agreement may be executed by any party hereto by facsimile or electronic transmission in any number of counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument and, together with the Big Boy Letter, represents the complete understanding of the parties hereto with respect to the subject matter hereof and may be amended or modified only in writing signed by the parties hereto.

18. Survival. All representations, warranties, covenants and agreements contained in or made pursuant to this Agreement shall survive the transfer and payment for the Purchased Shares and the consummation of the transactions contemplated hereunder.

19. Severability. If any one or more of the provisions contained in this Agreement, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement. Furthermore, in lieu of any such invalid or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible and be valid and enforceable.

(signatures on following page)

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date and year first above written.


HARBINGER CAPITAL PARTNERS MASTER FUND I, LTD.

By:		Harbinger Capital Partners Offshore Manager, LLC, its Investment Manager

By:		/s/ William R. Lucas, Jr.
		Name: William R. Lucas, Jr.
		Title: Executive Vice President

LIBERATION INVESTMENTS, L.P.

By:		Liberation Investment Group, LLC

By:		/s/ Emanuel Pearlman
		Name: Emanuel Pearlman
		Title: General Partner

LIBERATION INVESTMENTS, LTD.

By:		/s/ Emanuel Pearlman
		Name: Emanuel Pearlman
		Title: Director

Schedule I

Definitions

Acceptable Reorganization means a reorganization or restructuring of the Company and its assets and liabilities supported by Purchaser and Seller which reorganization or restructuring is actually consummated within 360 days of the Closing Date.

Big Boy Letter means that certain letter dated as of the date hereof between the Purchaser and the Seller attached hereto as Exhibit 1.

Current Market Price means the closing price of the Company’s or its successors common stock as of the date Seller provides Purchaser with written notice of its election to exercise the Option.

Market Price Average means the average of the closing price of the securities for each of the 30 trading days prior to the relevant Contingent Payment Date; provided however, that in respect of any sale, in whole or in part, by Purchaser of shares of Common Stock of the Company, “Market Price Average” in respect of such shares sold shall be deemed to be the purchase price Purchaser receives in any such sale.

Net Excess Return equals the portion of the Return on Investment Amount in excess of the amount required to provide the Purchaser with an annual rate of return of twenty percent (20%) on the Original Investment, net of any third party fees, expenses and related costs but excluding any interest expenses incurred by the Purchaser on its own behalf and not in connection with the Company reorganization, as measured from the date of the Original Investment through the relevant Contingent Payment Date.

Option Shares means 4,171,880 shares of common stock of the Company issued prior to the Closing Date.

Original Investment means the cash investment by Purchaser or its affiliates in the Company in connection with an Acceptable Reorganization.

Return on Investment Amount means (a) in the event Purchaser sells its shares of common stock of the Company, then the amount in cash received by Purchaser as a result of such sale, and (b) in the event Purchaser does not sell its shares of common stock of the Company, the amount equal to the excess of the Fair Market Value as determined by the Purchaser on a relevant Contingent Payment Date, in each case plus all amounts received by Purchaser or its affiliates in respect of Purchaser’s equity interest in the Company by way of a dividend, distribution, or other payment or compensation, and in each case minus the Original Investment, but in each case shall exclude any amount attributable to common stock of the Company purchased by Purchaser after a reorganization of the Company.

Schedule II

Purchaser DTC Instructions

DTC:

[TO BE PROVIDED]

EX-99.37 3 dex9937.htm LETTER AGREEMENT Letter Agreement

Exhibit 99.37

HARBINGER CAPITAL PARTNERS

MASTER FUND I, LTD.

ONE RIVERCHASE PARKWAY SOUTH

BIRMINGHAM, ALABAMA 35244

July 5, 2007

Liberation Investments, L.P.

Liberation Investments, Ltd.

c/o Liberation Investment Group

330 Madison Ave., 6^th Floor

New York, NY 10017

Ladies and Gentlemen:

Reference is made to the sale by each of Liberation Investments, L.P. and Liberation Investments, Ltd. (together, the “Seller”) of 268,171 and 144,399 shares respectively, of common stock (the “Seller Shares”) $.01 par value, of Bally’s Total Fitness Holding Corporation (the “Company”), such Seller’s Shares to represent 1% of the total outstanding common stock to the Company, to Harbinger Capital Partners Master Fund I, Ltd. (the “Buyer”)

1. In connection with its purchase of the Seller’s Shares, Buyer has informed Seller that:

(i)

Buyer and the Company have engaged in one or more prior transactions which resulted in Buyer and the Company entering into a legally binding Confidentiality Agreement; accordingly Buyer may have or later come into possession of non-public information related to the Company that may not be known to Seller, and will not be disclosed to Seller, which information, in each case may be material to the Company and/or the value of the Shares (collectively “Seller Excluded Information”);

2. In connection with its sale of the Seller Shares to Buyer and its affiliates, Seller, on behalf of itself and its affiliates, hereby represents and warrants that:

(i)

it has decided to sell the Seller Shares, based on its own independent investigation, notwithstanding its lack of knowledge concerning the Seller Excluded Information;

(ii)

Buyer shall have no liability to Seller or its affiliates, and Seller, on behalf of itself and its affiliates, waives any and all claims it might have against Buyer or any of Buyer’s officers, directors, agents, affiliates, partners, managers or members (the “Buyer Releasees”), whether under applicable securities laws or otherwise, with respect to the non-disclosure of the Seller Excluded Information; neither Seller nor its affiliates shall sue or assert or maintain, any claim, suit or other proceeding, known or

Harbinger Capital Partners Master Fund I, Ltd.

July 5, 2007

Page 2 of 3

unknown, which the Seller or its affiliates may now or in the future have against any Buyer Releasees, based upon or relating to the Seller Excluded Information and Seller agrees to indemnify and holder Buyer harmless from any breach of the foregoing;

(iii)

it has not requested and does not want to receive the Seller Excluded Information; and

(iv)

it has had the opportunity to, and did in fact, consult with counsel concerning the sale of the Seller Shares and the implications for the purchase of the matters set forth in this letter.

3. This Agreement and the related Purchase and Sale Agreement constitutes the entire agreement and understanding of the parties in respect of the subject matter hereof and supersedes all prior understandings, agreements or representations by or among the parties, written or oral, to the extent they relate in any way to the subject matter hereof.

4. The provisions of this Agreement will be deemed severable and the invalidity or unenforceability of any provision will not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, as applied to any party or to any circumstance, is judicially determined not to be enforceable in accordance with its terms, the parties agree that the court making such determination may modify the provision in a manner consistent with its objectives, and/or to delete specific words or phrases, so that in its modified form such provision will then be enforceable and will be enforced.

5. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, without regard to the conflicts of laws principles thereof that would require the application of the laws of any other jurisdictions.

6. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR THE SALE OF THE SELLER SHARES SHALL BE BROUGHT EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES LOCATED IN NEW YORK COUNTY, NEW YORK. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES HERETO IRREVOCABLY AGREES TO THE EXCLUSIVE JURISDICTION OF THOSE COURTS AND WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH COURTS IN RESPECT OF THIS AGREEMENT OR THE SALE OF THE SHARES.

Harbinger Capital Partners Master Fund I, Ltd.

July 5, 2007

Page 3 of 3

7. This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. The transmission by telecopier of a signed counterpart of this Agreement shall be deemed due and sufficient delivery thereof.


Sincerely yours,

HARBINGER CAPITAL PARTNERS MASTER FUND I, LTD.

By:		Harbinger Capital Partners Offshore Manager LLC, its Investment Manager

By:		/s/ William R. Lucas , Jr.
Name:		William R. Lucas, Jr.
Title:		Executive Vice President

ACCEPTED AND AGREED:


Liberation Investments, L.P.

By:		Liberation Investment Group, LLC

By:		/s/ Emanuel Pearlman
Name:		Liberation Investment Group, LLC
Title:		General Partner

Liberation Investments, Ltd.

By:		/s/ Emanuel Pearlman
Name:		Emanuel Pearlman
Title:		Director

EX-99.38 4 dex9938.htm LETTER TO THE BOARD OF DIRECTORS OF THE COMPANY Letter to the Board of Directors of the Company

Exhibit 99.38

KASOWITZ, BENSON, TORRES & FRIEDMAN LLP


	1633 BROADWAY

	NEW YORK, NEW YORK 10019-6799

	212-506-1700	ATLANTA
ANDREW K. GLENN		HOUSTON
212-506-1747	FACSIMILE: 212-506-1800	NEWARK

July 4, 2007

By Fedex and E-Mail

Board of Directors of Bally Total Fitness Holding Corporation

c/o David S. Heller, Esq.

Latham & Watkins

Sears Tower, Suite 5800

233 South Wacker Drive

Chicago, Illinois 60606

Re:

Proposed Pre-Packaged Plan of Reorganization

Dear Members of the Board:

We represent Liberation Investments, L.P., Liberation Investments, Ltd., Harbinger Capital Partners Master Fund I, Ltd. and Harbinger Capital Partners Special Situations Fund L.P. (collectively, the “Shareholders”), which together own 11% of the common stock issued by Bally Total Fitness Holding Corporation (“Bally” or the “Company”).

The Shareholders are pleased to propose the enclosed term sheet (the “Term Sheet”) embodying the terms of a plan of reorganization (the “Shareholder Plan”). The Shareholder Plan offers the Company and all of its constituents significantly more value than that offered by the proposed Joint Prepackaged Chapter 11 Plan Of Reorganization Of Bally Total Fitness Holding Corporation And Its Affiliate Debtors (the “Bally Plan”). The Shareholder Plan adopts the Bally Plan with the following modifications:

•

Existing shareholders will receive 10% of the reorganized equity¹ and rights to participate in a Rights Offering² for an additional 10% of the reorganized equity.

•

Harbinger Capital Partners Master Fund I, Ltd. and Harbinger Capital Partners Special Situations Fund L.P. will backstop the rights offering and own 80% of the reorganized equity in any event.

¹	All equity distributions discussed hereunder are subject to dilution by a management equity plan to be determined.

²	Capitalized terms not defined herein have the meanings ascribed to them in the Term Sheet.

KASOWITZ, BENSON, TORRES & FRIEDMAN LLP

•

The Shareholder Plan will pay the holders of Senior Subordinated Notes $60 million in cash in lieu of reorganized equity. The Company will otherwise receive the same amount of cash contemplated by the Bally Plan.

•

Holders of claims in Class 6-B-l (Rejection Claims Against Bally) will receive payment in full in cash in the allowed amount of their claims.

•

Holders of claims in Class 7 (Subordinated Claims) will receive payment in full in cash.

In sum, the Shareholder Plan will provide all creditors with distributions in the allowed amount of their claims under the valuation analysis proffered by the Debtors’ financial advisor, Jefferies & Company (“Jefferies”), as set forth in the Company’s disclosure statement. The Shareholder Plan also offers shareholders a substantial recovery regardless of whether they participate in the Rights Offering.

The Shareholder Plan undeniably is superior to the Bally Plan. The Shareholder Plan will be relatively easy to implement because it incorporates many of the salient terms of the Bally Plan. It is subject to substantially the same conditions precedent as the Bally Plan, and the Shareholders have agreed to satisfy their due diligence requirements no later than July 20, 2007. The Shareholder Plan also will avert litigation that inevitably will result should the Company continue to prosecute the Bally Plan.

My clients have made this proposal because representatives of Jefferies indicated that the Company would be receptive to it. David Heller also informed me that the Company would not delay the Bally Plan because the Company did not believe that my clients would be able to raise sufficient capital (but would be receptive if we could). The Term Sheet should allay these concerns. The Shareholders are funds with over $8 billion of capital under management and have the resources and experience with the Company to consummate the Shareholder Plan.

Accordingly, we demand that the Company delay the filing of any bankruptcy proceedings in furtherance of the Bally Plan to enable the Shareholders to complete their due diligence and to sign a definitive agreement with the Shareholders on an expedited basis. My clients believe that they will finalize the Shareholder Plan before the Company’s July 27, 2007 solicitation deadline for the Bally Plan. The Shareholders are prepared to meet with the Company’s advisors on an expedited basis to determine how the Shareholder Plan can be consummated.

We look forward to your prompt response. Nothing herein is a waiver of my clients’ rights and remedies, all of which are hereby reserved.

Very truly yours,

/s/ Andrew K. Glenn

Andrew K. Glenn

Summary of Proposed Principal Terms of Plan of Reorganization for

Bally Total Fitness Holding Corporation, et al., as of July 2, 2007

I.	Purpose and Background

This term sheet (the “Term Sheet”), proposed by Harbinger Capital Partners Master Fund I, Ltd. and Harbinger Capital Partners Special Situations Fund L.P., Liberation Investment Group (collectively, the “Plan Proponents”), describes certain of the principal terms and conditions of a proposed plan of reorganization (the “Plan”) for Bally Total Fitness Holding Corporation (“Bally”) and its proposed affiliated debtors and debtors in possession (collectively, the “Debtors”).

This Term Sheet is subject in its entirety to the provisions of Rule 408 of the Federal Rules of Evidence and any applicable state or other rule of law. This Term Sheet is not an offer with respect to any securities and is not binding and shall not give rise to any binding obligations and no such obligations shall arise unless and until definitive documentation has been executed and the Plan has been confirmed and the effective date (the “Effective Date”) of the Plan has occurred.

II.

Proposed Treatment of Claims and Equity Interests

For the avoidance of doubt, the proposed treatment of claims and equity interests set forth below, as well as the willingness of the Plan Proponents to sponsor a Plan premised upon this Term Sheet, is subject to the satisfaction of certain conditions, including those listed in Section VII hereof.


Nature of Claim or Interest		Proposed Treatment
Administrative Expense Claims		Except to the extent that a holder of an Allowed Administrative Expense Claim agrees to a different treatment, all Allowed Administrative Expense Claims shall be paid in full, in cash.

Priority Tax Claims		Each Holder of an Allowed Priority Tax Claim shall receive, at the Debtors’ option, either (a) Cash in an amount equal to the amount of such Claim, (b) such other less favorable treatment to which such Holder and the Debtors agree or (c) such other treatment such that the Claim will not be impaired.

Class 1 - Non - Priority Tax Claims		Unimpaired. Each Holder of an Allowed Priority Tax Claim shall receive, at the Debtors’ option, either (a) Cash in an amount equal to the amount of such Claim, (b) such other less favorable treatment to which such Holder and the Debtors agree or (c) such other treatment such that the Claim will not be impaired.


Nature of Claim or Interest		Proposed Treatment
Class 2 - Other Secured Claims		Unimpaired. Each Holder of an Allowed Claim in Class 2 shall receive, at the Debtors’ option, either (a) cash in an amount equal to the amount of such Claim, (b) such other less favorable treatment to which such Holder and the Debtors agree or (c) such other treatment such that the Claim will not be impaired.

Class 3 - Unimpaired Unsecured Claims		Unimpaired. Each Holder of an Allowed Claim in Class 3 shall receive, at the Debtors’ option, either (a) cash in an amount equal to the amount of such Claim, (b) such other less favorable treatment to which such Holder and the Debtors agree or (c) such other treatment such that the Claim will not be impaired.

Class 4 - Prepetition Lenders Claims		Unimpaired. On the Effective Date, any and all Class 4 Claims shall be (A) paid in full in Cash, (B) assumed by the applicable Reorganized Debtors on terms and conditions acceptable to the Holders of such Claims, which terms and conditions may be evidenced by the New Credit Agreement or in some other manner acceptable to such Holders, or (C) satisfied in such other manner as the applicable Debtors or Reorganized Debtors and such Holders shall have agreed in writing.

Class 5 - Prepetition Senior Notes Claims		Impaired. On the Effective Date, the Holders of the Prepetition Senior Notes Claims will receive the Prepetition Senior Notes Indenture Amendment Fee of $4,700,000 and the New Senior Second Lien Notes.

Class 6A - Prepetition Senior Subordinated Notes Claims		Impaired. Each Holder of an Allowed Class 6-A Claim will receive their pro rata share of $60 million plus New Subordinated Notes with a principal amount equal to the outstanding principal balance of the Prepetition Senior Subordinated Notes Claims plus accrued and unpaid interest.

Class 6-B - Rejection Claims		Impaired. Each Holder of an Allowed Class 6-B-2 Claim will receive, at the Debtors’ option, either (a)


Nature of Claim or Interest		Proposed Treatment
		cash in an amount equal to the amount of such Claim, or (b) such other less favorable treatment to which such Holder and the Debtors agree.

Class 7 - Subordinated Claims		Unimpaired. Claims in this Class are unimpaired. Holders of Subordinated Claims shall receive payment in full in cash on account of such Claims.

Class 8 - Old Equity Interests in Bally		Impaired. Interests in this Class are impaired. On the Effective Date, the Old Equity Interests of Bally will (i) receive their pro rata share of approximately 10% of the new common stock of Reorganized Bally and (ii) be entitled to participate in the rights offering, which will entitle each Old Equity Interest holder to purchase its pro rata share of an additional approximately 10% of Reorganized Bally common stock at 50 cents per share.

Class 9 - Old Equity Interests in Affiliate Debtors		Impaired. Interests in this Class are unimpaired. The Reorganized Debtors shall retain the Interests they hold in Affiliate Debtors.

III.

New Senior Second Lien Notes

As indicated above, the proposed restructuring contemplated herein provides for the issuance by the Reorganized Debtors of the New Senior Second Lien Notes. Set forth below is a summary of certain salient terms of the New Senior Second Lien Notes:


Item		Proposed Term
Principal Amount		$ 247,337,500

Interest Rate		12-3/8%

Maturity		2011

Issuer		Bally Total Fitness Holding Corporation

Guarantors		All subsidiaries and affiliates.

Collateral		Second lien on all assets.

Covenants		Similar to form of indenture attached to disclosure statement for prepackaged chapter 11 plan.

IV.

New Subordinated Notes

As indicated above, the proposed restructuring contemplated herein provides for the issuance by the Reorganized Debtors of the New Subordinated Notes. Set forth below is a summary of certain salient terms of the New Senior Subordinated Notes:


Item		Proposed Term
Principal Amount		$262 million

Interest Rate		12% (or paid in kind at 13⁵/8% in issuer’s sole discretion)

Maturity		2013

Issuer		Bally Total Fitness Holding Corporation

Covenants		Similar to form of indenture attached to disclosure statement for prepackaged chapter 11 plan.

V.	Rights Offering


Item		Proposed Term
Rights Offering Price		Holders of Old Equity in Bally will be entitled to participate in the Rights Offering to purchase up to approximately 10% (up to 41.2 million shares) of Reorganized Bally common stock at 50 cents per share.

Backstop Purchaser		Harbinger Capital Partners Master Fund I, Ltd. and Harbinger Capital Partners Special Situations Fund L.P.

Backstop Purchaser Purchase Price		Backstop Purchaser will commit to purchase up to 90% percent (375 million shares) of Reorganized Bally common stock at 40 cents per share.

VI.

Other Terms


Matter		Proposal
Registration Rights		The holders of the new common stock shall receive customary registration rights. The costs of such registrations shall be borne by Bally.

Board Composition		As of the Effective Date, a new board of directors of Bally shall be appointed (the “New Board”). The New Board will be selected by the Plan Proponents.

VII. Conditions

The restructuring contemplated by this Term Sheet assumes the following conditions will be satisfied upon the Effective Date of the Plan. The Plan Proponents shall use their best efforts to have the following conditions met.


Item		Condition
New Exit Facility		All definitive documentation associated with the New Exit Facility, shall have been executed by the parties thereto, shall be satisfactory to the Plan Proponents and shall be in full force and effect.

Presentation of Business Plan		The Debtors’ management shall have presented to the Plan Proponents a business plan for the Reorganized Debtors that is satisfactory to the Plan Proponents.

No Material Adverse Changes		No material adverse changes with respect to the Debtors’ business, assets, financial condition or prospects from its current performance expectations for the 2007 calendar year, or any of the matters relevant to the effectuation of a Plan premised upon the terms set forth in this Term Sheet shall have occurred as of the Effective Date.

Due Diligence/Cooperation		The Plan Proponents shall complete due diligence no later than July 20, 2007.

		The Plan Proponents shall have complete and timely access to the Debtors’ books and records as well as the Debtors’ management and advisors, including financial advisors, accountants, and counsel, for the purposes of completing their due diligence, evaluating the Debtors’ business plan, and participating in the plan process.

Other		Other customary conditions, including no stay of the confirmation order.

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