S-4/A

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As filed with the Securities and Exchange Commission on August 9, 2004

Registration No. 333-112531

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 2 TO
FORM S-4/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

EQUINOX HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization) 7991
(Primary Standard Industrial Classification Code Number) 13-4034296
(I.R.S. Employer Identification No.)

895 Broadway
New York, New York, 10003
(212) 677-0181
(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)

See Next Page for Co-Registrants

Jeffrey M. Weinhaus, Esq.
Rosen Weinhaus, LLP
40 Wall Street, 32^nd Floor
New York, NY 10005
(212) 797-1900
(Name, address, including zip code, and telephone number, including area code, of Registrant's agent for service)

With copy to:
Paul D. Brusiloff, Esq.
Debevoise & Plimpton LLP
919 Third Avenue
New York, New York
10022 (212) 909-6000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

        If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.    o

        If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

        If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

OTHER REGISTRANTS

Name of Registrant	Jurisdiction of Organization	Primary Standard Industrial Classification Code	IRS Employee Identification Number	Address of Principal Executive Office
EQX Holdings, LLC	Delaware	7991	13-4034296	895 Broadway, New York, New York 10003
Equinox 92nd Street, Inc.	New York	7991	13-3809519	895 Broadway, New York, New York 10003
Equinox-85th Street, Inc.	New York	7991	13-3841492	895 Broadway, New York, New York 10003
Equinox-76th Street Inc.	New York	7991	13-3606196	895 Broadway, New York, New York 10003
Equinox 63rd Street, Inc.	New York	7991	13-3874315	895 Broadway, New York, New York 10003
Equinox-54th Street, Inc.	New York	7991	13-4002110	895 Broadway, New York, New York 10003
Equinox 50th Street Inc.	New York	7991	13-4044765	895 Broadway, New York, New York 10003
Equinox 44th Street, Inc.	New York	7991	13-4098306	895 Broadway, New York, New York 10003
Equinox-43rd Street, Inc.	New York	7991	13-4049519	895 Broadway, New York, New York 10003
Equinox Columbus Centre, Inc.	New York	7991	60-0002632	895 Broadway, New York, New York 10003
Equinox Greenwich Avenue, Inc.	New York	7991	13-4112533	895 Broadway, New York, New York 10003
Broadway Equinox, Inc.	New York	7991	13-3740437	895 Broadway, New York, New York 10003
Equinox Tribeca, Inc.	New York	7991	13-4173627	895 Broadway, New York, New York 10003
Equinox Tribeca Office, Inc.	New York	7991	02-0651780	895 Broadway, New York, New York 10003
Equinox Wall Street, Inc.	New York	7991	13-4098303	895 Broadway, New York, New York 10003
Equinox White Plains Road, Inc.	New York	7991	13-4007808	895 Broadway, New York, New York 10003
Equinox Woodbury, Inc.	New York	7991	01-0738956	895 Broadway, New York, New York 10003
Equinox Greenvale, Inc.	New York	7991	56-2397071	895 Broadway, New York, New York 10003
The Equinox Group, Inc.	New York	7991	13-3981646	895 Broadway, New York, New York 10003
Energy Wear, Inc.	New York	7991	13-3734825	895 Broadway, New York, New York 10003
Equinox Darien, Inc.	Connecticut	7991	41-2048453	895 Broadway, New York, New York 10003
Equinox Lincoln Park, Inc.	Illinois	7991	02-0580290	895 Broadway, New York, New York 10003
Equinox Highland Park, Inc.	Illinois	7991	02-0651787	895 Broadway, New York, New York 10003
Equinox Gold Coast, Inc.	Illinois	7991	02-0651787	895 Broadway, New York, New York 10003
Equinox West Hollywood, Inc.	California	7991	03-0394730	895 Broadway, New York, New York 10003
Equinox Fitness Pasadena, Inc.	California	7991	22-3803586	895 Broadway, New York, New York 10003
Equinox Pine Street, Inc.	California	7991	56-2396525	895 Broadway, New York, New York 10003
Equinox Mamaroneck, Inc.	New York	7991	56-2422596	895 Broadway, New York, New York 10003
Equinox Fitness Santa Monica, Inc.	California	7991	56-2422601	895 Broadway, New York, New York 10003

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where such solicitation or offer is not permitted.

SUBJECT TO COMPLETION, DATED AUGUST 9, 2004

PROSPECTUS

Equinox Holdings, Inc.

Offer to Exchange $160,000,000 Outstanding
9% Senior Notes due 2009
for $160,000,000 Registered
9% Senior Notes due 2009

The New Notes:

•

The form and terms of the new notes are identical in all material respects to the terms of the old notes except that the new notes are registered under the Securities Act of 1933 and will not contain restrictions on transfer or provisions relating to additional interest, will bear a different CUSIP number from the old notes and will not entitle their holders to registration rights.

Investing in the new notes involves risks. You should carefully review the risk factors beginning on page 12 of this prospectus.

The Exchange Offer:

•

Our offer to exchange old notes for new notes will be open until 5:00 p.m., New York City time, on            , 2004, unless we extend the offer.



•

No public market currently exists for the old notes or the new notes. We do not intend to apply for listing of the new notes on any national securities exchange or arrange for them to be quoted on any automated dealer quotation system.



•

Old notes may be tendered only in integral multiples of $1000.

The Guarantees:

•

All of our subsidiaries existing on the date of the issuance of the notes and certain subsidiaries formed or acquired subsequent to the issuance of the notes will jointly and severally guarantee the notes fully and unconditionally on a senior basis. Each guarantee will be unsecured and rank equally with all existing and future unsubordinated obligations of the guarantor, subject to release as provided for in the indenture for the notes.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is                        , 2004.

TABLE OF CONTENTS

	Page
Summary	1
Risk Factors	12
Forward-Looking Statements	18
The Exchange Offer	19
Use of Proceeds	27
Capitalization	28
Selected Consolidated Financial Information and Other Data	29
Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Business	46
Management	57
Security Ownership of Certain Beneficial Owners and Management	63
Related Party Transactions	64
Description of Capital Stock	67
Description of Certain Indebtedness	70
Description of Notes	71
Material United States Federal Tax Considerations	111
Plan of Distribution	115
Legal Matters	116
Experts	116
Where You Can Find More Information	116
Index to Consolidated Financial Statements	F-1

i

SUMMARY

The following summary contains basic information about us and this offering. It likely does not contain all the information that is important to you. You should read the entire prospectus, including the financial data and related notes, before making an investment decision. This summary contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause or contribute to such differences include those discussed in "Forward-Looking Statements" and "Risk Factors." In this prospectus, "Company," "Equinox," "we," "our," and "us," refer to Equinox Holdings, Inc. and its subsidiaries.

Equinox

        Equinox operates upscale, full-service fitness clubs that offer an integrated selection of Equinox-branded programs, services and products. We currently operate twenty-one fitness clubs: sixteen in the New York City metropolitan area, two in Los Angeles and three in the Chicago area. During 2003 we opened four new clubs. Two of the twenty-one clubs currently in operation were opened in January 2004, one of these in New York City and the other in the Chicago area. In addition, we have five new locations under development, consisting of two in the New York City metropolitan area in Mamaroneck and Roslyn, two in San Francisco and one in Santa Monica projected to be opened during 2004 and early 2005. We cluster clubs near the highest concentrations of our target members' areas of both employment and residence, typically in densely populated major metropolitan regions. Our target member is a well-educated professional between 25 and 55 years of age with significant discretionary income and who considers fitness an essential part of their active lifestyle.

        Our strategy is to continue to capitalize on our investment of newer clubs, continue opening new clubs in existing markets and enter select new markets and increase revenues per member. Once we have saturated our existing markets, specifically the New York City Metropolitan area, we may encounter difficulties entering new markets. In addition we may not have as much demand at our current pricing structure. We charge our members an up-front membership fee which ranges typically between $245 to $545, depending on the type of membership. Monthly dues range between $95 to $143 per month. Total revenues increased by $6.8 million or 25.5% to $33.5 million for the three months ended March 31, 2004 from $26.7 million for the three months ended March 31, 2003. Total revenues increased by $20.8 million or 21.9% to $116.1 million for the year ended December 31, 2003 from $95.3 million for the year ended December 31, 2002. Revenues per member for the twelve months ended March 31, 2004 increased to $1,988 from $1,870 for the twelve months ended March 31, 2003. Revenues per member are $1,977 and $1,934 for the years ended December 31, 2003 and 2002, respectively. Our revenue per member metrics exceeded the 2002 industry range of approximately $625 to $1,406 per average member.

        Our members are offered Equinox-branded programs, services and products, including strength and cardio training, group fitness classes, personal training, spa services and products, apparel, food/juice bars and swimming pools. Our members increased by approximately 20.1% to 70,000 at March 31, 2004 from 58,000 at March 31, 2003. Members are encouraged to participate in our programs and services, and as a percentage of revenue our ancillary products and services are 35.2% and 36.3% for the three months ended March 31, 2004 and 2003, respectively, 34.6% and 35.2% for the twelve month period ended March 31, 2004 and 2003, respectively and 34.8% and 33.5% for the years ended December 31, 2003 and 2002, respectively, compared to the 2002 industry average of 24.9%.

        For the three months ended March 31, 2004 and 2003 our net loss is $(557,000) and $(290,000), respectively. For the years ended December 31, 2003, 2002 and 2001 our net (loss) income was $(7.3) million, $1.8 million and $3.0 million, respectively. The 498.4% decrease in net income for 2003 was due to $33.7 million of interest expense primarily related to our private offering of 9% senior notes due 2009, which increased to $21.0 million from $12.7 million of interest expense for the year ended

1

December 31, 2002. The 39.2% decrease in net income for 2002 from 2001 was due to a $3.6 million increase in total other expense related to a $4.1 million increase related to marking our warrants to market, offset by a decrease in interest expense. As such, our EBITDA as defined on page 11 is $5.7 million, $29.9 million, $5.6 million and $22.3 million for the three and twelve months ended March 31, 2004 and 2003, respectively and $29.9 million, $25.5 million and $23.9 million for the years ended December 31, 2003 2002 and 2001, respectively. As a percentage of revenue, EBITDA is 16.9%, 24.3%, 21.1% and 23.1% for the three and twelve months ended March 31, 2004 and 2003, respectively and was 25.7%, 26.8% and 30.1% for the years ended December 31, 2003, 2002 and 2001, respectively, compared to the industry average of 25.4% for fiscal 2002. We present EBITDA because we believe it provides investors with useful information regarding our liquidity.

        Adjusted EBITDA as defined on page 11 is a key component in the determination of our compliance with certain covenants under our credit agreement and we believe it provides investors with useful information regarding our liquidity.

        Under the terms of our credit agreement, we may incur additional debt so long as the pro forma ratio of total debt to Adjusted EBITDA is less than or equal to 5.5 to 1.0 at December 31, 2003 and for the twelve months ended March 31, 2004 and 5.0 to 1 at December 31, 2004. If we fail to meet this ratio test, as well as other ratios, our ability to incur new debt may be significantly limited. Our ratio of total debt to Adjusted EBITDA is 5.15 to 1.0 at March 31, 2004.

        See "Management's Discussion and Analysis" for a discussion of the components of Adjusted EBITDA.

*    *    *

        Equinox Holdings, Inc. was incorporated in 1998 under the laws of the State of Delaware. Our principal executive offices are located at 895 Broadway, 3rd Floor, New York, New York 10003. Our telephone number is (212) 677-0180. We maintain the following web site: www.equinoxfitness.com. Our web site provides information about club locations, program offerings and on-line promotions. Information contained on this web site, however, is not incorporated by reference in or otherwise a part of this prospectus.

2

Summary of the Terms of the Exchange Offer

        On December 16, 2003, we completed a private offering of $160,000,000 principal amount of 9% senior notes due 2009. In this prospectus, we refer to (1) the old notes sold in the original offering as the old notes, (2) the notes offered hereby in exchange for the old notes as the new notes and (3) the old notes and the new notes together as the notes.

The Exchange Offer	You may exchange old notes for new notes. Old notes may be tendered, and new notes will be issued, only in integral multiples of $1,000.
Resale of New Notes	We believe the new notes that will be issued in this exchange offer may be resold by most investors without compliance with the registration and prospectus delivery provisions of the Securities Act, subject to certain conditions. You should read the discussion under the heading "The Exchange Offer" for further information regarding the exchange offer and resale of the new notes.
Registration Rights Agreement	We have undertaken this exchange offer pursuant to the terms of a registration rights agreement entered into with the initial purchasers of the old notes. See "The Exchange Offer" and "Description of Notes—Exchange Offer; Registration Rights".
Consequence of Failure to Exchange Old Notes	You will continue to hold old notes that remain subject to their existing transfer restrictions if:
	•	you do not tender your old notes, or
	•	you tender your old notes and they are not accepted for exchange.
	We may reject any and all notes that we determine have not been properly tendered or any old notes which, if accepted, would, in the opinion of counsel for us, be unlawful. We may waive any irregularities or conditions of tender of the old notes. With some limited exceptions, we will have no obligation to register the old notes after we consummate the exchange offer. See "The Exchange Offer—Terms of the Exchange Offer" "—Consequences of Failure to Exchange" and "Description of Notes—Registration Rights."
Expiration Date	The exchange offer will expire at 5:00 p.m., New York City time, on                        , 2004 (the "Expiration Date"), unless we, in our sole discretion, extend it, in which case "Expiration Date" means the latest date and time to which the exchange offer is extended.

3

Interest on the New Notes	The new notes will accrue interest from the most recent date to which interest has been paid or provided for on the old notes or, if no interest has been paid on the old notes, from the date of original issue of the old notes.
Conditions to the Exchange Offer	The exchange offer is subject to several customary conditions, which we may waive. We will not be required to accept for exchange, or to issue new notes in exchange for, any old notes and may terminate or amend the exchange offer if:
	•	we determine in our reasonable judgment that the exchange offer violates applicable law, any applicable interpretation of the SEC or its staff or any order of any governmental agency or court of competent jurisdiction;
	•	at any time any stop order is threatened or in effect with respect to the registration statement of which this prospectus constitutes a part; or
	•	at any time any stop order is threatened or in effect with respect to the qualification of the indenture governing the notes under the Trust Indenture Act of 1939, as amended.
	See "The Exchange Offer—Conditions". We reserve the right to terminate or amend the exchange offer at any time prior to the applicable expiration date upon the occurrence of any of the foregoing events.
Procedures for Tendering Old Notes	To tender in the exchange offer, you must complete, sign and date the letter of transmittal, or a facsimile of such letter of transmittal, have the signatures on such letter of transmittal guaranteed if required by such letter of transmittal, and mail or otherwise deliver such letter of transmittal or such facsimile, together with any other required documents (including, if applicable, a substitute Form W-9, bond powers, evidence of payment of applicable transfer taxes and a certification of foreign status), to the exchange agent prior to 5:00 p.m., New York City time, on the Expiration Date. In addition, either
	•	certificates of old notes must be received by the exchange agent along with the applicable letter of transmittal, or

4

•	a timely confirmation of a book-entry transfer of such old notes, if such procedure is available, into the exchange agent's account at the book-entry transfer facility, The Depository Trust Company, pursuant to the procedure for book-entry transfer, must be received by the exchange agent prior to the Expiration Date with the applicable letter of transmittal, or
•	the holder must comply with the guaranteed delivery procedures.
Custodial entities that are participants in The Depository Trust Company, which we refer to as the "Depositary" or "DTC," may tender old notes through DTC's Automated Tender Offer Program which we refer to as the ATOP which enables a custodial entity, and the beneficial owner on whose behalf the custodial entity is acting, to electronically agree to be bound by the letter of transmittal. A confirmation of such book-entry transfer of such old notes into the exchange agent's account at DTC must be received by the exchange agent prior to 5:00 p.m. Eastern time, on the expiration date. See "The Exchange Offer—Procedures for Tendering Old Notes."
Pursuant to the terms of the letter of transmittal, you will agree, upon request, to execute and deliver any additional documents deemed by us to be necessary and desirable to complete the sale, assignment and transfer of the old notes tendered.
By tendering your old notes in either of these manners, you will be representing to us, among other things, (i) that any new notes to be received by you will be acquired in the ordinary course of business, (ii) that you have no arrangements or understandings with any person to participate in the distribution of the old notes or the new notes within the meaning of the Securities Act, (iii) that you are not an "affiliate" of ours as defined in Rule 405 under the Securities Act, (iv) if you are a broker-dealer, that the old notes were acquired as a result of market-making activities or other trading activities and that you will deliver a prospectus in connection with any resale of new notes, (v) if you are not a broker-dealer, that you are not engaged in and do not intend to engage in the distribution of the new notes, and (v) that you are not acting on behalf of any person that could not truthfully make any of the foregoing representations.

5

Guaranteed Delivery Procedures	If you wish to tender your old notes, but cannot properly do so prior to the expiration date, you must tender your old notes according to the guaranteed delivery procedures set forth in "The Exchange Offer—Guaranteed Delivery Procedures".
Withdrawal Rights	Tenders of old notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration date. To withdraw a tender of old notes, a written or facsimile transmission notice of withdrawal must be received by the exchange agent at its address set forth in "The Exchange Offer—Exchange Agent" prior to 5:00 p.m. on the expiration date.
Acceptance of Old Notes and Delivery of New Notes	Subject to the conditions to the exchange offer, any and all old notes that are validly tendered in the exchange offer prior to 5:00 p.m., New York City time, on the expiration date will be accepted for exchange. The new notes issued pursuant to the exchange offer will be delivered promptly following the expiration date. We may reject any and all notes that we determine have not been properly tendered or any old notes which, if accepted, would, in the opinion of counsel for us, be unlawful. We may waive any irregularities or conditions of tender of the old notes. With some limited exceptions, we will have no obligation to register the old notes after we consummate the exchange offer. See "The Exchange Offer—Terms of the Exchange Offer" "—Consequences of Failure to Exchange" and "Description of Notes—Registration Rights."
Material United States Federal Tax Considerations	The exchange of the old notes for new notes will not constitute a taxable exchange for U.S. federal income tax purposes. See "Material United States Federal Tax Considerations."
Exchange Agent	U.S. Bank National Association is serving as exchange agent.

6

Summary of the Terms of the New Notes

        The terms of the new notes are identical in all material respects to the terms of the old notes except that the new notes:

•

will be registered under the Securities Act, and therefore will not be subject to restrictions on transfer,



•

will not be subject to provisions relating to additional interest,



•

will bear a different CUSIP number from the old notes, and



•

will not entitle their holders to registration rights.

Maturity	December 15, 2009.
Interest payment dates	June 15 and December 15, beginning June 15, 2004.
Guarantees	All of our subsidiaries existing on the date of the issuance of the notes will jointly and severally guarantee the notes fully and unconditionally on a senior basis. Future subsidiaries may also be required to guarantee the notes fully and unconditionally on a senior basis.
Ranking	The notes will be unsecured and will rank equally with our existing and future unsubordinated obligations and senior to our subordinated obligations. Each guarantee will be unsecured and will rank equally with all unsecured existing and future unsubordinated obligations of the guarantors and senior to all subordinated obligations of the guarantors. The notes and guarantees will also be effectively subordinated to all of our secured obligations and secured obligations of the subsidiary guarantors to the extent of the value of the assets securing such obligations.
	As of March 31, 2004, after giving effect to the initial offering of the notes and the use of proceeds therefrom,
	•	in addition to our obligations under our new senior secured revolving credit facility, we and the guarantors have outstanding approximately $3.3 million of capitalized lease obligations and other secured indebtedness to which the notes and the guarantees would have been effectively subordinated, and
	•	we and the guarantors have outstanding approximately $0.5 million of additional unsubordinated indebtedness that would have ranked equally with the notes.

7

Optional redemption	We may redeem some or all of the notes at any time on or after December 15, 2006 at the redemption prices set forth in this prospectus. See "Description of Notes—Redemption—Optional Redemption."
Public equity offering optional redemption	Before December 15, 2006, we may redeem up to 35% of the aggregate principal amount of the notes with the net proceeds of one or more public equity offerings at 109% of the principal amount of the notes, plus accrued interest, so long as at least 65% of the aggregate principal amount of the notes issued remains outstanding after such redemption.
Change of control	Upon the occurrence of certain change of control events, holders of notes may require us to repurchase all or a portion of their notes at a purchase price equal to 101% of the principal amount of the notes, plus accrued interest. See "Description of Notes—Change of Control."
Covenants	The indenture governing the notes contains covenants that, among other things, limit our ability and the ability of our subsidiaries to:
	•	incur additional indebtedness and issue or sell preferred stock,
	•	make restricted payments,
	•	make investments,
	•	create certain liens,
	•	sell assets,
	•	in the case of our restricted subsidiaries, restrict the ability to make dividend or other payments to us,
	•	in the case of our subsidiaries, guarantee indebtedness,
	•	engage in transactions with affiliates,
	•	create unrestricted subsidiaries, and
	•	consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries on a consolidated basis.
	These covenants are subject to important exceptions and qualifications. See "Description of Notes."

Risk Factors

You should refer to the section entitled "Risk Factors" beginning on page 12 for an explanation of some of the risks relating to us, our business, and an investment in the notes.

8

Summary Consolidated Financial and Other Data

        You should read the summary consolidated financial and other data below in conjunction with our consolidated financial statements and the accompanying notes contained in this prospectus. We derived the historical financial data as of and for the years ended December 31, 2001, 2002 and 2003 from our audited consolidated financial statements. We derived the historical financial data as of March 31, 2004 and for the three months ended March 31, 2004 and 2003 and for the 12 month period ended March 31, 2004 from our unaudited consolidated financial statements and our unaudited interim consolidated financial statements. You should also read "Selected Consolidated Financial Information and Other Data" and the accompanying "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere in this prospectus.

			Year Ended December 31,									Three Months Ended March 31,						Twelve(A) Months Ended March 31,
			2001			2002			2003			2003			2004			2004
			(restated)			(restated)
				(in thousands, except for ratios and operating data)
Statement of Operations Data:
Revenues:
	Membership fees		$	52,489		$	63,369		$	75,677		$	17,004		$	21,716		$	80,387
	Personal training			15,024			17,709			25,000			6,011			7,273			26,263
	Other revenue			11,907			14,197			15,450			3,682			4,520			16,288
		Total revenues		79,420			95,275			116,127			26,697			33,509			122,938
Expenses:
	Compensation and related expenses			31,274			37,572			48,202			11,429			14,463			51,235
	Rent and occupancy			9,793			11,870			16,646			4,273			4,911			17,285
	General and administrative			13,378			15,976			21,280			4,931			8,784			25,133
	Other expenses(1)			2,222			1,477			1,042			433			402			1,011
	Depreciation and amortization			5,785			6,850			9,750			2,253			2,936			10,433
		Total operating expenses		62,452			73,745			96,920			23,319			31,496			105,097
		Income from operations		16,968			21,530			19,207			3,378			2,013			17,841
Other income (expense):
	Interest expense			(13,298	)		(12,708	)		(33,693	)		(3,941	)		(3,791	)		(33,543	)
	Interest income			149			8			132			36			51			148
	Other income (expense)(2)			1,188			(2,869	)		900			—			714			1,614
		Total other expense		(11,961	)		(15,569	)		(32,661	)		(3,905	)		(3,026	)		(31,781	)
		Income before provision for income taxes		5,007			5,961			(13,454	)		(527	)		(1,013	)		(13,940	)
Benefit from (provision for) income taxes				(2,007	)		(4,137	)		6,189			237			456			6,407
		Net income	$	3,000		$	1,824		$	(7,265	)	$	(290	)	$	(557	)	$	(7,533	)

(A)

Twelve months ended March 31, 2004 is included to facilitate comparability of ratio analysis and revenues per average member data.

9

	Year Ended December 31,									Three Months Ended March 31,						Twelve(A) Months Ended March 31,
	2001			2002			2003			2003			2004			2004
	(restated)			(restated)
		(in thousands, except for ratios and club related data)
Balance Sheet Data:
Cash and marketable securities	$	2,806		$	1,302		$	42,779		$	17,260		$	41,476		$	41,476
Total assets		101,088			113,515			189,303			139,702			196,946			196,946
Total debt		98,778			102,615			163,999			103,915			163,815			163,815
Stockholders' deficit		(34,319	)		(36,580	)		(35,074	)		(26,847	)		(35,646	)		(35,646	)
Pro forma Data:
Interest expense(3)		—			—		$	15,931		$	4,083		$	3,791		$	15,638
Net income (loss)		—			—			2,368			(368	)		(557	)		2,183
Other Financial Data:
Net cash provided by operating activities	$	16,714		$	17,641		$	16,271		$	5,879		$	9,745		$	20,137
Net cash used in investing activities		(18,590	)		(21,377	)		(27,009	)		(4,993	)		(9,954	)		(31,970	)
Net cash provided by financing activities		3,669			2,266			52,202			15,073			(1,025	)		36,104
Earnings (deficiency) to fixed charges(4)		1.3			1.4		$	(13,536	)	$	(527	)	$	(1,013	)	$	(13,940	)
Club Data:
Number of clubs at end of period		13			15			19			16			21			21
Members at end of period		45,978			54,911			67,400			58,013			70,054			70,054
Revenues per average member(5)	$	1,943		$	1,934		$	1,977		$	488		$	487		$	1,988
Ancillary revenues as a % of total revenues		33.9	%		33.5	%		34.8	%		36.3	%		35.2	%		34.8	%
Revenue growth from comparable fitness clubs(6)		14.5	%		7.7	%		8.2	%		13.4	%		6.7	%		6.6	%

(footnotes continued on following page)

(1)

Includes fees and expenses paid to certain principal stockholders under certain contractual arrangements. See "Related Party Transactions."

(2)

Consists of non-cash charges resulting from the mark-to-market adjustments of our common stock put warrants and our interest rate swap. See "Description of Capital Stock—Common Stock Put Warrants."

        The following table reconciles net income (loss) to EBITDA and illustrates components of Adjusted EBITDA as that amount is used in our calculations under the covenants contained in our credit facility:

	Year Ended December 31,								Three Months Ended March 31,						Twelve Months(A) Ended March 31,
	2001			2002		2003			2003			2004			2004
	(restated)			(restated)
		(in thousands)
Net income (loss)	$	3,000		$	1,824	$	(7,265	)	$	(290	)	$	(557	)	$	(7,533	)
Depreciation and amortization		5,785			6,850		9,750			2,253			2,936			10,433
Provision for (benefit from) income taxes		2,007			4,137		(6,189	)		(237	)		(456	)		(6,407	)
Interest expense, net of interest income		13,149			12,700		33,560			3,905			3,740			33,395
EBITDA(7)	$	23,941		$	25,511	$	29,856		$	5,631		$	5,663		$	29,888
Components of Adjusted EBITDA:
Stock compensation expense		1,022			313		35			—			—			35
Related-party management fees and expenses(a)		1,199			1,164		1,007			433			402			976
Non-cash deferred rent		975			1,088		2,496			786			785			2,495
Other (income) expense(b)		(1,188	)		2,869		(900	)		—			(714	)		(1,614	)

(a)

As discussed under "Related Party Transactions," we are contractually obligated to make these cash payments and such payments are not subordinated to the notes. However, we are presenting these adjustments to provide a clearer indication of the EBITDA and Adjusted EBITDA associated with our operations.  

10

(b)

Consists of non-cash charges resulting from the mark-to-market adjustments of our common stock put warrants and our interest rate swap. See "Description of Capital Stock—Common Stock Put Warrants." Under the terms of our credit facility definitions, this line item must be added back to net income (loss) in calculating Adjusted EBITDA.

(3)

Pro forma interest expense assumes our previously outstanding revolving credit facility, senior notes due 2007, senior subordinated notes due 2008, preferred stock, certain related party debt, and other debt and certain fees were satisfied, or redeemed and that the issuance of the new senior notes occurred as of the beginning of 2003.

(4)

The ratio (deficit) of earnings to fixed charges has been computed by dividing earnings before income taxes and fixed charges before preferred stock dividends (increased to reflect the pre-tax earnings requirement related thereto) by the fixed charges. Fixed charges consist of interest and related charges on debt, preferred stock dividends and the portion of rentals for real and personal properties in an amount deemed to be representative of the interest factor.

(5)

Based on average number of members for the 12 months ended.

(6)

Revenue growth of clubs that had been open for at least 12 months.

(7)

We define EBITDA as net income (loss) before interest expense, income taxes and depreciation and amortization. We present EBITDA because we believe it provides investors with useful information regarding our liquidity, including compliance under our debt covenants. Adjusted EBITDA is defined in our $25.0 million credit agreement as EBITDA, adjusted for mark-to-market adjustments for our common stock put warrants, stock compensation expense, write-off of other receivables, management fees and expenses paid to our principal stockholders and non-cash deferred rent. Non-cash deferred rent expense reflects the difference between accrued rent expense in accordance with generally accepted accounting principles in the United States of America ("GAAP") and cash rent expense actually paid in a given period, which difference is typically positive in the early years of a lease and negative in the later years of a lease. EBITDA and Adjusted EBITDA are not measures of financial performance under GAAP. We present the components of Adjusted EBITDA because this measure is a key component in the determination of our compliance with certain covenants under our credit agreement as more fully described in our liquidity section of our Management's Discussion and Analysis contained herein. EBITDA and Adjusted EBITDA should not be considered in isolation, or as a substitute for net income, cash flows, or other consolidated income (loss) or cash flow data presented in accordance with GAAP or as a measure of our liquidity or financial condition. Because EBITDA and Adjusted EBITDA are not measures determined in accordance with GAAP and is thus susceptible to varying calculations, Adjusted EBITDA as discussed may not be comparable to other similarly titled measures of other companies.

11

RISK FACTORS

You should carefully consider the risks described below before making an investment decision. Any of the following risks could materially and adversely affect our financial condition or results of operations. In such case, you may lose all or part of your original investment.

Risks Related to Our Substantial Debt

Our substantial indebtedness could have a material adverse effect on our financial health and our ability to obtain financing in the future and to react to changes in our business.

        We have a significant amount of debt. As of March 31, 2004, we had approximately $163.8 million of debt outstanding. Our significant amount of debt and other contractual commitments could have important consequences to you. For example, it could:

•

make it more difficult for us to satisfy our obligations to you under the notes and to the lenders under our new revolving credit facility;



•

increase our vulnerability to adverse economic and general industry conditions;



•

require us to dedicate a substantial portion of our cash flow from operations to principal and interest payments on our debt, which would reduce the availability of our cash flow from operations to fund capital expenditures or other general corporate purposes;



•

limit our flexibility in planning for, or reacting to, changes in our business and industry;



•

place us at a disadvantage compared to competitors that have proportionately less debt;



•

limit our ability to borrow additional funds in the future, if we need them; and



•

prevent us from obtaining financing to repurchase the notes from you upon a change of control or otherwise limit our ability to make such repurchase.

        Despite current indebtedness levels, we may be able to incur substantial additional indebtedness in the future. The terms of the indenture governing the notes and the terms of the new revolving credit facility will limit, but not prohibit, us from doing so, and our new revolving credit facility will provide for borrowings of up to $25.0 million, subject to certain limitations. Those borrowings would be secured and effectively senior to the notes and the guarantees to the extent of the value of the collateral securing such borrowings. If new debt is added to our and our subsidiaries' current debt levels, the related risks that we and they now face would intensify.

Our ability to generate the significant amount of cash needed to make payments on and otherwise satisfy the notes and our other debt and contractual commitments and to operate our business depends on many factors beyond our control.

        Our ability to make payments on and otherwise satisfy the notes and our other debt and contractual commitments and to fund working capital needs and planned capital expenditures and expansion plans will depend on our ability to generate cash and secure financing in the future. Among our contractual commitments are (1) contractual payments to our founding stockholders on the earlier of a qualified public offering, a change of control or December 15, 2010 and (2) a contingent obligation to use our best efforts to purchase common stock put warrants representing approximately 8% of our fully-diluted equity (as of the date hereof), at their fair market value if a majority of the warrant holders so require following December 15, 2006 if a qualifying initial public offering of our common stock has not previously occurred. We cannot assure you that we will be able to satisfy our obligations to purchase the warrants or that a dispute relating to our use of "best efforts" will not arise. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Contractual and Commercial Commitments Summary."

        Our ability to meet these obligations is subject to general economic, financial, competitive, legislative, regulatory and other factors beyond our control. If our business does not generate sufficient cash flow from operations, and sufficient future borrowings are not available to us under our new

12

revolving credit facility or from other sources of financing, we may not be able to repay the notes or our other debt or satisfy our other contractual commitments, operate our business or fund our other liquidity needs. We cannot assure you that we will be able to obtain additional financing or comply with our obligations with respect to our founding stockholders and warrant holders, particularly because of our anticipated levels of debt and the debt incurrence restrictions imposed by the agreements governing our debt. Our significant contractual obligations, including our obligations to our founding stockholders and the potential issuance of our preferred stock, could make it more difficult for us to effect a financing transaction, including an initial public offering of our common stock. If we cannot meet or refinance our obligations when they are due, we may have to sell assets, reduce capital expenditures or take other actions which could have a material adverse effect on our financial condition and results of operations and on the value of your investment in the notes.

The agreements and instruments governing our debt contain restrictions and could limit our ability to operate our business.

        Our new revolving credit facility and the indenture governing the notes contain, and any of our future indebtedness could contain a number of significant covenants that will restrict, among other things, our ability and the ability of our subsidiaries to:

•

pay dividends or make other distributions;



•

make certain investments or acquisitions;



•

enter into transactions with affiliates;



•

dispose of assets or enter into business combinations;



•

incur or guarantee additional debt;



•

issue equity;



•

repurchase or redeem equity interests and debt;



•

create or permit to exist certain liens; and



•

pledge assets.

        These restrictions could limit our ability to obtain future financing, make acquisitions or needed capital expenditures, withstand a future downturn in our business or the economy in general, conduct operations or otherwise take advantage of business opportunities that may arise. Furthermore, our new revolving credit facility requires us to meet specified financial ratios and tests. Our ability to comply with these provisions may be affected by events beyond our control. The breach of any of these covenants would result in a default under our new revolving credit facility, which could place us in default under the indenture governing the notes.

Risks Related to Our Business

Our business is geographically concentrated, and adverse regional conditions or events could adversely affect us.

        We currently operate in three metropolitan areas, and our clubs in and around New York City generated approximately 86.9% of our revenues for the twelve month period ended March 31, 2004. Adverse economic conditions or increased competition in those areas, especially in New York City, could have adverse effects on our financial condition and results of operations. Moreover, a catastrophic event in any of those areas, such as the attacks of September 11, 2001, could adversely affect our members, damage our clubs and harm our business.

We may be unable to attract and retain members, which could have a negative effect on our business.

        The performance of our fitness clubs is dependent on our ability to attract and retain members, and we cannot assure you that we will be successful in these efforts, or that the membership levels at our clubs will not materially decline. There are numerous factors that could lead to a decline in

13

membership levels at established clubs or that could prevent us from increasing our membership levels at newer clubs, including harm to our reputation, a decline in our ability to deliver quality service at a competitive cost, the presence of direct and indirect competition in the areas in which the clubs are located, the public's interest in sports and fitness clubs and general economic conditions. As a result of these factors, we cannot assure you that our membership levels will be adequate to maintain or permit the expansion of our operations. In addition, a decline in membership levels may have a material adverse effect on our financial condition and results of operations.

We may not be able to successfully execute our growth strategy or effectively manage our growth.

        We intend to increase our number of fitness clubs from 21 today to approximately 40 by the end of 2006. Currently, we consider nine out of our 21 fitness clubs to be mature (i.e., open for 48 months or longer at the beginning of the fiscal year). Successful implementation of this growth strategy will require considerable expenditures before any significant associated revenues are generated. In addition, many of our existing clubs are still relatively new. We cannot assure you that our existing immature or future fitness clubs will generate revenues and cash flow comparable with those generated by our existing mature clubs.

        Our expansion will also place significant demands on our management resources. We will be required to identify attractive club locations, negotiate favorable rental terms and open new fitness clubs on a timely and cost-effective basis while maintaining a high level of quality, efficiency and performance at both mature and newly opened fitness clubs. Moreover, we plan to expand into markets where we have little or no direct prior experience, and we could encounter unanticipated problems, cost overruns or delays in opening fitness clubs in new markets or in the market acceptance for our clubs.

        We may not be able to effectively manage this expansion, and any failure to do so could have a material adverse effect on our business, financial condition and results of operations.

We may not be able to continue to compete effectively in each of our markets in the future.

        The fitness industry is highly fragmented. Within each market in which we operate, we compete with other commercial fitness centers, physical fitness and recreational facilities established by local governments, hospitals and businesses for their employees, YMCAs and similar organizations and, to a certain extent, with racquet, tennis and other athletic clubs, country clubs, weight-reducing salons and the home-use fitness equipment industry. Competitive conditions may limit our ability to maintain or increase initiation fees or membership dues, attract new members and keep existing members, and could adversely affect our business, financial condition and results of operation. See "Business—Competition."

We could be subject to personal injury claims related to the use of our clubs.

        Members or guests could assert claims of personal injury in connection with their use of our services and facilities. If we cannot successfully defend any large claim or maintain our general liability insurance on acceptable terms or maintain adequate coverage against potential claims, our financial results could be adversely affected.

We are subject to government regulation. Changes in these regulations or a failure to comply with them could have a negative effect on our financial condition.

        Our operations and business practices are subject to federal, state and local government regulations in the various jurisdictions in which our fitness centers are located, including:

•

general rules and regulations of the Federal Trade Commission, state and local consumer protection agencies and state statutes that prescribe provisions of membership contracts and that govern the advertising, sale, financing and collection of membership fees and dues; and



•

state and local health regulations and building codes.

14

        If we were to fail to comply with these statutes, rules and regulations, we could suffer fines or other penalties. These may include regulatory or judicial orders enjoining or curtailing aspects of our operations. It is difficult to predict the future development of such laws or regulations, and although we are not aware of any proposed changes, any changes in such laws could have a material adverse effect on our financial condition and results of operations.

If we do not retain key management personnel and/or fail to attract and retain highly qualified personnel, our business will suffer.

        The success of our business depends on the leadership of our key management personnel. If any of these persons were to leave, it might be difficult to replace them, and our business could be harmed. See "Management." In addition, we cannot assure you that we can attract and retain sufficient qualified personnel to meet our business needs.

Our trademarks and trade names may be misappropriated or challenged by others.

        We believe our brand name and related intellectual property are important to our continued success. We attempt to protect our trademarks and trade names by exercising our rights under applicable trademark and copyright laws. If we were to fail to protect our intellectual property rights for any reason, it could have an adverse effect on our business, results of operations and financial condition.

The interests of our controlling shareholders may be in conflict with your interests as a holder of notes.

        Funds managed by North Castle Partners, L.L.C. and J.W. Childs Associates, L.P. indirectly own approximately 93% of our outstanding common stock and together have the ability to elect a majority of the board of directors and generally to control the affairs and policies of our company. Circumstances may occur in which the interests of either North Castle or J.W. Childs, as our shareholders, could be in conflict with the interests of the holders of the notes. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, their interests as equity holders and as counterparties to a consulting agreement might conflict with your interests as a holder of notes. See "Security Ownership of Certain Beneficial Owners and Management" and "Related Party Transactions."

Risks Related to the Notes

We are a holding company and the notes and guarantees are effectively junior to all of our and the guarantors' existing and future senior secured obligations to the extent of the collateral.

        As a holding company, all of our revenues are generated by our subsidiaries and substantially all of our assets are owned by our subsidiaries. As a result, we are dependent upon dividends, incidental expense reimbursement and inter-company transfer of funds from our subsidiaries to meet our payment obligations on the notes and our other obligations.

        The notes and the guarantees provided by the guarantors will be general unsecured obligations. This means that you will have no recourse to our or the guarantors' specific assets upon any event of default under the indenture governing the notes and the guarantees. Accordingly, the notes and the guarantees will be effectively subordinated to any of our and the guarantors' secured obligations to the extent of the value of the assets securing such obligations, including our and the guarantors' obligations under the new revolving credit facility. Under certain circumstances, we may also incur secured debt owing to other creditors that will have the right to be repaid out of specific property. We and the guarantors may also issue additional unsecured and unsubordinated debt, which will also rank equally with your right to be repaid under the notes and the guarantees.

        If we default on the notes, become bankrupt, liquidate or reorganize:

•

you will be entitled to be repaid from our remaining assets only after any secured creditors have been paid out of proceeds from the sale of their collateral; and

15

•

to the extent there are assets available after all of the foregoing creditors have been paid, then you will be entitled to be repaid on a pro rata basis with and only to the extent that there are sufficient assets to repay any of our other obligations or the guarantors' obligations that rank equally with the notes in right of payment.

        If we and the guarantors have no secured debt at the time of a bankruptcy, liquidation, reorganization or similar proceeding relating to us or the guarantors, holders of the notes will participate ratably with all of our and the guarantors' other unsecured and unsubordinated creditors, including unsecured trade creditors and tort claimants, in our and the guarantors' assets.

        As of March 31, 2004, the notes and the guarantees would have been effectively subordinated to approximately $163.8 million of secured debt (including capitalized lease obligations). Under the terms of the indenture governing the notes and the expected terms of our new revolving credit facility, we will be permitted to borrow substantial additional indebtedness, including secured debt, in the future, subject to certain limitations.

We may not have the funds to purchase the notes upon a change of control as required by the indenture for the notes.

        The source of funds for any purchase of the notes would be our available cash or cash generated from other sources, including borrowings, sales of assets, sales of equity or funds provided by our existing or new equity holders. We cannot assure you that any of these sources will be available or sufficient. Upon the occurrence of a change of control event, we may seek to refinance the indebtedness outstanding under our new revolving credit facility and the notes. However, it is possible that we will not be able to complete such refinancing on commercially reasonable terms or at all. In such event, we would not have the funds necessary to finance the required change of control offer. See "Description of Notes—Change of Control."

Our being subject to certain fraudulent transfer and conveyance statutes may have adverse implications for the holders of the notes.

        If, under relevant federal and state fraudulent transfer and conveyance statutes, in a bankruptcy or reorganization case or a lawsuit by or on behalf of unpaid creditors of Equinox or the guarantors, a court were to find that, at the time the notes were issued by Equinox or guaranteed by the guarantors:

•

Equinox issued the notes or a guarantor guaranteed the notes with the intent of hindering, delaying or defrauding current or future creditors, or we or the guarantors received less than reasonably equivalent value or fair consideration for issuing or guaranteeing the notes, as applicable; and



•

Equinox or a guarantor, as the case may be:



•

was insolvent or was rendered insolvent by reason of the incurrence or guarantee, as applicable, of the indebtedness constituting the notes;



•

was engaged, or was about to be engaged, in a business or transaction for which its assets constituted unreasonably small capital;



•

intended to incur, or believed that it would incur, debts beyond its ability to pay as those debts matured (as all of the foregoing terms are defined in or interpreted under the relevant fraudulent transfer or conveyance statutes); or



•

was a defendant in an action for money damages, or had a judgment for money damages docketed against it (if, in either case, after final judgment the judgment is unsatisfied);

such court could avoid or subordinate the notes or the relevant guarantee to presently existing and future indebtedness of Equinox or the guarantor, as the case may be, and take other action detrimental to the holders of the notes, including, under certain circumstances, invalidating the notes or the guarantees.

16

        The measure of insolvency for purposes of the foregoing considerations will vary depending upon the law of the jurisdiction that is being applied in any such proceeding. Generally, however, we or a guarantor would be considered insolvent if, at the time it incurs or guarantees, as the case may be, the indebtedness constituting the notes, either:

•

the sum of its debts (including contingent liabilities) is greater than its assets, at a fair valuation; or



•

the present fair saleable value of its assets is less than the amount required to pay the probable liability on its total existing debts and liabilities (including contingent liabilities) as they become absolute and matured.

        There can be no assurance as to what standards a court would use to determine whether we or a guarantor, as the case may be, was solvent at the relevant time, or whether, whatever standard was used, the notes or guarantees would not be avoided on another of the grounds set forth above.

        We and the guarantors believe that at the time the notes are initially issued by us and guaranteed by the guarantors, we and the guarantors will be neither insolvent nor rendered insolvent thereby, will be in possession of sufficient capital to run their respective businesses effectively and incurring debts within their respective abilities to pay as the same mature or become due and will have sufficient assets to satisfy any probable money judgment against them in any pending action.

        In reaching the foregoing conclusions, we and the guarantors have relied upon our and their analyses of internal cash flow projections and estimated values of assets and liabilities. There can be no assurance, however, that a court passing on such questions would reach the same conclusions.

There is no public market for the notes, and we cannot be sure that a market for the notes will develop.

No active trading market currently exists for the notes. If any of the notes are traded after their initial issuance, they may trade at a discount from their initial offering price, depending upon prevailing interest rates, the market for similar securities and other factors, including general economic conditions, our financial condition, performance and prospects, and prospects for companies in our industry in general. In addition, the liquidity of the trading market in the notes and the market prices quoted for the notes may be adversely affected by changes in the overall market for high-yield securities.

You may have difficulty selling the old notes that you do not exchange.

        If you do not exchange your old notes for the new notes offered in the exchange offer, your old notes will continue to be subject to significant restrictions on transfer. Those transfer restrictions are described in the indentures governing the notes and arose because we originally issued the old notes under exemptions from the registration requirements of the Securities Act. The old notes may not be offered, sold or otherwise transferred, except in compliance with the registration requirements of the Securities Act, pursuant to an exemption from registration under the Securities Act or in a transaction not subject to the registration requirements of the Securities Act, and in compliance with applicable state securities laws. We did not register the old notes, and we do not intend to do so under the Securities Act. If you do not exchange your old notes, your ability to sell those notes will be significantly limited.

        If a large number of outstanding old notes are exchanged for new notes issued in the exchange offer, it may be more difficult for you to sell your unexchanged old notes due to the limited amounts of old notes that would remain outstanding following the exchange offer.

17

FORWARD-LOOKING STATEMENTS

        This prospectus includes forward-looking statements regarding, among other things, our plans, strategies and prospects, both business and financial. All statements contained in this document other than historical information are forward-looking statements. Forward-looking statements include, but are not limited to, statements that represent our beliefs concerning future operations, strategies, financial results or other developments, and contain words and phrases such as "may," "expects," "should," or similar expressions. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Important factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to:

•

changes in general economic conditions in the United States;



•

changes in operations and prospects;



•

the degree to which we are leveraged;



•

the relative success and timing of our business strategies;



•

our ability to execute and manage our growth strategy;



•

adverse regional conditions;



•

availability and terms of capital;



•

increased competition in the fitness industry;



•

actions of third parties, such as legislative bodies and government regulatory agencies; and



•

protection of our trademarks; and



•

various other factors beyond our control.

        Consequently, such forward-looking statements should be regarded solely as our current plans, estimates and beliefs. We do not intend, and do not undertake, any obligation to update any forward-looking statements to reflect future events or circumstances after the date of such statements.

        You should review carefully the section captioned "Risk Factors" in this prospectus for a more complete discussion of the risks of an investment in the notes.

18

THE EXCHANGE OFFER

        The following contains a summary of the material provisions of the registration rights agreement. It does not contain all of the information that may be important to an investor in the notes. Reference is made to the provisions of the registration rights agreement, which has been filed as an exhibit to the registration statement. Copies are available as set forth under the heading "Where You Can Find More Information."

Terms of the Exchange Offer

        General.    In connection with the issuance of the old notes pursuant to a purchase agreement, dated as of December 9, 2003, between Equinox and the initial purchasers, the initial purchasers and their respective assignees became entitled to the benefits of the registration rights agreement.

        Under the registration rights agreement, we have agreed to use our reasonable best efforts to (1) file with the Commission the registration statement of which this prospectus is a part with respect to a registered offer to exchange the old notes for the new notes on or prior to 60 days after initial issuance of the old notes, (2) to cause the registration statement to be declared effective under the Securities Act on or prior to 180 days after the initial issuance of the old notes and (3) to commence the Exchange Offer and issue, on or prior to 211 days after the initial issuance of the old notes, new notes in exchange for all old notes tendered prior thereto. We will keep the exchange offer open for the period required by applicable law, but in any event for at least 20 business days after the date notice of the exchange offer is mailed to holders of the old notes.

        Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, all old notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date will be accepted for exchange. New notes will be issued in exchange for an equal principal amount of outstanding old notes accepted in the exchange offer. Old notes may be tendered only in integral multiples of $1,000. This prospectus, together with the letter of transmittal, is being sent to all registered holders as of                        , 2004. The exchange offer is not conditioned upon any minimum principal amount of old notes being tendered for exchange. However, the obligation to accept old notes for exchange pursuant to the exchange offer is subject to certain customary conditions as set forth herein under "—Conditions."

        Old notes shall be deemed to have been accepted as validly tendered when, as and if we have given oral or written notice of such acceptance to the exchange agent. The exchange agent will act as agent for the tendering holders of old notes for the purposes of receiving the new notes and delivering new notes to such holders.

        Based on interpretations by the Staff of the Commission as set forth in no-action letters issued to third parties (including Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated (available June 5, 1991), K-III Communications Corporation (available May 14, 1993) and Shearman Sterling (available July 2, 1993)), we believe that the new notes issued pursuant to the exchange offer may be offered for resale, resold and otherwise transferred by any holder of such new notes, other than any such holder that is a broker-dealer or an "affiliate" of us within the meaning of Rule 405 under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that:

•

such new notes are acquired in the ordinary course of business,



•

at the time of the commencement of the exchange offer such holder has no arrangement or understanding with any person to participate in a distribution of such new notes, and



•

such holder is not engaged in, and does not intend to engage in, a distribution of such new notes.

19

        We have not sought, and do not intend to seek, a no-action letter from the Commission with respect to the effects of the exchange offer, and there can be no assurance that the Staff would make a similar determination with respect to the new notes as it has in such no-action letters.

        By tendering old notes in exchange for new notes and executing the letter of transmittal, each holder will represent to us that:

•

any new notes to be received by it will be acquired in the ordinary course of business,



•

it has no arrangements or understandings with any person to participate in the distribution of the old notes or new notes within the meaning of the Securities Act, and



•

it is not our "affiliate," as defined in Rule 405 under the Securities Act.

If such holder is a broker-dealer, it will also be required to represent that the old notes were acquired as a result of market-making activities or other trading activities and that it will deliver a prospectus in connection with any resale of new notes. See "Plan of Distribution." If such holder is not a broker-dealer, it will be required to represent that it is not engaged in and does not intend to engage in the distribution of the new notes. Each holder, whether or not it is a broker-dealer, shall also represent that it is not acting on behalf of any person that could not truthfully make any of the foregoing representations contained in this paragraph. If a holder of old notes is unable to make the foregoing representations, such holder may not rely on the applicable interpretations of the Staff of the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction unless such sale is made pursuant to an exemption from such requirements.

        Each broker-dealer that receives new notes for its own account in exchange for old notes where such new notes were acquired by such broker-dealer as a result of market-making or other trading activities, must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act and that it has not entered into any arrangement or understanding with us or an affiliate of ours to distribute the new notes in connection with any resale of such new notes. Each letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for old notes, where such old notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that, for a period of 90 days after each applicable expiration date (as defined herein), we will make this prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution."

        Upon consummation of the exchange offer, any old notes not tendered will remain outstanding and continue to accrue interest at the rate of 9% but, with limited exceptions, holders of old notes who do not exchange their old notes for new notes in the exchange offer will no longer be entitled to registration rights and will not be able to offer or sell their old notes, unless such old notes are subsequently registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We will generally have no obligation to register the old notes upon the consummation of the exchange offer except for in the limited circumstances specified in the registration rights agreement which is filed as an exhibit to this registration statement. See "Description of Notes—Registration Rights."

        Expiration Date; Extensions; Amendments; Termination.    The Expiration Date shall be, New York City time, on 2004, unless Equinox, in its sole discretion, extends the exchange offer, in which case the Expiration Date shall be the latest date to which the exchange offer is extended.

        To extend the Expiration Date, we will notify the exchange agent of any extension by oral or written notice and will notify the holders of old notes by means of a press release or other public announcement prior to 9:00 AM., New York City time, on the next business day after the previously scheduled Expiration Date. Such announcement may state that we are extending the exchange offer for a specified period of time.

20

        With regards to the exchange offer, we reserve the right

1.

to delay acceptance of any old notes, to extend the exchange offer or to terminate the exchange offer and not permit acceptance of old notes not previously accepted if any of the conditions set forth under "—Conditions" shall have occurred and shall not have been waived by us prior to the Expiration Date, by giving oral or written notice of such delay, extension or termination to the exchange agent, or



2.

to amend the terms of the exchange offer in any manner deemed by us to be advantageous to the holders of the old notes.

Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice of such delay, extension or termination or amendment to the exchange agent. If the terms of the exchange offer are amended in a manner determined by us to constitute a material change, we will promptly disclose such amendment in a manner reasonably calculated to inform the holders of the old notes of such amendment.

        Without limiting the manner in which we may choose to make public announcement of any delay, extension or termination of the exchange offer, we shall have no obligations to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release to an appropriate news agency.

Interest on the New Notes

        Each new note will accrue interest at the rate of 9% per annum from the last interest payment date on which interest was paid on the old note surrendered in exchange for such new note to the day before the consummation of the exchange offer and thereafter, at the rate of 9% per annum, provided, that if an old note is surrendered for exchange on or after a record date for an interest payment date that will occur on or after the date of such exchange and as to which interest will be paid, interest on the new note received in exchange for such old note will accrue from the date of such interest payment date. Interest on the new notes is payable on June 15 and December 15 of each year. No additional interest will be paid on old notes tendered and accepted for exchange.

Procedures for Tendering

        To tender in the exchange offer, a holder must complete, sign and date the letter of transmittal, or a facsimile of such letter of transmittal, have the signatures on such letter of transmittal guaranteed if required by such letter of transmittal, and mail or otherwise deliver such letter of transmittal or such facsimile, together with any other required documents, to the exchange agent prior to 5:00 p.m., New York City time, on the Expiration Date. In addition, either

•

certificates of old notes must be received by the exchange agent along with the applicable letter of transmittal, or



•

a timely confirmation of a book-entry transfer of such old notes, if such procedure is available, into the exchange agent's account at the book-entry transfer facility, The Depository Trust Company, pursuant to the procedure for book-entry transfer described below, must be received by the exchange agent prior to the Expiration Date with the applicable letter of transmittal, or



•

the holder must comply with the guaranteed delivery procedures described below.

We will only issue new notes in exchange for old notes that are timely and properly tendered. The method of delivery of old notes, letter of transmittal and all other required documents is at the election and risk of the note holders. If such delivery is by mail, it is recommended that registered mail, properly insured, with return receipt requested, be used. In all cases, sufficient time should be allowed to assure timely delivery. No old notes, letters of transmittal or other required documents should be sent to us. Delivery of all old notes (if applicable), letters of transmittal and other documents must be made to the exchange agent at its address set forth below. Holders may also request their respective

21

brokers, dealers, commercial banks, trust companies or nominees to effect such tender for such holders. Neither we nor the exchange agent are required to tell you of any defects or irregularities with respect to your old notes or the tenders thereof.

        The tender by a holder of old notes will constitute an agreement between such holder and us in accordance with the terms and subject to the conditions set forth in this prospectus and in the applicable letter of transmittal. Any beneficial owner whose old notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and instruct such registered holder to tender on his behalf.

        Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed by any member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor" institution within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934 (each an "Eligible Institution") unless the old notes tendered pursuant to such letter of transmittal or notice of withdrawal, as the case may be, are tendered (1) by a registered holder of old notes who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the letter of transmittal or (2) for the account of an Eligible Institution.

        If a letter of transmittal is signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such person should so indicate when signing, and unless waived by us, provide evidence satisfactory to us of their authority to so act must be submitted with such letter of transmittal.

        All questions as to the validity, form, eligibility, time of receipt and withdrawal of the tendered old notes will be determined by us in our sole discretion, which determination will be final and binding. We reserve the absolute right to reject any and all old notes not properly tendered or any old notes which, if accepted, would, in the opinion of counsel for us, be unlawful. We also reserve the absolute right to waive any irregularities or conditions of tender as to the old notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of old notes must be cured within such time as we shall determine. Neither we, the exchange agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of old notes, nor shall any of them incur any liability for failure to give such notification. Tenders of old notes will not be deemed to have been made until such irregularities have been cured or waived. Any old notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned without cost to such holder by the exchange agent, unless otherwise provided in the letter of transmittal, as soon as possible following the Expiration Date.

        In addition, we reserve the right in our sole discretion, subject to the provisions of the indentures pursuant to which the notes are issued,

•

to purchase or make offers for any old notes, that remain outstanding subsequent to the Expiration Date or, as set forth under "—Conditions," to terminate the exchange offer,



•

to redeem old notes as a whole or in part at any time and from time to time, as set forth under "Description of Notes—Optional Redemption," and



•

to the extent permitted under applicable law, to purchase old notes in the open market, in privately negotiated transactions or otherwise.

        The terms of any such purchases or offers could differ from the terms of the exchange offer.

22

Acceptance of Old Notes for Exchange; Delivery of New Notes

        Upon satisfaction or waiver of all of the conditions to the exchange offer, all old notes properly tendered will be accepted promptly after the Expiration Date, and the new notes will be issued promptly after acceptance of the old notes. See "—Conditions." For purposes of the exchange offer, old notes shall be deemed to have been accepted as validly tendered for exchange when, as and if we have given oral or written notice thereof to the exchange agent. For each old note accepted for exchange, the holder of such old note will receive a new note having a principal amount equal to that of the surrendered old note.

        In all cases, issuance of new notes for old notes that are accepted for exchange pursuant to the exchange offer will be made only after timely receipt by the exchange agent of

•

certificates for such old notes or a timely book-entry confirmation of such old notes into the exchange agent's account at the applicable book-entry transfer facility,



•

a properly completed and duly executed letter of transmittal, and



•

all other required documents.

        If any tendered old notes are not accepted for any reason set forth in the terms and conditions of the exchange offer, such unaccepted or such non-exchanged old notes will be returned without expense to the tendering holder of such notes, if in certificated form, or credited to an account maintained with such book-entry transfer facility as promptly as practicable after the expiration or termination of the exchange offer.

Book-Entry Transfer

        The exchange agent will make a request to establish an account with respect to the old notes at the book-entry transfer facility for purposes of the exchange offer within two business days after the date of this prospectus. Any financial institution that is a participant in the book-entry transfer facility's systems may make book-entry delivery of old notes by causing the book-entry transfer facility to transfer such old notes into the exchange agent's account at the book-entry transfer facility in accordance with such book-entry transfer facility's procedures for transfer. However, although delivery of old notes may be effected through book-entry transfer at the book-entry transfer facility, the letter of transmittal or facsimile thereof with any required signature guarantees and any other required documents must, in any case, be transmitted to and received by the exchange agent at one of the addresses set forth below under "—Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery procedures described below must be complied with.

Exchanging Book-Entry Notes

        The exchange agent and the book-entry transfer facility have confirmed that any financial institution that is a participant in the book-entry transfer facility may utilize the book-entry transfer facility Automated Tender Offer Program ("ATOP") procedures to tender old notes.

        Any participant in the book-entry transfer facility may make book-entry delivery of old notes by causing the book-entry transfer facility to transfer such old notes into the exchange agent's account in accordance with the book-entry transfer facility's ATOP procedures for transfer. However, the exchange for the old notes so tendered will only be made after a book-entry confirmation of the book-entry transfer of old notes into the exchange agent's account, and timely receipt by the exchange agent of an agent's message and any other documents required by the letter of transmittal. The term "agent's message" means a message, transmitted by the book-entry transfer facility and received by the exchange agent and forming part of a book-entry confirmation, which states that the book-entry transfer facility has received an express acknowledgement from a participant tendering old notes that are the subject of such book-entry confirmation that such participant has received and agrees to be bound by the terms of the letter of transmittal, and that we may enforce such agreement against such participant.

23

Guaranteed Delivery Procedures

        If the procedures for book-entry transfer cannot be completed on a timely basis, a tender may be effected if

•

the tender is made through an Eligible Institution,



•

prior to the Expiration Date, the exchange agent receives by facsimile transmission, mail or hand delivery from such Eligible Institution a properly completed and duly executed letter of transmittal and notice of guaranteed delivery, substantially in the form provided by us, which



—

sets forth the name and address of the holder of old notes and the principal amount of old notes tendered,



—

states the tender is being made thereby, and



—

guarantees that within three New York Stock Exchange ("NYSE") trading days after the date of execution of the notice of guaranteed delivery, the certificates for all physically tendered old notes, in proper form for transfer, or a book-entry confirmation, as the case may be, and any other documents required by the letter of transmittal will be deposited by the Eligible Institution with the exchange agent, and



•

the certificates for all physically tendered old notes, in proper form for transfer, or a book-entry confirmation, as the case may be, and all other documents required by the letter of transmittal are received by the exchange agent within three NYSE trading days after the date of execution of the notice of guaranteed delivery.

Withdrawal of Tenders

        Tenders of old notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. If the applicable expiration date has been extended, tenders pursuant to the applicable exchange offer as of the previously scheduled expiration date may not be withdrawn after such previously scheduled expiration date.

        For a withdrawal to be effective, a written notice of withdrawal must be received by the exchange agent prior to 5:00 p.m., New York City time, on the Expiration Date at the address set forth below under "—Exchange Agent." Any such notice of withdrawal must

•

specify the name of the person having tendered the old notes to be withdrawn,



•

identify the old notes to be withdrawn, including the principal amount of such old notes,



•

in the case of old notes tendered by book-entry transfer, specify the number of the account at the book-entry transfer facility from which the old notes were tendered and specify the name and number of the account at the book-entry transfer facility to be credited with the withdrawn old notes and otherwise comply with the procedures of such facility.



•

contain a statement that such holder is withdrawing its election to have such old notes exchanged,



•

be signed by the holder in the same manner as the original signature on the letter of transmittal by which such old notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer to have the trustee with respect to the old notes register the transfer of such old notes in the name of the person withdrawing the tender, and



•

specify the name in which such old notes are registered, if different from the person who tendered such old notes.

All questions as to the validity, form, eligibility and time of receipt of such notice will be determined by us, in our sole discretion, which determination shall be final and binding on all parties. Any old notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer. Any old notes which have been tendered for exchange but which are not exchanged for

24

any reason will be returned to the tendering holder of such notes without cost to such holder, in the case of physically tendered old notes, or credited to an account maintained with the book-entry transfer facility for the old notes as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn old notes may be retendered by following one of the procedures described under "—Procedures for Tendering" and —Book-Entry Transfer" above at any time on or prior to 5:00 p.m., New York City time, on the Expiration Date.

Conditions

        Notwithstanding any other provision of the exchange offer, we shall not be required to accept for exchange, or to issue new notes in exchange for, any old notes and may terminate or amend the exchange offer if at any time prior to 5:00 p.m., New York City time, on the Expiration Date, we determine in our reasonable judgment that the exchange offer violates applicable law, any applicable interpretation of the Staff of the Commission or any order of any governmental agency or court of competent jurisdiction.

        The foregoing conditions are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to any such condition or may be waived by us in whole or in part at anytime and from time to time in our reasonable discretion. Our failure at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right. All conditions to the offer, other than those dependent upon the receipt of governmental approval, must be satisfied or waived prior to expiration of the offer.

        In addition, we will not accept for exchange any old notes tendered, and no new notes will be issued in exchange for any such old notes, if at any such time any stop order shall be threatened or in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of either indenture under the Trust Indenture Act of 1939, as amended. We are required to use every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible time.

Exchange Agent

        U.S. Bank National Association has been appointed as exchange agent for the exchange offer. Questions and requests for assistance and requests for additional copies of this prospectus or of the letter of transmittal should be directed to the exchange agent addressed as follows:

By Mail, Hand Delivery or Overnight Courier:
US Bank National Association
Corporate Trust Services
60 Livingston Avenue
St. Paul, Minnesota 55107
Attn: Specialized Finance
Transmission Number:
(651) 495-8158

Fax cover sheets should provide a call back phone
number and request a call back, upon receipt.

For Information Call:
(800) 934-6802

Fees and Expenses

        The expenses of soliciting tenders pursuant to the exchange offer will be borne by us. The principal solicitation for tenders pursuant to the exchange offer is being made by mail; however, additional solicitations may be made by telegraph, telephone, telecopy or in person by our officers and regular employees.

25

        We will not make any payments to or extend any commissions or concessions to any brokers, dealers or other persons soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and will reimburse the exchange agent for its reasonable out-of-pocket expenses in connection therewith. We may also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of the prospectus and related documents to the beneficial owners of the old notes, and in handling or forwarding tenders for exchange.

        The expenses to be incurred by us in connection with the exchange offer will be paid by us, including fees and expenses of the exchange agent and trustee and accounting, legal, printing and related fees and expenses.

        We will pay all transfer taxes, if any, applicable to the exchange of old notes pursuant to the exchange offer. If, however, new notes or old notes for principal amounts not tendered or accepted for exchange are to be registered or issued in the name of any person other than the registered holder of the old notes tendered, or if tendered old notes are registered in the name of any person other than the person signing the letter of transmittal, or if a transfer tax is imposed for any reason other than the exchange of old notes pursuant to the exchange offer, then the amount of any such transfer taxes imposed on the registered holder or any other persons will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the letter of transmittal, the amount of such transfer taxes will be billed directly to such tendering holder.

Consequences of Failure to Exchange

        Holders of old notes who do not exchange their old notes for new notes pursuant to the exchange offer will continue to be subject to the restrictions on transfer of such old notes as set forth in the legend on the old notes as a consequence of the issuance of the old notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the old notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Equinox does not currently anticipate that it will register the old notes under the Securities Act. To the extent that old notes are tendered and accepted in the exchange offer, the trading market for untendered and tendered but unaccepted old notes could be adversely affected because the liquidity of this market will be diminished and their restrictions on transfer will make them less attractive to potential investors than the new notes.

Regulatory Requirements

        Following the effectiveness of the registration statement covering the exchange offer, no material federal or state regulatory requirement must be complied with in connection with this exchange offer.

26

USE OF PROCEEDS

        We will not receive any cash proceeds from the issuance of the new notes under the exchange offer. In consideration for issuing the new notes as contemplated by this prospectus, we will receive the old notes in like principal amount, the terms of which are identical in all material respects to the new notes. The old notes surrendered in exchange for the new notes will be retired and canceled and cannot be reissued. Accordingly, the issuance of the new notes will not result in any increase in our indebtedness or capital stock.

        The net proceeds from the original offering were $152.0 million, after deducting discounts, commissions and expenses of the original offering payable by us. The proceeds from the original offering:

•

repaid the entire outstanding principal amount of approximately $27.6 million under our then existing credit agreement and terminated all related commitments;



•

repaid the entire outstanding principal amount of $25.3 million under our then existing senior notes due 2007, plus accrued and unpaid interest;



•

repaid the entire outstanding principal amount of $52.5 million under our then existing senior subordinated notes due 2008, plus accrued and unpaid interest;



•

redeemed approximately $1.3 million of our preferred stock;



•

paid a contractually required amount of $5.0 million to our founding stockholders;



•

paid related redemption premiums, transaction fees and expenses (including an amendment fee to holders of our common stock put warrants); and



•

will fund our planned expansion to approximately 40 fitness clubs by the end of 2006 and be used for other general corporate purposes.

27

CAPITALIZATION

        The following table sets forth our audited cash and marketable securities and capitalization as of March 31, 2004. This table should be read in conjunction with our historical financial statements and other financial information appearing elsewhere in this prospectus.

			As of March 31, 2004
			(dollars in millions)
Cash and restricted cash			$	45.2
Debt:
	9% senior notes due 2009 and notes payable			161.6
	Capital leases			2.2
		Total debt	$	163.8
Total stockholders' equity (deficit)				(35.6	)
Total capitalization			$	128.2

28

SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA

You should read the selected financial information and other data below in conjunction with our consolidated financial statements and the accompanying notes contained in this prospectus. We derived the historical financial data as of December 31, 2001, 2002 and 2003 and for the years ended December 31, 2000, 2001, 2002 and 2003 from our audited consolidated financial statements. We derived the historical financial data as of December 31, 1999 and 2000 and for the year ended December 31, 1999 and for the three months ended March 31, 2004 and 2003 and for the twelve month period ended March 31, 2004 from our unaudited consolidated financial statements and our unaudited interim consolidated financial statements. You should also read the accompanying "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere in this prospectus. Amounts below may not total due to rounding.

			Year Ended December 31,															Three Months Ended March 31,						Twelve(A) Months Ended March 31,
			1999			2000			2001			2002			2003			2003			2004			2004
			(restated)			(restated)			(restated)			(restated)
			(in thousands, except for ratios and operating data)
Statement of Operations:
Revenues:
	Membership fees		$	32,131		$	42,646		$	52,489		$	63,369		$	75,677		$	17,004		$	21,716		$	80,387
	Personal training			10,430			14,133			15,024			17,709			25,000			6,011			7,273			26,263
	Other revenue			5,260			6,326			11,907			14,197			15,450			3,682			4,520			16,288
		Total revenues		47,821			63,105			79,420			95,275			116,127			26,697			33,509			122,938
Expenses:
	Compensation and related expenses			21,257			25,759			31,274			37,572			48,202			11,429			14,463			51,235
	Rent and occupancy			4,111			8,763			9,793			11,870			16,646			4,273			4,911			17,285
	General and administrative			10,028			10,159			13,378			15,976			21,280			4,931			8,784			25,133
	Recapitalization expenses			—			5,608			—			—			—			—			—			—
	Other expenses(1)			235			3,158			2,222			1,477			1,042			433			402			1,011
	Depreciation and amortization			3,573			4,360			5,785			6,850			9,750			2,253			2,936			10,433
		Total operating expenses		39,204			57,807			62,452			73,745			96,920			23,319			31,496			105,097
		Income from operations		8,617			5,298			16,968			21,530			19,207			3,378			2,013			17,841
Other income (expense):
	Interest expense			(888	)		(2,420	)		(13,298	)		(12,708	)		(33,693	)		(3,941	)		(3,791	)		(33,543	)
	Interest income			90			122			149			8			132			36			51			148
	Other income (expense)(2)			—			—			1,188			(2,869	)		900			—			714			1,614
		Total other expense		(798	)		(2,298	)		(11,961	)		(15,569	)		(32,661	)		(3,905	)		(3,026	)		(31,781	)
		Income before provision for income taxes		7,819			3,000			5,007			5,961			(13,454	)		(527	)		(1,013	)		(13,940	)
	Benefit from (provision for) income taxes			403			3,057			(2,007	)		(4,137	)		6,189			237			456			6,407
		Net income (loss)	$	8,222		$	6,057		$	3,000		$	1,824		$	(7,265	)	$	(290	)	$	(557	)	$	(7,533	)

(A)

Twelve months ended March 31, 2004 is included to facilitate comparability of ratio analysis and revenues per average member data.

Balance Sheet Data:
Cash and marketable securities	$	5,938	$	1,017		$	2,806		$	1,302		$	42,779		$	17,260		$	41,476		$	41,476
Total assets		49,297		83,624			101,088			113,515			189,303			139,702			196,946			196,946
Total debt		17,449		93,476			98,778			102,615			163,999			103,915			163,815			163,815
Stockholders' equity (deficit)		10,294		(39,338	)		(34,319	)		(36,580	)		(35,074	)		(26,847	)		(35,646	)		(35,646	)
Pro forma Data:
Interest expense(3)	$	—	$	—		$	—		$	—		$	15,931		$	4,083		$	3,791		$	15,638
Net income		—		—			—			—			2,368			(362	)		(557	)		2,183

29

	Year Ended December 31,															Three Months Ended March 31,						Twelve(A) Months Ended March 31,
	1999			2000			2001			2002			2003			2003			2004			2004
	(restated)			(restated)			(restated)			(restated)
	(in thousands except for ratios and club related data)
Other Financial Data:
Earnings (deficiency) to fixed charges(4)		5.1			1.7			1.3			1.4		$	(13,536	)	$	(527	)	$	(1,013	)	$	(13,940	)
Net cash provided by operating activities	$	19,145		$	11,543		$	16,714		$	17,641		$	16,271		$	5,879		$	9,745		$	20,137
Net cash used in investing activities		(17,263	)		(22,298	)		(18,590	)		(21,377	)		(27,009	)		(4,993	)		(9,954	)		(31,970	)
Net cash (used in) provided by financing activities		2,341			5,850			3,669			2,266			52,202			15,073			(1,025	)		36,104
Club Data:
Number of clubs at end of period		7			11			13			15			19			16			21			21
Members at end of period		30,414			37,904			45,978			54,911			67,400			58,013			70,054			70,054
Revenues per average member(5)	$	1,755		$	1,912		$	1,943		$	1,934		$	1,977		$	488		$	487		$	1,988
Ancillary revenues as a % of total revenues		32.8	%		32.4	%		33.9	%		33.5	%		34.8	%		36.3	%		35.2	%		34.8	%
Revenue growth from comparable fitness clubs(6)		22.5	%		14.7	%		14.5	%		7.7	%		8.2	%		13.4	%		6.7	%		6.6	%

(1)

Includes fees and expenses paid to certain principal stockholders under contractual arrangements. See "Related Party Transactions."

(2)

Consists of non-cash charges resulting from the mark-to-market adjustments of our common stock put warrants and our interest rate swap. See "Description of Capital Stock—Common Stock Put Warrants."

        The following table reconciles EBITDA to net cash provided by operating activities:

			Year Ended December 31,
			2001			2002			2003
EBITDA			$	23,941		$	25,511		$	29,856
Adjustments to reconcile EBITDA to net cash provided by operating activities:
	Allowance for doubtful accounts net of write-offs			(223	)		11			23
	Interest expense			(10,437	)		(10,007	)		(14,484	)
	Changes in fair market value of put warrants			(1,336	)		2,849			(888	)
	Write-off of other receivables			—			169			—
Stock compensation expense				1,022			313			35
	Accretive interest expense related to payable to founding stockholders			568			677			—
Deferred rent				975			1,088			2,521
	Deferred income taxes			(148	)		(1,724	)		—
Changes in operating assets and liabilities:
	Accounts receivable			(668	)		237			(59	)
	Due (to) from affiliates			398			176			787
	Prepaid expenses and other current assets			(2,067	)		(2,989	)		(2,422	)
	Other assets			(96	)		(585	)		(3,436	)
	Accounts payable			(745	)		(527	)		160
	Accrued expenses			2,832			346			(1,065	)
	Deferred revenue			2,698			2,096			5,243
		Net cash provided by operating activities	$	16,714		$	17,641		$	16,271

30

        The following table reconciles net income (loss) to EBITDA and illustrates components of Adjusted EBITDA as that amount is used in our calculations under the covenants contained in our credit facilty:

	Year Ended December 31,														Three Months Ended March 31,						Twelve(A) Months Ended March 31,
	1999			2000			2001			2002		2003			2003			2004			2004
	(restated)			(restated)			(restated)			(restated)
	(in thousands)
Net income (loss)	$	8,222		$	6,057		$	3,000		$	1,824	$	(7,265	)	$	(290	)	$	(557	)	$	(7,533	)
Depreciation and amortization		3,573			4,360			5,785			6,850		9,750			2,253			2,936			10,433
Provision for (benefit from) income taxes		(403	)		(3,057	)		2,007			4,137		(6,189	)		(237	)		(456	)		(6,407	)
Interest expense, net of interest income		799			2,298			13,149			12,700		33,560			3,905			3,740			33,395
EBITDA(7)	$	12,191		$	9,658		$	23,941		$	25,511	$	29,856		$	5,631		$	5,663		$	29,888
Components of Adjusted EBITDA:
Recapitalization expenses		—			5,608			—			—		—			—			—			—
Stock compensation expense		235			3,158			1,022			313		35			—			—			35
Write-off of other receivables		—			186			—			—		—			—			—			—
Write-off of other assets		1,028			—			—			—		—			—			—			—
Related-party management fees and expenses(a)		—			—			1,199			1,164		1,007			433			402			976
Other (income) expense(b)		—			—			(1,188	)		2,869		(900	)		—			(714	)		(1,614	)
Non-cash deferred rent		479			1,475			975			1,088		2,496			786			785			2,495

(a)

As discussed under "Related Party Transactions," we are contractually obligated to make these cash payments and such payments are not subordinated to the notes. However, we are presenting these adjustments to provide a clearer indication of the EBITDA and Adjusted EBITDA associated with our operations.



(b)

Consists of non-cash charges resulting from the mark to market adjustments of our common stock put warrants and our interest rate swap. See "Description of Capital Stock—Common Stock Put Warrants." Under the terms of our credit facility definitions, this line item must be added back to net income (loss) in calculating Adjusted EBITDA.

(3)

Pro forma interest expense assumes our previously outstanding revolving credit facility, senior notes due 2007, senior subordinated notes due 2008, preferred stock, certain related party debt, and other debt and certain fees were satisfied, or redeemed and that the issuance of the new senior notes occurred as of the beginning of 2003.

(4)

The ratio (deficit) of earnings to fixed charges has been computed by dividing earnings before income taxes and fixed charges before preferred stock dividends (increased to reflect the pre-tax earnings requirement related thereto) by the fixed charges. Fixed charges consist of interest and related charges on debt, preferred stock dividends and the portion of rentals for real and personal properties in an amount deemed to be representative of the interest factor.

(5)

Based on average number of members during the period.

(6)

Revenue growth of clubs that had been open for at least 12 months at the beginning of the period.

(7)

We define EBITDA as net income (loss) before interest expense, income taxes and depreciation and amortization. We present EBITDA because we believe it provides investors with useful information regarding our liquidity, including compliance under our debt covenants. Adjusted EBITDA, is defined in our $25.0 million credit agreement as EBITDA, adjusted for mark-to-market adjustments for our common stock put warrants, stock compensation expense, write-off of other receivables, management fees and expenses paid to our principal stockholders and non-cash deferred rent. Non-cash deferred rent expense reflects the difference between accrued rent expense in accordance with generally accepted accounting principles in the United States of America ("GAAP") and cash rent expense actually paid in a given period, which difference is typically positive in the early years of a lease and negative in the later years of a lease. EBITDA and Adjusted EBITDA are not measures of financial performance under GAAP. We present the components of Adjusted EBITDA because this measure is a key component in the determination of our compliance with certain covenants under our credit agreement as more fully described in our liquidity section of our Management's Discussion and Analysis contained herein. EBITDA and Adjusted EBITDA should not be considered in isolation, or as a substitute for net income, cash flows, or other consolidated income (loss) or cash flow data presented in accordance with GAAP or as a measure of our liquidity or financial condition. Because EBITDA and Adjusted EBITDA are not measures determined in accordance with GAAP and is thus susceptible to varying calculations, Adjusted EBITDA as discussed may not be comparable to other similarly titled measures of other companies.

31

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the "Selected Consolidated Financial Information and Other Data" and our consolidated financial statements and related notes included elsewhere in this prospectus.

This prospectus contains, in addition to historical information, forward-looking statements that include risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements.

The following discussion makes reference to EBITDA and Adjusted EBITDA. EBITDA is defined as earnings before interest, taxes, depreciation and, amortization. We present EBITDA because we believe it provides investors with useful information regarding our liquidity. Adjusted EBITDA is defined in our credit agreement as EBITDA adjusted for mark-to-market adjustments for our common stock put warrants, stock compensation expense, write-off or other receivables, management fees and expenses paid to our principal stockholders, and non-cash deferred rent. We present Adjusted EBITDA because this measure is a key component in the determination of our compliance with certain covenants under our credit agreement which may limit the Company's ability to incur additional indebtedness.

Investors should be aware that the items excluded from the calculation of EBITDA, such as depreciation and amortization, are significant components in an accurate assessment of our financial performance. EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows or other consolidated income or cash flow data prepared in accordance with GAAP or as a measure of our profitability or liquidity.

Equinox

        Equinox operates upscale, full-service fitness clubs with spas in the New York City metropolitan area, with growing operations in Los Angeles and Chicago. We currently operate twenty-one fitness clubs: sixteen in the New York City metropolitan area, two in Los Angeles and three in Chicago. During 2003 the Company opened four new clubs. Two of the twenty-one clubs currently in operation were opened in January 2004, one of these in New York City and the other in Chicago. In addition, we have five new locations under development, consisting of two in the New York City metropolitan area in Mamaroneck and Roslyn, Santa Monica, and two in San Francisco projected to be opened during 2004 and early 2005. As of March 31, 2004 we had approximately 70,000 members. In the second half of 2004 the Company will begin consolidating the results of Eclipse Development Corporation, a variable interest entity as defined by FASB Interpretation No. 46. The consolidation of Eclipse Development Corporation will not materially effect our statement of operations or financial position.

        As used in this section the terms listed below have the following meanings:

Revenue.    As club memberships are sold, each member is charged an initiation fee as well as membership dues. The initiation fee is due up front and amortized over an estimated membership life of 24 months, commencing with the first month of the new member contract. The initial contract period is twelve months. Membership dues for members who pay annual dues up-front (both new membership sales and membership renewals) are amortized over a 12-month period commencing with the first month of the new member contract or renewal contract, as applicable. Membership dues for members who pay monthly are recognized in the period in which facility access is provided.

        Sales commissions and other direct expenditures paid with regard to deferred membership revenue are amortized over the period in which the related revenue is recognized as income. Deferred costs do not exceed related deferred revenue for the periods presented. Such costs are amortized over the life of the membership agreement. Revenues for ancillary services are recognized as services are performed. The Company recognizes revenue from merchandise sales upon delivery to the customer. Other income, which consists of license fees paid to the Company under concession and operating agreements, is recognized on a periodic basis according to these agreements.

32

Compensation and Related Expenses.    Compensation and related expenses is comprised of all operations and general and administrative salaries, bonus, commissions, recruiting expenses and related payroll taxes, and benefits.

Rent and Occupancy.    Rent and occupancy expense is comprised of rent, real estate taxes and other facilities costs for all of our health clubs and general and administrative offices.

General and Administrative Expense.    General and administrative expenses consist primarily of costs for general corporate functions including accounting and legal, bad debt expense, club supplies, utilities, marketing and promotional expenses comprised of professional fees, utilities, and club supplies.

        Our fixed costs include rent, certain payroll expenses, utilities, janitorial expenses and depreciation. Our variable costs include commissions and other payroll expenses, advertising and supplies. Cost of goods sold for our retail business represents a small portion of our total operating expenses and is included in general and administrative expenses. We refer to "club contribution" as the excess of a club's revenues over its operating expenses (operating income before depreciation and other non-cash expenses and allocation of corporate expenses).

        When we open a new fitness club, our fixed costs increase (as do our variable costs to some degree), but without the membership revenue base of a mature fitness club. As a new fitness club increases its membership base, fixed costs are typically spread over an increasing revenue base and its club contribution tends to improve. Based on our experience, revenues of a fitness club increase significantly during its first four years of operation. By the end of the first full year of operations, a fitness club has typically achieved modest club contribution. By the end of the second full year of operations, a fitness club has typically generated significantly better club contribution as the member base grows with minimal incremental fixed operating costs. By the end of the fourth full year of operations, a typical fitness club has matured, with memberships at or near capacity. The following table illustrates our fitness club locations, opening dates and months of operations as of December 31, 2001, 2002 and 2003 and for the three months ended March 31, 2004 and 2003:

				December 31,			March 31,
		Date Club Opened	Total Months of Operation
Name				2001	2002	2003	2003	2004
Equinox 76th Street, Inc.		09/23/91	150	12	12	12	3	3
Broadway Equinox, Inc.		11/27/93	124	12	12	12	3	3
Equinox 92nd Street, Inc.		11/08/95	100	12	12	12	3	3
Equinox 85th Street, Inc.		08/27/96	91	12	12	12	3	3
Equinox 63rd Street, Inc.		12/11/97	75	12	12	12	3	3
Equinox White Plains Road, Inc.		04/08/99	48	12	12	12	3	3
Equinox 54th Street, Inc.		05/03/99	59	12	12	12	3	3
Equinox 50th Street, Inc.		02/03/00	50	12	12	12	3	3
Equinox 43rd Street, Inc.		03/09/00	49	12	12	12	3	3
Equinox Wall Street, Inc.		11/30/00	40	12	12	12	3	3
Equinox 44th Street, Inc.		12/23/00	39	12	12	12	3	3
Equinox Pasadena, Inc.		11/28/01	28	1	12	12	3	3
Equinox Greenwich Avenue, Inc.		12/30/01	27	1	12	12	3	3
Equinox Darien, Inc.		12/12/02	15	0	1	12	3	3
Equinox Lincoln Park, Inc.		12/30/02	15	0	0	12	3	3
Equinox Tribeca, Inc.		03/22/03	12	0	0	9	1	3
Equinox Woodbury Inc.		04/01/03	12	0	0	9	0	3
Equinox West Hollywood, Inc.		07/02/03	9	0	0	6	0	3
Equinox Gold Coast, Inc. (900N Michigan)		12/24/03	0	0	0	0	0	3
Equinox Highland Park, Inc.		01/29/04	0	0	0	0	0	2
Equinox Columbus Centre, Inc.		01/31/04	0	0	0	0	0	2
	Total			134	157	204	46	61

33

        Currently, 12 of our 21 fitness clubs have been in operation for less than 48 months. Based on the historical performance of our mature fitness clubs, we expect that, even in difficult economic times, our newer fitness clubs will grow significantly faster over the first four years than our average mature fitness club, while requiring only a minimal level of maintenance capital expenditures. We expect growth in revenues to continue as recently opened fitness clubs continue to mature. In addition, we expect growth in revenues as we implement long-term strategic plans to expand the brand with new clubs in existing markets and selected new markets and with new programs, services and products. However, we expect significant variability in our results as we implement our plans to bring our total fitness clubs up to approximately 40 by the end of 2006, as our mix of newer and more mature clubs varies.

        For purposes of comparison on a "same-store basis," we refer to "comparable fitness clubs" as those clubs that were operated by us for the entire period presented and for the entire comparable period of the preceding year. We use "total months of club operations" as one measure of the number of fitness clubs operating in a given period. We define "total months of club operations" as the aggregate number of full months of operation during a given period for the fitness clubs open at the end of such period. Because new fitness club openings result in a total increase in fixed and variable costs, an increase in total months of club operations can signal significant increases in our operating costs.

        During 2001, we implemented a new management information system that integrates all aspects of our operations. The system brings applications such as electronic funds transfer, point-of-sale transactions, employee time clocks and the front desk check-in area together into one nationally integrated system. With this system we now have the ability to better track facilities usage, monitor revenues per average member and eliminate most paper records. In addition, more useful information on how members use the fitness clubs enables us to focus our marketing efforts on sales of ancillary programs and services, such as personal training and spa services, as well as to facilitate seamless information exchange between our club locations. We continue to refine the system to add desired functionality, such as prospect management and proprietary business protocols. In addition, we have begun implementation of an automated human resources system to improve our ability to manage our employees.

        Under so-called state "cooling off" statutes, a member has the right to cancel his or her membership for a period of three days after becoming a member and, in such event, is entitled to a refund of any payment made. In addition, our membership agreements provide that a member may cancel his or her membership at any time for qualified medical reasons or if the member relocates a certain distance away from any of our facilities. The specified procedures for cancellation in these circumstances vary due to differing state laws. In each instance, the canceling member is entitled to cancellation of any further obligation and a refund of prepaid amounts only. Furthermore, where permitted by law, we assess a cancellation fee that we offset against any refunds owed.

34

Results of Operations

The following table sets forth our results of operations as a percentage of revenue for the periods indicated:

	For the years ended December 31,						Three Months Ended March 31,				Twelve Months(A) Ended March 31,
	2001		2002		2003		2003		2004		2004
	% of Revenue						% of Revenue
Revenues:
Membership fees	66.1	%	66.5	%	65.2	%	63.7	%	64.8	%	65.4	%
Personal training	18.9	%	18.6	%	21.5	%	22.5	%	21.7	%	21.4	%
Other revenue	15.0	%	14.9	%	13.3	%	13.8	%	13.5	%	13.2	%
Total revenue	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Expenses:
Compensation and related expenses	39.4	%	39.4	%	41.5	%	42.8	%	43.2	%	41.7	%
Rent and occupancy	12.3	%	12.5	%	14.3	%	16.0	%	14.7	%	14.1	%
General and administrative	16.8	%	16.8	%	18.3	%	18.5	%	26.2	%	20.4	%
Related-party management fees and expenses	1.5	%	1.2	%	0.9	%	1.6	%	1.2	%	0.8	%
Stock compensation expense	1.3	%	0.3	%	0.0	%	0.0	%	0.0	%	0.0	%
Depreciation and amortization	7.3	%	7.2	%	8.4	%	8.4	%	8.8	%	8.5	%
Total operating expenses	78.6	%	77.4	%	83.5	%	87.4	%	94.0	%	85.5	%
Income from operations	21.4	%	22.6	%	16.5	%	12.7	%	6.0	%	14.5	%
Other income (expense):
Interest expense	(16.7	)%	(13.3	)%	(29.0	)%	(14.8	)%	(11.3	)%	(27.3	)%
Interest income	0.2	%	—		0.1	%	0.1	%	0.2	%	0.1	%
Other income (expense)	1.4	%	(3.0	)%	0.8	%	0.0	%	2.1	%	1.3	%
Total other expense	(15.1	)%	(16.3	)%	(28.1	)%	(14.6	)%	(9.0	)%	(25.9	)%
Income before provision for income taxes	6.3	%	6.3	%	(11.6	)%	2.0	%	(3.0	)%	(11.3	)%
Benefit from (provision for) income taxes	2.5	%	(4.3	)%	5.3	%	.9	%	(1.4	)%	5.6	%
Net income (loss)	3.8	%	1.9	%	(6.3	)%	(1.1	)%	(1.7	)%	(5.7	)%

        Certain reclassifications have been made to the 2001 financial statements to conform with the 2002 and 2003 presentation.

Three Months Ended March 31, 2004 Compared to the Three Months Ended March 31, 2003

        Revenues.    Total revenues were $33.5 million for the three months ended March 31, 2004 compared to $26.7 million for the three months ended March 31, 2003, an increase of $6.8 million or 25.5%. Membership fees increased to $21.7 million for the three months ended March 31, 2004, an increase of $4.7 million or 27.7% from $17.0 million for the prior year's first quarter. Personal training revenue increased to $7.3 million for the three months ended March 31, 2004, an increase of $1.3 million or 21.0% from $6.0 million for the prior year's first quarter. Other revenue increased to $4.5 million for the three months ended March 31, 2004, an increase of $838,000 or 22.8% from $3.7 million for the prior year's first quarter. These increases in revenue are due to an increase in membership base and a 3% increase in our monthly dues. Our membership base increased to 70,000 an increase of approximately 12,000 or 20.8% from 58,000 as of March 31, 2003. This increase in members is predominantly from new and recently opened clubs. There were twenty-one clubs open as of March 31, 2004 compared to sixteen as of March 31, 2003. Revenues from non-members was immaterial.

35

        Compensation and Related Expenses.    Compensation and related expenses increased to $14.5 million for the three months ended March 31, 2004, an increase of $3.0 million or 26.5% from $11.4 million for the prior year's first quarter. This increase was due to a 21.3% increase in employees to 2,487 at March 31, 2004 from 2,051 at March 31, 2003 and a 32.6% increase in total months of club operations to 61 months for the three months ended March 31, 2004 from 46 months for the prior year's first quarter. In addition, our personal trainer's wages increased consistently with the increase in our personal training revenue. As a percentage of total revenue compensation and related expenses increased to 43.2% from 42.8%. This increase as a percentage of revenue is due to new clubs which by definition have not reached maximum membership capacity and incur certain fixed compensation and related expenses.

        Rent and Occupancy.    Rent and occupancy expense increased to $4.9 million for the three months ended March 31, 2004, an increase of $639,000 or 15.0% from $4.3 million for the prior year's first quarter. This increase was due to our five new clubs opened between April 2003 and January 2004, which represents a 32.6% increase in total months of club operations to 61 for the three months ended March 31, 2004 from 46 for the prior year's first quarter. In addition we experienced an increase in property taxes. As a percentage of total revenue, rent and occupancy expenses decreased to 14.7% from 16.0% for the prior year's first quarter. This decrease is due to increased revenues from the ramp up of recently opened clubs that incur fixed rent and occupancy expense.

        General and Administrative Expenses.    General and administrative expenses increased to $8.8 million for the three months ended March 31, 2004, an increase of 78.1% from $4.9 million for the prior year's first quarter. This increase is due to $144,000 in additional expense associated with our ancillary products, an increase of $900,000 for professional fees, a $1.1 million increase in repairs and maintenance and supplies, marketing and advertising increased by $1.4 million, and credit card fees increased by $147,000. These increases are due primarily to our five new clubs opened between April 2003 and January 2004, which represents a 32.6% increase in total months of club operations to 61 for the three months ended March 31, 2004 from 46 for the prior year's first quarter. In addition our marketing expense increased by $1.2 million due to our new 2004 campaign and we incurred approximately $750,000 in connection with a landlord disputes. As a percentage of total revenue, general and administrative expenses increased to 26.2% for the three months ended March 31, 2004 from 18.5% for the prior year's first quarter. This increase as a percentage of total revenue is primarily due to approximately $2.0 million incurred in marketing and legal and professional fees related to a landlord dispute in the first three months of 2004 over the prior year's first quarter.

        Related-Party Management Fees and Expenses.    Related-party management fees and expenses decreased to $402,000 for the three months ended March 31, 2004 from $433,000 for the prior year's first quarter. Related-party management fees and expenses represent contractual fees of $800,000 per annum for consulting services plus expenses due to our investors as per our recapitalization agreement.

        Depreciation and Amortization.    Depreciation and amortization expense increased to $2.9 million for the three months ended March 31, 2004, an increase of 30.4% from $2.3 million for the prior year's first quarter. This increase is due to an increase of $34.6 million of fixed asset additions principally for leasehold improvements in connection with our new club openings during 2003 and 2004.

        Total Operating Expenses.    Total operating expenses increased to $31.5 million for the three months ended March 31, 2004, an increase of $8.2 million or 35.1% from $23.3 million for the prior year's first quarter. This increase is primarily due to higher compensation, rent and occupancy, general and administrative and depreciation and amortization. We experienced these increases in connection with our five new clubs opened between April 2003 and January 2004, which represents a 32.6% increase in total months of club operations to 61 for the three months ended March 31, 2004 from 46 for the prior year's first quarter. As a percentage of total revenue, total operating expenses increased to 94.0% from 87.3% for the prior year's first quarter. This increase as a percentage of revenue is due to new clubs

36

which have not reached maximum membership capacity and incur fixed costs and additional fixed asset additions resulting in higher depreciation expense, additional marketing and legal and professional fees in connection with landlord disputes.

        Other Expense.    Other expense decreased to $3.0 million or 22.5% for the three months ended March 31, 2004, from $3.9 million for the first quarter of the prior year. The decrease is primarily due to our marking our warrants to market resulting in other income in the first quarter of 2004.

Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002

        Revenues.    Total revenues were $116.1 million in fiscal 2003 as compared to $95.3 million in fiscal 2002, an increase of $20.9 million, or 21.9%. Membership fees increased to $75.7 million in fiscal 2003, an increase of approximately $12.3 million or 19.4% from $63.4 million for the prior year. Personal training revenue increased to $25.0 million in fiscal 2003, an increase of approximately $7.3 million or 41.2% from $17.7 million in fiscal 2002. Other revenue increased to $15.5 million in fiscal 2003, an increase of approximately $1.3 or 8.8% from $14.2 million. These increases in revenue are due to an increase in our membership base and pricing increases. Our membership base increased to 67,000 at December 31, 2003, an increase of approximately 12,000 members or 22.7%. This increase in members was predominantly from recently opened and new clubs. In addition to an overall increase in our membership base, our pricing structure increased by approximately 3%. Revenues from non-members was immaterial.

        Compensation and Related Expenses.    Compensation and related expenses increased to $48.2 million for the year ended December 31, 2003, an increase of $10.6 million or 28.3% from $37.6 for the prior year. This increase was due to a 31.6% increase in employees to 2,128 from 1,617, and a 29.9% increase total months of club operations to 204 months for 2003 from approximately 157 months in 2002. In addition, our personal trainers' wages increased consistently with the increase in our personal training revenue. As a percentage of total revenue, compensation and related expenses increased to 41.5% from 39.4%. This increase is due to new clubs added in 2003, which have not reached maximum membership capacity and incur fixed compensation and related expenses. In addition compensation related expenses for general and administrative staff increased slightly.

        Rent and Occupancy.    Rent and occupancy expense increased to $16.6 million for the year ended December 31, 2003, an increase of $4.8 million or 40.2% from $11.9 million for the prior year. This increase was due to additional rent and related expenses incurred in connection with our four new clubs opened during 2003, a 29.9% increase in total months of club operations to 204 months for 2003 from approximately 157 months in 2002 which includes the four new clubs, additional office space, and increased property taxes. As a percentage of revenue, rent and occupancy expense increased to 14.3% from 12.5% for the prior year. This increase as a percentage of revenue is due to new clubs, which by definition have not reached maximum membership capacity and incur fixed rent and occupancy expenses.

        General and Administrative Expenses.    General and administrative expenses increased to $21.3 million for the year ended December 31, 2003, an increase of $5.3 million or 33.2% from $16.0 million for the prior year. This increase is due to $641,000 in additional expenses associated with our ancillary products, $385,000 increase in credit card fees, $864,000 increase in utilities, $873,000 increase in advertising, $525,000 increase in insurance expense and approximately $2.0 million in other operating expenses. These increases are primarily due to a 29.9% increase in total months of club operations to 204 months for 2003 from approximately 157 months in 2002. In addition we had $700,000 in expenses associated with our refinancing and continued investments in our finance department, information technology and marketing. We will likely incur approximately $2.0 million of additional costs related to this landlord dispute in 2004 consisting of approximately $1.3 million for

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legal fees and $700,000 for other rents. As a percentage of total revenue, general and administrative expenses increased to 18.3% from 16.8% for the prior year.

        Related-Party Management Fees and Expenses.    Related party management fees and expenses decreased to $1.0 million from $1.2 million for the prior year. Related management fees and expenses represents contractual annual fees of $800,000 for consulting services plus expenses due to our investors related to our recapitalization agreement. As a percentage of revenue related party management fees and expenses decreased to .86% from 1.21% for the prior year.

        Stock Compensation Expense.    In connection with the granting of stock options to non-employees, we recognized stock compensation expense of approximately $35,000 and $313,000 for the years ended December 31, 2003 and 2002, respectively.

        Depreciation and Amortization.    Depreciation and amortization expense increased to $9.7 million, an increase of $2.9 million from $6.8 million in the prior year. This increase is due to approximately $27.0 million of fixed asset additions principally for leasehold improvements in connection with our new club openings during 2003 compared to $21.4 million for the prior year.

        Total Operating Expenses.    Total operating expenses increased to $96.9 million, an increase of $23.2 million or 31.4% from $73.7 million for the prior year. This increase is due primarily to higher compensation costs, rent and occupancy and other expenses related to a 29.9% increase in total months of club operations to 204 months for 2003 from approximately 157 months in 2002. As a percentage of revenue, operating expenses increased to 83.5% from 77.4% for the prior year. This increase as a percentage of revenue is due to new clubs, which have not reached maximum membership capacity and incur fixed rent and occupancy expenses upon the clubs opening.

        Other Expense.    Other expense increased to $32.7 million for the year ended December 31, 2003, an increase of $17.1 million or 109.8% from $15.6 million for the prior year. This increase was due to the interest expense in connection with the repayment of certain debt in connection with our offering of 9% senior notes due 2009 at the end of 2003 and included interest expense on our senior notes, line of credit, term loan, original issue discount and prepayment penalties of $23.4 million, $5.8 million in deferred financing costs related to our prior debt that were written-off, and $3.2 million of accelerated interest that was included in the $5.0 million paid to our founding shareholders. In addition we incurred approximately $592,000 of interest costs related to our offering of senior notes. Other interest costs including interest under capital leases totaled approximately $300,000.

        Provision (benefit) for Income Taxes.    The provision (benefit) for income taxes was $(6.2) million in fiscal 2003 as compared to $4.1 million in fiscal 2002, a decrease of $10.3 million. Our effective tax rate in fiscal 2003 decreased to (46)% from 69% in fiscal 2002, primarily as the result of the loss before income taxes in 2003, permanent differences relating to mark-to-market adjustment for the common stock put warrants issued to the holders of our senior subordinated notes and the impact of state and local taxes in the jurisdictions in which we operate fitness clubs.

Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001

        Revenues.    Total revenues were $95.3 million in fiscal 2002 as compared to $79.4 million in fiscal 2001, an increase of $15.9 million, or 20.0%. Membership fees increased to $63.4 million in fiscal 2002, an increase of approximately $10.9 million or 20.7% from $52.5 million for the prior year. Personal training revenue increased to $17.7 million in fiscal 2002, an increase of approximately $2.7 million or 17.9% from $15.0 million in fiscal 2001. Other revenue increased to $14.2 million in fiscal 2002, an increase of approximately $2.3 million or 19.2% from $11.9 million for the prior year. These increases in revenue are due to an increase in our membership base and price increases. Our membership base increased to 55,000 at December 31, 2002, an increase of approximately 8,933 members or 19.4%. This

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increase in members was predominantly from recently opened and new clubs. In addition to an overall increase in our membership base, our pricing structure increased by approximately 2.6%. Revenues from non-members was immaterial.

        Compensation and Related Expenses.    Compensation and related expenses increased to $37.6 million for the year ended December 31, 2002, an increase of $6.3 million or 20.1% from $31.3 for the prior year. This increase was due to a 19.6% increase in employees to 1,617 from 1,352, and a 17.2% increase total months of club operations to 157 months for 2002 from approximately 134 months in 2001. As a percentage of revenue compensation and related expenses remained at 39.4% for both 2002 and 2001.

        Rent and Occcupancy.    Rent and occupancy expense increased to $11.9 million for the year ended December 31, 2002, an increase of $2.1 million or 21.2% from $9.8 million for the prior year. This increase was due to increased real estate taxes and a full twelve months of rent from clubs opened in 2001, as well as related expenses incurred in connection with two new clubs opened during 2002, a 17.2% increase in total months of club operations to 157 months for 2002 from approximately 134 months in 2001 which includes the two new additional clubs. As a percentage of revenue, rent and occupancy increased to 12.5% from 12.3% for the prior year. This increase as a percentage of revenue is due to new clubs, which by definition have not reached maximum member capacity and incur fixed rent and occupancy expenses.

        General and Administrative Expenses.    General and administrative expenses increased to $16.0 million for the year ended December 31, 2002, an increase of $2.6 million or 19.4% from $13.4 for the prior year. This increase was due to $552,000 in additional expenses associated with our ancillary products, $629,000 increase in credit card fees, $373,000 increase in insurance, $267,000 increase in additional marketing, advertising and promotional expenses, $239,000 increase in bad debt, $300,000 increase in club supplies, approximately $139,000 in repairs and maintenance, and approximately $101,000 related to additional expenses incurred with our 2 new clubs, which represents a 17.2% increase total months of club operations to 157 months for 2002 from approximately 134 months in 2001. As a percentage of revenue, general and administrative expenses remained at 16.8% for both periods.

        Related-Party Management Fees and Expenses.    Related party management fees and expenses remained at approximately $1.2 million for the years ended December 31, 2002 and 2001. Related management fees and expenses represents contractual annual fees of $800,000 for consulting services plus expenses due to our investors related to our recapitalization agreement. As a percentage of revenue related party management fees and expenses decreased to 1.2% from 1.5% for the prior year.

        Stock Compensation Expense.    In connection with the granting of stock options to non-employees, we recognized stock compensation expense of approximately $313,000 and $1.0 million for the years ended December 31, 2002 and 2001, respectively.

        Depreciation and Amortization.    Depreciation and amortization expense increased to $6.8 million, an increase of approximately $1.1 million from $5.8 million in the prior year. This increase is due to approximately $21.4 million of fixed asset additions including leasehold improvements in connection with our new club openings during 2002.

        Total Operating Expenses.    Total operating expenses increased to $73.7 million, an increase of $11.3 million or 18.0% from $62.5 million for the prior year. This increase is due to increased compensation, rent and occupancy and other expenses related to a 17.2% increase in total months of club operations to 157 months for 2002 from approximately 134 months in 2001. As a percentage of revenue, operating expenses decreased to 77.4% from 78.6% for the prior year. This decrease as a percentage of revenue is due to expenses from new clubs being outpaced by an increase in revenues.

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        Other Expense.    Other expense increased to $15.6 million for the year ended December 31, 2002, an increase of $3.6 million or 30.2% from $12.0 million for the prior year. This increase is mainly due to marking our warrants to market of $2.9 million compared to $(1.2) million in 2001, offset by a decrease in net interest expense of approximately $449,000.

        Provision for Income Taxes.    The provision for income taxes was $4.1 million in fiscal 2002 as compared to $2.0 million in fiscal 2001, an increase of $2.1 million, or 106%. Our effective tax rate in fiscal 2002 increased to 69% from 40% in fiscal 2001, primarily as the result of permanent differences relating to mark-to-market adjustment for the common stock put warrants issued to the holders of our senior subordinated notes and the impact of state and local taxes in the jurisdictions in which we operate fitness clubs.

Liquidity and Capital Resources

        Historically, we have satisfied our liquidity needs through cash from operations and various borrowing arrangements. Principal liquidity needs have included the development of new fitness clubs, debt service requirements and other capital expenditures necessary to maintain existing facilities. Our regular cash requirements consist principally of scheduled payments of principal and interest on outstanding indebtedness, capital expenditures and lease expenses. In June 2004, we made our first semiannual interest payment of approximately $7.2 million on our senior notes. In addition to these and other regular liquidity requirements, liquidity requirements include our obligation to pay up to $15 million to our Founding Stockholders on the earlier of a qualified public offering, a change of control or December 15, 2010 and approximately $800,000 plus expenses, annually to our principal investors for consulting services. In addition, commencing on December 15, 2006, holders of a majority interest in the common stock put warrants will have a right to require us to use our best efforts to purchase all of our outstanding warrants at fair market value if we have not previously consummated a qualifying initial public offering of our common stock. Although each warrant holder will receive preferred stock equal to the value of its warrant if we fail to purchase the warrants within 60 days, such a demand, if made, could result in additional liquidity requirements. The future value of the warrants cannot presently be predicted but we expect it to be material. The value of the warrants, as marked to market at March 31, 2004, was approximately $8.9 million. Based upon our current level of operations and the anticipated maturation of our immature club base, we believe that the proceeds from the offering of our 9% senior notes due 2009 and the entering into of our new senior secured revolving credit facility, our cash flow from operations and available cash will be adequate to meet our short and long term liquidity requirements including our plan to expand to approximately 40 clubs by 2006. We estimate each club opening requires between $4.0 million and $9.0 million, depending on size and location as well as approximately $100,000 capitalized expenses to maintain existing clubs. Clubs undergo major renovations every 5-7 years which range from $500,000 to $1.0 million.

        Our credit facility was undrawn at March 31, 2004, with availability subject to specified actions with respect to collateral and subject to a borrowing base formula (except for up to $3.5 million of cash collateralized standby letters of credit under this facility or issued by another financial institution). The revolving credit facility will help enable us to fund our plans to expand and develop new fitness clubs in existing markets and in select new markets. Our revolving credit facility contains restrictive affirmative and negative covenants and financial covenants including leverage ratios, an interest coverage ratio and capital expenditure and dividend payment restrictions. The facility is guaranteed by all of our existing and future domestic subsidiaries and secured by substantially all our assets, other than real property leases, but including capital stock of our subsidiaries and cash and deposit accounts. See "Description of Certain Indebtedness." Our significant contractual obligations, including our obligations to our Founding Stockholders and the potential issuance of our preferred stock, could make it more difficult for us to effect a financing transaction, including an initial public offering of our common stock. In

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addition, our common stock is not publicly traded and therefore equity financing is not available to us on the same basis as it is for companies that have publicly traded stock.

        We have included information in this Registration Statement with respect to Adjusted EBITDA because it is a key component in the determination of our compliance with certain of the covenants under our past and current credit agreements.

        Under the terms of our current credit agreement, we may incur additional debt so long as the pro forma ratio of total debt to Adjusted EBITDA is less than or equal to 5.5 to 1.0 through March 31, 2004, which decreases ratably to 3.0 to 1.0 at December 31, 2008. If we fail to meet the ratio test, as well as other ratios, our ability to incur new debt will be significantly limited. Pursuant to our credit agreement, the aggregate amount of Capital Expenditures for any Fiscal Year may not exceed the sum of: (i) for the Fiscal Year ending December 31, 2003, $40,000,000 or (ii) for any Fiscal Year ending thereafter, $60,000,000. If the entire amount of Capital Expenditures permitted in any period set forth above is not utilized, we may carry forward to the immediately succeeding period only: (i) one hundred percent (100%) of such unutilized amount up to an aggregate amount of $15,000,000 and (ii) fifty percent (50%) of the unutilized amount in excess of $15,000,000 (in each case with Capital Expenditures made in such succeeding period applied last to such carried forward amount).

        Our Interest Coverage Ratio as of the last day of each fiscal quarter ending during the periods set forth below to be less than the ratio set forth below for such period:

Period	Ratio
Closing Date through December 31, 2004	1.55
January 1, 2005 through December 31, 2005	2.05
January 1, 2006 through December 31, 2006	2.55
January 1, 2007 and thereafter	3.10

        The Company is in compliance with its covenants at March 31, 2004.

        The following illustrates our net income and EBITDA and Adjusted EBITDA calculations, total debt and ratio of total debt to Adjusted EBITDA:

	Year Ended December 31,								Twelve Months Ended March 31,
	2001			2002		2003			2004
	(in thousands-except ratios)
Net income (loss)	$	3,000		$	1,824	$	(7,265	)	$	(7,533	)
Depreciation and amortization		5,785			6,850		9,750			10,433
Provision for (benefit from) income taxes		2,007			4,137		(6,189	)		(6,407	)
Interest expense, net of interest income		13,149			12,700		33,560			33,395
EBITDA		23,941			25,511		29,856			29,888
Stock compensation expense		1,022			313		35			35
Other expense (income)		(1,188	)		2,869		(900	)		(1,614	)
Related-party management fees and expenses		1,199			1,164		1,007			976
Non-cash deferred rent		975			1,088		2,496			2,495
Adjusted EBITDA	$	25,949		$	30,945	$	32,494		$	31,780
Total debt as defined	$	98,778		$	102,615	$	163,999		$	163,815
Ratio of total debt to Adjusted EBITDA		3.81			3.3		5.05			5.15

        Pursuant to our credit agreement, Adjusted EBITDA is calculated for the twelve months then ended.

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Our Recapitalization

        In December 2000, as part of a recapitalization, we repurchased shares of our then outstanding common stock from the founding stockholder group (the "Founding Stockholders"). We then issued new shares to North Castle, J.W. Childs and other shareholders (the "Incoming Investors") to complete the initial recapitalization transaction. We funded the recapitalization with a combination of cash from Incoming Investors, a credit facility consisting of a $37 million term loan and up to $23 million of available revolving credit commitments and a $50 million investment by institutional investors in senior subordinated notes, which were issued with common stock put warrants representing approximately 8% of our common equity on a fully diluted basis (as of the date hereof). Commencing on December 15, 2006, holders of a majority interest in the warrants will have a right to require us to use our best efforts to purchase the warrants at fair market value unless we have previously consummated a qualifying initial public offering of our common stock. Our net income will also be affected by our continuing need to mark-to-market our common stock put warrant obligations. In accordance with a cash escrow agreement under the recapitalization agreement, we retained restricted cash in the amount of $4.4 million to secure indemnification obligations of the Founding Stockholders. In early 2002, these indemnification obligations expired, and the restricted cash was remitted to the Founding Stockholders, with a corresponding charge to equity. At March 31, 2004, the Founding Stockholders held 7% of the outstanding common stock and the Incoming Investors held 93% of the outstanding common stock of Equinox. As a result of the repayment of the existing credit facility and the senior subordinated notes, we had an obligation under the recapitalization agreement to pay the Founding Stockholders $5.0 million. This was paid in 2003 in connection with our private offering of $160 million in 9% senior notes due 2009. We have an obligation under the recapitalization agreement to pay the Founding Stockholders up to $15.0 million in cash upon the earlier of an initial public offering, a change of control or December 2010.

        Operating Activities.    Net cash provided by operating activities was $9.7 million in the first three months of fiscal 2004 as compared to $5.9 million during the same period in fiscal 2003. As a result of our $160.0 million private offering, our accrued expenses, principally for interest expense on the senior notes, increased to $10.2 million at March 31, 2004 from $4.2 million at December 31, 2003. Net cash provided by operating activities was $16.3 million and $17.6 million for the years ended December 31, 2003 and 2002, respectively. With the exception of our corporate membership program, we have no material accounts receivable. Within our corporate membership program, no single corporation accounts for more than 7% of our gross accounts receivable. We currently have a working capital surplus and plan to finance operations through operating cash flows.

        Net cash provided by operating activities was $17.6 million in fiscal 2002 as compared to $16.7 million in fiscal 2001. The increase in cash provided by operating activities was primarily due to the improved profitability of our recently opened fitness clubs, offset by fitness clubs opened in fiscal 2002 or 2003 which are operating at margins lower than those of mature clubs.

        Investing Activities.    Primarily as a result of our expansion efforts, we invested $10.0 million in capital expenditures, net of landlord contributions of $925,000, and asset purchases in the first three months of fiscal 2004 as compared to $5.0 million during the same period in fiscal 2003, net of landlord contributions of approximately $1.9 million. We estimate that for the year ended December 31, 2004, we will invest an additional $30.0 million in capital expenditures, primarily to build new clubs and maintain existing fitness clubs. These expenditures will be funded by cash flow generated from operations and available cash. Primarily as a result of our expansion efforts, we invested $27.0 million in capital expenditures and asset purchases, net of landlord contributions during 2003 as compared to $21.4 million in 2002 of the $27.0 million, net of $5.8 million of landlord contributions, approximately $24.4 million was paid towards new clubs during 2003. We expect to continue investing in capital expenditures in accordance with our expansion strategy.

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        Financing Activities.    Net cash (used) by financing activities was $(1.0) million in the first three months of fiscal 2004 as compared to $15.1 million of net cash provided by financing activities during the same period in fiscal 2003. In January 2003, some existing shareholders purchased additional shares of common stock for $10.0 million and a new lender purchased $25.0 million of senior notes. We used the proceeds to pay down our existing revolving credit facility, leaving approximately $15.1 million of net proceeds. Net cash provided by financing activities was approximately $52.2 million for the year ended December 31, 2003 as compared to $2.3 million of net cash used in financing activities for the year ended December 31, 2002. During 2003 we completed our private offering of $160.0 million of 9% senior notes due 2009, a new lender purchased $25.0 million of senior notes and certain existing shareholders purchased additional shares of common stock for $10.0 million. We used the net proceeds of approximately $152.0 million from our offering of senior notes to repay our existing revolving credit facility of $16.9 million, repay the entire outstanding principal amount plus accrued interest of our senior notes due 2007 of $55.7 million, repay the entire principal amount plus accrued interest of $53.3 million of senior subordinated notes due 2008, redeem $1.3 million of our preferred stock and pay our Founding Stockholders a contractually required amount of $5.0 million. We plan to utilize the remaining proceeds to fund our expansion and for general corporate purposes. In March 2002, we distributed $4.4 million (representing escrowed proceeds) to the Founding Stockholders in accordance with the applicable transaction agreements.

        Net cash provided by financing activities was $2.3 million in fiscal 2002, reflecting draws against the revolving credit facility partially offset by the distribution to Founding Stockholders, as compared to $3.7 million of net cash provided by financing activities during the same period in fiscal 2001. The primary sources of cash from financing activities in fiscal 2001 were draws against the revolving credit facility. Net cash provided by financing activities was $3.7 million in fiscal 2001.

        As a direct result of the offering of our 9% senior notes due 2009, we expensed deferred finance charges incurred in connection with debt to be refinanced as well as original issue discount associated with the senior subordinated notes issued in December 2000. The amount of deferred finance charges and original issue discount charged to expense and equity was $5.9 million and $6.9 million, respectively, as of December 31, 2003. In connection with the offering of senior notes and in accordance with contractual obligations, we paid approximately $3.9 million of early redemption premiums to the holders of our then outstanding senior notes and senior subordinated notes and a $1.0 million amendment fee to holders of our common stock put warrants, both of which was charged to expense, and we paid $5.0 million to the Founding Stockholders. As a result of redeeming of all of the outstanding preferred stock, we reduced Stockholders' Equity by $1.3 million.

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Contractual and Commercial Commitments Summary

        Our aggregate long-term debt, capital lease obligations, operating lease obligations and other material contractual obligations as of March 31, 2004, after giving effect to the payment of $5.0 million to the Founding Stockholders at the close of our offering, are as follows:

	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Long-term debt(1)	$	$161,642,988		126,625		318,633		80,338	$	161,117,392
Capital lease obligations(2)		2,342,716		982,230		1,019,475		341,011		—
Operating lease obligations		304,992,639		17,079,478		37,926,623		38,540,036		211,446,502
Payment to Founding Stockholders(3)		15,000,000		—		—		—		15,000,000
Common stock put warrants(4)		8,941,605		—		8,941,605		—		—
	$	492,919,948	$	18,188,333	$	48,206,336	$	38,961,385	$	387,563,894

(1)

The long-term debt contractual cash obligations include principal payment requirements only. Semi-annual interest payments of $7.2 million commenced on June 15, 2004 and will be payable on June 15 and December 15 thereafter until December 15, 2009.

(2)

Capital lease obligations represent principal and interest payments.

(3)

Represents the maximum obligation under the recapitalization agreement to pay the Founding Stockholders upon the earlier of a qualified public offering, a change of control or December 15, 2010.

(4)

Includes the obligation to purchase the common stock put warrants at fair market value if we have not consummated a qualifying initial public offering of our common stock prior to December 15, 2006. The amount presented is the fair market value of the warrants at March 31, 2004 and has been calculated using the Black-Scholes option pricing model; the actual fair market value at the time of any purchase will not be based upon a Black-Scholes calculation and could vary materially from the amount presented.

Use of Estimates and Material Accounting Policies

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

        The most significant assumptions and estimates relate to the useful lives, recoverability and impairment of fixed and intangible assets, the allocation and fair value ascribed to assets acquired in connection with acquisition of businesses under the purchase method of accounting, valuation of and expense incurred in connection with stock options and warrants, valuation of accounts receivable and related reserves, legal contingencies, deferred income tax valuation and the estimated membership life.

        Our one-time member initiation fees and related direct expenses are deferred and recognized on a straight-line basis in operations over an estimated membership life of 24 months. As our new club management system allows us to continue to refine the actual amount of time that our members remain active, we may adjust our estimate of membership life. Consequently, the amount of initiation fees and direct expenses deferred by us could increase or decrease in proportion to our revised estimate of membership life. Since initiation fees were only 1.8% of our revenues for the twelve months

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ended March 31, 2004, a change in estimated membership life is not expected to impact our financial results materially.

        The rights of holders of our common stock put warrants to require us to use our best efforts to purchase their warrants associated with the senior subordinated notes are being valued on each report date using the Black-Scholes option pricing model. As the exercise price of the warrants is only $0.01, this model is subject to changes in the fair market value of our common stock, average volatility of comparable publicly traded companies and changes in risk-free interest rates.

        Long-lived assets, such as fixed assets, goodwill and intangible assets are reviewed for impairment when events or circumstances indicate that the carrying value may not be recoverable. Estimated future cash flows are used to determine if an asset is impaired, in which case the asset's carrying value would be reduced to fair value. Actual cash flows realized could differ from those estimated and could result in asset impairments in the future. Our primary long-lived assets are fixed assets; goodwill comprises less than 2% of our total assets as of March 31, 2004.

        We implemented SFAS 142 and 144 beginning on January 1, 2002. There were no changes to the estimated useful lives of amortizable intangible assets due to the SFAS 142 and 144 implementation.

Internal Controls and Procedures

        In connection with the audit of our financial statements for the year ended December 31, 2003 and for the three month period ended March 31, 2004, we were advised by our auditors, KPMG LLP, of significant deficiencies concerning our internal controls and their operation during the year. The significant deficiencies are as follows: (1) we did not complete timely formal reconciliations between subsidiary records and the general ledger for certain of our balance sheet accounts; and (2) we had clerical and accounting errors that could have been averted through greater management review and approval of reports, statements and reconciliations. In addition, we were advised by our auditors that the Company should hire at least one new director who is considered to be "financially literate" so this person could serve on the audit committee of the Company.

        We understand that these significant deficiencies, if unaddressed, could adversely affect our ability to record, process and report financial data consistent with our assertions in the financial statements. Since October of 2003, we have taken steps to strengthen our internal control structure and procedures for financial reporting and our disclosure controls and procedures. In the third quarter of 2003, we hired a new chief financial officer who has significant public company accounting experience. We are in the process of establishing a formal disclosure committee that will meet at least once a quarter and will be responsible for establishing and reviewing our disclosure controls and procedures for ensuring the accuracy and completeness of the information contained in our financial statements, books and records. We also anticipate further accounting staff hires, a more formal financial quality review process and other process and system control improvements. We believe that we are appropriately addressing each of these internal control issues, but there can be no assurance that similar or other issues will not arise in the future.

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BUSINESS

        Equinox operates upscale, full-service fitness clubs that offer an integrated selection of Equinox-branded programs, services and products to meet the fitness needs and active lifestyles of our members. By delivering an exceptional member experience, the Equinox brand has achieved national recognition for both our ability to inspire and motivate members to get results and for the quality, innovation and design of our facilities. Operating in the middle- to upper-end market segment of the fragmented fitness industry, we target an attractive demographic and psychographic member profile. Our typical member is a well-educated professional between 25 and 55 years of age with significant discretionary income and who considers fitness an essential part of their active lifestyle. As of March 31, 2004 we operate 21 fitness clubs: 16 in the New York City metropolitan area, two in Los Angeles and three in Chicago. In January 2004, we opened Equinox Columbus Centre, in New York City and Equinox Highland Park in Chicago. In addition, we have five new locations under development, consisting of two in the New York City metropolitan area in Mamaroneck and Roslyn, Equinox Fitness Santa Monica, San Mateo and our first fitness club in San Francisco. We offer our 70,000 members Equinox-branded programs, services and products, including strength and cardio training, group fitness classes, personal training, spa services and products, apparel and food/juice bars.

        Our members enjoy the benefits of our emphasis on service, value, quality, expertise, innovation and attention to detail. We encourage our members to participate in our programs and services and to use our facilities frequently. We believe that participating members will get results and will be more likely to renew their memberships and to refer new members. Participating members are also more likely to use high-margin ancillary programs and services, such as personal training and spa services. As a result, our member retention rate has consistently been between 66%-67%, comparable to the median retention rate of fitness clubs nationwide, and member referrals account for 42% of new membership sales. In addition, 34.6% of our revenues are derived from ancillary programs and services, and our revenues per average member of $1,988 for the twelve months ended March 31, 2004 were almost triple the industry median for 2002.

        We have a distinctive operating model, consisting of disciplined procedures for developing and operating a fitness club, with a rigorous focus on execution and cost control. This operating model leverages the strengths of our active lifestyle brand and contributes significantly to our attractive financial performance.

        Revenues for the twelve months ended March 31, 2004 and 2003 are $122.9 million and $96.5 million, respectively, an increase of 27.4%. For the three months ended March 31, 2004 our revenues increased to $33.5 million compared to $26.7 for the first quarter of the prior year, a 25.5% increase. Our revenues were $116.1 million, $95.3 million and $79.4 million for the years ended December 31, 2003, 2002 and 2001, respectively. We had net income (loss) of $(7.3) million, $1.8 million and $3.0 million for the years ended December 31, 2003, 2002 and 2001, respectively. Our 2003 loss was predominantly due to $33.7 million of interest expense compared to $12.7 million in the prior year. Interest expense increased in 2003 due to our refinancing of debt in connection with our private bond offering. Between 1994 and 2003, we grew our revenues from $11.7 million to $116.1 million, representing a 9 year compounded annual growth rate of 33.2%. Over the same period, club contribution (operating income before depreciation and other non-cash expenses and allocation of corporate expenses) grew from $3.5 million to $42.7 million, representing a 9 year compounded annual growth rate of 36.7%. More recently, during the challenging economic times since 2001, our membership grew 52.5% and we produced strong financial results with revenues and EBITDA increasing by 46.2% and 24.7%, respectively. Our financial performance and recent record pre-opening memberships at certain of our recently opened clubs demonstrate the resiliency of our operating model and the demand for our programs and services. For the year ended December 31, 2003, 2002 and 2001, Equinox generated EBITDA of $29.9 million, $25.5 million and $23.9 million, respectively. Revenues for the three months ended March 31, 2004, on a "same-store basis" increased by 6.7% over the same period in 2003.

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Industry Overview

        Fitness industry growth patterns and demographics present an attractive business environment, particularly in the middle- to high-end niche that Equinox targets. The fitness industry includes commercial facilities, YMCA facilities, non-profit facilities, gyms, hospital-operated facilities and country clubs. Total industry revenues in 2002 were approximately $13.1 billion.

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In the fifteen years between 1987 and 2002, overall fitness club memberships increased at a compounded annual growth rate of 5.0%, from 17.3 million to 36.3 million.



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The percent of the US population with fitness club memberships increased from 7.1% in 1987 to 14.1% in 2002.



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Between 1987 and 2002 the number of "core" members (who visited health clubs 100 or more days during a year) increased from 5.3 million to 14.6 million.

        The fitness industry remains highly fragmented. The five largest fitness club owner/operators, excluding franchise operators, accounted for less than 7% of commercial fitness clubs in the United States in 2002. This fragmentation creates a significant opportunity for a multi-club operator with a proven record of growth and profitability to increase its market share.

        We expect that favorable attitudes about health and well-being, together with demographics, will fuel further growth in the fitness industry. Government and medical reports urge exercise, active and healthy living, and the benefits of physical exercise to reduce the risks associated with obesity and sedentary lifestyles. For example, the Surgeon General's Report on Physical Activity and Health emphasizes findings that health benefits occur from physical activity and that the amount of health benefit is directly related to the amount of regular physical activity. According to the Surgeon General, more than 60% of adults do not achieve the recommended amount of physical activity and 25% of adults are not physically active at all. As awareness of the health benefits of being physically fit continues to increase, we expect that the percent of the population with health club memberships will continue to grow at rates consistent with recent trends.

        Today, approximately 69% of fitness club members have a household income in excess of $50,000, which is approximately 18% higher than the 2002 national median, and this member-segment has increased 35% over the past five years, which is more than ten times as fast as those earning less than $50,000.

        Equinox's focus on the middle- to high-end market segment of the fitness industry includes baby boomers (Americans aged 35-54). We believe that baby boomers and the elderly place an increasingly greater emphasis on fitness as an important component of healthy living. In absolute terms, the baby boomer segment of the fitness industry grew 143% between 1987 and 2002. In 2002, baby boomers accounted for 13.1 million members, 36% of the health club population. In addition, baby boomers generally have discretionary income available for the ancillary products and services that a fitness club like Equinox offers.

Competitive Strengths

        Strong Lifestyle Brand.    Within the fitness industry, we believe we have one of the most recognizable brand platforms for geographic expansion and product diversification and extension. According to an independent focus-group study conducted by Bouchez Kent, the Equinox lifestyle brand represents service, value, quality, expertise, innovation, attention to detail, market leadership and results. Throughout our 12-year history, the press has consistently recognized our leadership and innovation in the fitness industry. Highlights include Vogue's article featuring our strategy to become "a national megabrand" and our new club in Pasadena, New York magazine's "Spa & Fitness" and "Best Spas in the City" issues featuring Equinox on the cover, regular mentions in the Style Section of The New York Times and NBC's Today Show featuring Equinox-branded apparel. Equinox has been referred to as the "Best of New York" by New York magazine, the "Best Gym" by Allure, the "Most

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Cutting-Edge Gym in the Country" by Fitness and the "Ace of Clubs" by Interior Design. In 2002, management estimates that Equinox generated over $8 million in marketing value, including more than 40 press mentions per month. We expect monthly media placements to continue to grow throughout 2004. We believe this brand awareness will continue to drive our strong member retention and enhances our ability to grow sales of ancillary Equinox-branded products and services.

        Focus On Member Experience with Innovative Programming.    Our core operating philosophy revolves around the member experience, from the design and layout of our facilities to our high standards of operations, attention to detail and extensive programming. To motivate and satisfy our members, we offer an integrated selection of high quality Equinox-branded programs, services and products that help our members get results. In addition to basic services, such as strength and cardio training and over 1,000 group fitness classes per week, we offer a wide range of ancillary programs and services, including personal training, spa services and products, apparel and accessories and food and juice bars. Our highly qualified personal trainers enhance our reputation for offering some of the most progressive personal training programs in the country. In addition to having a national certification or a relevant college degree, we require all of our personal trainers to participate in our proprietary educational program, the Equinox Fitness Training Institute. Many of our ancillary programs and services have been recognized as among the best in the industry by Allure, Elle, Fitness, GQ, New York magazine and others. We constantly improve our programs and develop new initiatives such as our Cycletech program, which simulates outdoor cycling in spinning classes, and TRIP, which offers adventure travel beyond the "four walls" of Equinox to national and international destinations.

        Ancillary programs and services generate additional revenues and require minimal incremental capital investment or fixed costs. As a result, they not only produce high margins, but also enhance the Equinox brand, improve member retention, increase our revenues per average member and diversify our revenue. For the year ended December 31, 2003, we generated approximately 34.8% of revenues from ancillary programs and services compared to the most recently available median of 27% for the industry in 2002.

        Operating Model.    Our operating model includes specific protocols for developing and operating a fitness club. Our typical clubs range between 20,000 and 40,000 square feet. Our development team has created a distinctive club prototype that increases speed to market, reduces design inefficiencies, lowers construction risk and the likelihood of cost overruns and maximizes purchasing efficiencies. We have incorporated the core elements of fitness club design and layout into distinct models that provide flexibility in terms of size, programming, price and construction cost. We determine which model is appropriate for a prospective site based on local demographics and psychographics, population density, market demand and the structural characteristics of a particular building. We leverage the brand awareness and programming generated by our larger fitness clubs to serve a broader market area without sacrificing quality or profitability. We have also established standard operating procedures, controls and appropriate corporate infrastructure to manage additional clubs with limited incremental overhead. Our commitment to employee training ensures that we are able to staff new clubs with highly skilled management teams.

        Historically, we have generated positive club contribution within 12 months of opening and achieved an average return on investment (club contribution as a percentage of cumulative capital investment) in excess of 50% by the fourth year of operations. We attribute our high returns to (i) our ability to achieve premium pricing by selling value to a discriminating consumer with significant discretionary income, (ii) our high percentage of revenues from ancillary programs and services, (iii) our ability to use our reputation and desirability as a tenant to secure attractive locations and favorable lease terms, (iv) our ability to creatively use space to minimize occupancy costs and to maximize member through-put, and (v) our disciplined operating strategy that controls operating costs. We have never closed an Equinox fitness club, and every Equinox fitness club generates positive club contribution.

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        Attractive Facilities and Prime Locations.    We have consistently received national recognition for our award-winning architectural designs and have established a reputation for building and operating extraordinary facilities. We have a team dedicated to identifying and evaluating expansion sites based upon our market research and our disciplined and rigorous criteria for development. In addition, given the attractive demographic and psychographic profile of our members, we receive numerous unsolicited proposals from prospective developers/landlords to be an anchor tenant or amenity in a mixed use or office development or to reposition property. From a wide variety of opportunities, we select future locations efficiently and lease superior real estate on attractive terms.

        Experienced Management Team.    Led by our President and CEO, Harvey Spevak, we believe our management team has the vision, experience and passion to manage our continued growth. Since Mr. Spevak's appointment in January 1999, the team has opened 16 new locations and increased revenues from $38.0 million in 1998 to $122.9 million for the twelve months ended March 31, 2004. Our management team has a proven track record of strengthening our brand by increasing our member base and enhancing financial performance through disciplined expansion, site selection and club design combined with rigorous execution. We have assembled a management team with experience in every aspect of the business by recruiting from a wide variety of related professional industries. Our senior management team has developed a corporate culture that emphasizes the complete understanding of the Equinox vision, member experience and results orientation. We reinforce the understanding of our corporate culture by maintaining ongoing recruiting and training programs to successfully identify and develop new managers and employees to support our club growth in both our new and existing markets. The management team, including some of our club managers, have shares or options to purchase shares constituting approximately 11.7% of our common stock on a fully diluted basis as of March 31, 2004.

Business Strategy

        Capitalize on Existing Investment in Newer Fitness Clubs.    We intend to capitalize on our investments in our recently opened clubs. Based on our past experience, membership levels reach maturity in four years. With four clubs opened in the past year and 17 opened since January 1999, we expect these recently opened clubs to account for a significant portion of our growth over the next three years with minimal required capital expenditures. We have a twelve year operating history of successfully launching and maximizing the returns of new locations. Specifically, at each of our five fitness clubs opened during the past year we have met or exceeded our pre-opening membership targets and the average return on investment of our seven mature clubs at the end of the fourth year of operations was in excess of 50%.

        Open New Clubs in Existing Markets and Enter Select New Markets.    We intend to continue to develop regional clusters of Equinox fitness clubs in the New York City, Los Angeles and Chicago metropolitan areas, and in similar markets. In 2002, we opened our first Chicago fitness club, which produced positive club contribution approximately six months after opening. In July 2003, we opened our second Los Angeles area fitness club, which generated more pre-opening memberships than any Equinox location in the history of the Company. In December 2003 we successfully opened our 900 N. Michigan Ave. club (Chicago). Our initial success in Chicago and Los Angeles demonstrates the demand for and portability of the Equinox brand outside New York and the transportability of our business model. Our business plan calls for increasing the number of our fitness clubs from 19 at December 31, 2003 to approximately 40 by the end of 2006, with possible locations in major metropolitan markets that are similar to New York, Los Angeles and Chicago, where significant demand for the Equinox brand exists. In addition to the Equinox Columbus Centre, NY and Equinox Highland Park, Chicago locations opened in January, 2004, we plan to open four more fitness clubs in 2004 and one in the first quarter of 2005.

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Current Announced New Fitness Club Openings

Location	Square footage	Target opening date
Roslyn (Long Island), NY	24,000	2nd Quarter 2004
Santa Monica, Ca.	28,930	3rd Quarter 2004
San Francisco, Ca.	31,850	4th Quarter 2004
Mamaroneck, NY	25,314	4th Quarter 2004
San Mateo, Ca.	24,847	1st Quarter 2005

        Increase Revenues Per Average Member.    Through focused sales and marketing programs, we plan to continue to increase the number of existing members who purchase Equinox-branded programs, services and products. We plan to develop new branded offerings based on member demand and market opportunities, such as TRIP, an outdoor adventure travel program offered through Equinox with services provided by upscale travel partners, and a progressive nutrition program that includes the sales of customized programs and vitamins and supplements. We also believe we can extend the Equinox brand through targeted licensing opportunities with third-party manufacturers that share our reputation for quality and value.

Sales, Membership and Marketing

        Sales.    Our sales strategy, whether for membership, personal training or other ancillary services and products, focuses on value. Membership advisors are rigorously trained in selling the unique benefits of an Equinox membership and are paid a base salary plus commissions. Commissions are tied to unit sales and overall revenues (both membership and ancillary) generated at the point-of-sale. Advisors are also compensated on a commission basis for membership renewals. This policy encourages membership advisors to focus on attracting new members who will take advantage of ancillary programs and services and ensures that they will maintain contact with members long after the initial sale. We currently employ 76 membership advisors at our 21 fitness clubs as of March 31, 2004. Unlike some fitness club operators, our membership advisors are not permitted to manipulate membership prices or incentives. By offering our services to all potential customers at the same location at the same price, we are able to carefully control the quality and professionalism of the sales process. Moreover, this ensures that membership advisors emphasize the value and unique benefits of an Equinox membership over price, a strategy that we believe translates into increased sales and ancillary revenues. Our membership advisors convert approximately 40% of all prospects into sales.

        The sales process further distinguishes us by providing professional and personalized service. Upon a prospective member's first visit, the membership advisor will invite him or her on a private tour of the facility. The membership advisors are trained to tailor the tour and the information they provide to the specific interests, goals and concerns of the prospective member. During this process, membership advisors stress our commitment to our members achieving results and enjoying the unique benefits of Equinox, including the complimentary Equifit fitness assessment, and the advantages of personal training, spa services and other amenities. The sales process continues after a prospective member's initial visit to a club. The membership advisor, following our protocol, diligently follows up with each prospect by phone, mail and e-mail encouraging him or her to join Equinox. Additionally, we encourage the prospect to use the club as a guest. We enter each prospect's name, telephone number and address into our database to assist in the follow-up process.

        In the second half of 2000, we initiated a corporate membership program targeting professional organizations to generate additional membership growth.

        Membership.    Membership advisors offer prospective members several membership options. A Select membership offers access to one club while an All Access membership allows the use of all

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Equinox facilities. With the growth in the club portfolio, we have been diligently up-selling our Select members, increasing the ratio of All Access memberships to total memberships from 17% in 2000 to 39% at March 31, 2004. Because All Access memberships will allow members to take advantage of a national portfolio of clubs, facilities near work and home, and different locations with different amenities, we believe that we will be able to further increase this ratio, particularly as we develop more regional urban clusters and expand into suburban markets near these clusters.

        Initiation fees vary by location and club model. Our initiation fees currently range from $245 to $545. Monthly dues for a Select membership range from $110 to $125 at our urban facilities and from $95 to $108 at our suburban facilities. Monthly dues for an All Access membership are currently $143.

        We do not discount monthly dues or offer different prices to individuals for the same individual membership at the same location. We do, however, offer an incentive to prospective members, usually in the form of a discount off the initiation fee. In general, all individual members at a specific location pay the same dues, but may have paid a different initiation fee at the time they joined.

        We offer two payment options: monthly and paid-in-full. Membership agreements are for a minimum of one year. Paid-in-full members pay the initiation fee and the equivalent of 11 months of membership dues upfront; in return, they receive one free month, for a total of 12 months of membership. Paid-in-full memberships expire after 12 months and need to be renewed annually. We also offer a monthly payment option, which also has a minimum one-year duration, but does not expire unless cancelled. Monthly membership dues are collected through electronic funds transfer, whereby each customer submits a credit card or bank account authorization and is automatically billed each month. As of March 31, 2004, approximately 37.2% of our members had paid-in-full memberships, and the remaining 62.8% had monthly memberships.

        Marketing, advertising and public relations.    We maintain an ongoing marketing, advertising and public relations program aimed at increasing our brand recognition and generating sales prospects. In 2003 and 2002, we spent approximately $4.2 million and $3.8 million, or 3.6% and 3.9%, respectively of total operating revenues, on marketing and public relations. For the three months ended March 31, 2004 our marketing, advertising and public relations expense was approximately $2.5 million. In January of 2004 we launched our new marketing campaign called "It's not Fitness. It's Life." We reach prospective and existing customers through referrals, direct mail, cable television and print advertisements in publications such as The New York Times, The Los Angeles Times, New York magazine and Hamptons Magazine, and other venues such as outdoor advertising on buses and telephone kiosks. We also use the window space of our clubs, which are often in high-traffic areas, to create an integrated brand image.

        We believe that member referrals and word of mouth are our most effective means of marketing. To foster this cost effective and efficient source of marketing, we maintain a number of incentives for members to continuously produce new member leads, including a free month's membership or Equinox gift cards with monetary credit that can be used to purchase Equinox-branded programs, services or products at our clubs. Several times a year we also target former members by direct mail. We launched our current advertising campaign in January 2002 around the theme and brand position "Equinox makes you feel good." This integrated campaign is designed to increase brand awareness and highlight the unique benefits of an Equinox membership.

        A separate but integrated public relations effort results in extensive press coverage that affirms the Equinox brand status and profile. We maintain a public relations department that is responsible for pitching ideas as well as responding to press inquiries. We believe that by leveraging our press relationships, we are able to perpetuate the Equinox brand and maintain a high profile in local and national media at a low cost. As part of the public relations strategy, we regularly distribute press releases and stage major press events to introduce new and innovative programming. In addition, an integral part of our marketing strategy involves partnering with premier brands, corporate partners and/

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or properties that have similar member demographics and characteristics and embrace core values similar to ours. With such programs, we and our partners jointly market our products and services to a group of targeted customers. In addition, we are very active in our local communities. Giving back to selected charities is important to our management team, employees and member base further emphasizing our brand values.

Facilities and Properties

        Our facilities are meticulously designed, maintained and updated to inspire, motivate and create energy and excitement for our members. We design and program our facilities to cater to the needs of the local market and maximize membership flow and revenue potential. We have incorporated the core elements of facility design and layout into distinct club models that vary primarily in terms of size, programming, pricing and construction cost. We determine which club model is appropriate for a location based on the local demographic, population density, market demand, and structural characteristics of a particular building. Our three club models enable us to minimize the time between site identification and club opening and helps leverage the experience gained in our larger clubs to profitably serve a larger market area without sacrificing quality or profits.

        We use Eclipse Development Corporation, a company wholly owned by Mr. Paul Boardman, exclusively to provide site selection, acquisition, design, construction and maintenance services. A service agreement we entered into with Eclipse in February 2001 prohibits Eclipse and Mr. Boardman from performing any services for anyone that competes with our fitness clubs and spa facilities. Eclipse is thinly capitalized and highly dependent upon our business. For the three months ended March 31, 2004 and in fiscal 2003, over 90% of our capital expenditures were paid to Eclipse.

        We operate 21 fitness clubs in four states. We lease all of our facilities pursuant to long-term leases (generally with initial terms of 15 years with renewal options). We also lease our corporate offices, which are located in New York City. Our leases generally contain customary terms such as restrictions on transfers and changes in control and requirements that we pay real estate taxes, insurance and maintenance costs.

        The following table provides information about our existing fitness clubs:

Location	Square footage	Date opened
Amsterdam Avenue & 76th Street, NYC	25,050	Sep 1991
Broadway & 19th Street, NYC	39,048	Nov 1993
Broadway & 92nd Street, NYC	29,780	Nov 1995
Third Avenue & 85th Street, NYC	33,050	Aug 1996
Lexington Avenue & 63rd Street, NYC	40,959	Dec 1997
800 White Plains Road, Scarsdale, NY	20,097	Mar 1999
Second Avenue & 54th Street, NYC	32,448	May 1999
Broadway & 50th Street, NYC	28,543	Feb 2000
Fifth Avenue & 43rd Street, NYC	27,546	Mar 2000
Wall Street & Nassau Street, NYC	36,900	Nov 2000
Lexington Avenue & 44th Street, NYC	29,600	Dec 2000
Pasadena, CA	26,500	Nov 2001
Greenwich Avenue & 12th Street, NYC	40,000	Dec 2001
Darien, CT	26,000	Dec 2002
1750 N. Clark, Chicago, IL	33,000	Dec 2002
West Broadway & Church Street, NYC	27,000	Mar 2003
Woodbury (Long Island), NY	22,600	Apr 2003
West Hollywood, CA	29,491	Jul 2003
900 N. Michigan Ave., Chicago, IL	30,021	Dec 2003

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Columbus Centre, NYC	41,756	Jan 2004
Highland Park, IL	30,700	Jan 2004

Services

        We believe we set the industry standard of excellence with our quality and innovative programming. We believe that a member's experience and loyalty is driven by the results achieved through group fitness classes, personal training, spa and other service and product offerings. Our core program centers around group fitness, which is included in the price of membership. We offer additional programming, such as personal training, pilates and spa services, on a fee-for-service basis, thereby generating ancillary revenues. Because of our fully integrated lifestyle platform and our broad range of programming at each club, we believe we generate some of the highest revenues per member in the industry. For the three months ended March 31, 2004 and the year ended December 31, 2003, ancillary programs and services generated approximately 35.0% of our total revenues. We believe ancillary revenues will continue to be a significant source of high-margin growth in the future.

        Group fitness.    Categories in our group fitness program, which is included in the price of membership, include cardio and dance, yoga, spinning, body sculpting, core training, kickboxing, aquatics, strength training and conditioning, sports training, and boxing and martial arts. Our group fitness program is recognized for its original offerings, quality instruction and comprehensive lifestyle approach. Weekly at each fitness club, we offer on average over 100 classes, many characterized as the "best of the best" by Fitness and New York magazine. Many of these classes are offered only at our facilities. We introduce proprietary new classes each year. We focus on quality, integrity and expertise in the origination of programming, and average class size ranges from 15 to 60 individuals, with participation varying based on the class, location and time offered.

        Our group fitness team constantly seeks new and innovative programming and instructors to keep Equinox at the forefront of fitness programming. Each club location maintains its own selection of programming designed to meet the needs of its local demographics. Instructors are carefully selected for their knowledge, expertise and ability to communicate with and motivate members. We pride ourselves on not only identifying and recruiting talent, but also developing our own instructors. Our instructors frequently present at national and international conventions and are often featured in prominent print media such as GQ, Men's Journal, Allure, Vogue and Self.

        Personal training.    We believe personal training is one of the most effective ways to help our members reach their health and fitness goals. Our personal trainers are highly visible throughout each fitness club, assisting members with equipment and providing informal tips on a complimentary basis. Each of our clubs maintains approximately 35-60 personal trainers, depending upon club layout, membership and usage patterns.

        Our personal training is customized to the needs of each member within our proprietary training methodology and system. Upon enrollment, we give each new member a complimentary 30-minute Equifit fitness assessment and a one-hour personal training session. All personal trainers are instructed to cross sell our offerings, including personal training packages and other services that will help the member achieve his or her goals. This initial contact with the personal trainer is designed to motivate our members to actively participate and purchase additional services. Approximately 10% of new members purchase personal training at this time. Our personal training pricing is structured to appeal to the widest demographic. We offer both single- and multi-session packages with price dependent upon the number of sessions and the certification level and experience of the personal trainer. Our personal trainers are divided into three levels based upon education and expertise: Elite, Comprehensive and Elite Plus. All of our personal trainers agree to limit their training activities outside of Equinox, and they earn a commission based on the training revenues they generate. The commission payout increases

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as trainers attain higher levels of certification, which we believe motivates trainers to sell personal training services and to attain higher levels of certification.

        In addition to having a national certification or a relevant college degree, we require all of our personal trainers to participate in our proprietary educational program, the Equinox Fitness Training Institute or EFTI. EFTI not only provides a comprehensive curricula of professional development for our personal trainers but also serves as a primary source of progressive program development. As our trainers complete certain classes provided by EFTI, they are eligible to train at a higher level and earn higher commissions.

        The Spa at Equinox.    Our spas complement our integrated lifestyle approach to health and fitness by offering an environment in which members can receive massages and facial or body-care services while focusing on relaxation and rejuvenation. We currently operate full-service day spas that have been designed to invoke a sense of luxury and comfort. In addition, we maintain treatment rooms in our other facilities that offer massage services to further integrate the spa concept. Our spas are staffed with knowledgeable and experienced therapists. Our spas are open to both members and non-members.

        The Shop.    The Shop is our retail business that sells Equinox-branded products and other name brand merchandise that have been carefully selected to complement the Equinox brand image. The Shop has been recognized by Women's Wear Daily for identifying trends and offering hard-to-find, lesser-known styles and manufacturers before they become popular. Much of The Shop's product line prominently displays the Equinox logo, providing increased visibility and exposure in addition to reinforcing the brand image. Equinox-branded apparel has been featured in nationally televised programs, such as HBO's Sex and the City, as well as in prominent consumer publications. With the exception of one location, The Shop operates in all Equinox facilities and is open to both members and non-members.

Finance and Management Information Systems

        During 2001, we implemented a new management information system that integrates all aspects of our operations. The system brings applications such as electronic funds transfer, point-of-sale transactions, employee time clocks and the front desk check-in area together into one nationally integrated system. With this system we now have the ability to better track facilities usage, monitor revenues per member and electronically store most paper records. In addition, more useful information on how members use the fitness clubs enables us to focus our marketing efforts on sales of ancillary programs and services, such as personal training and spa services, as well as to facilitate seamless information exchange between our club locations. We continue to refine the system to add desired functionality, such as prospect management and proprietary business protocols. In addition, we have begun implementation of an automated human resources system to improve our ability to manage our employees. Currently, we are upgrading our accounting systems and in the process of integrating an online-realtime purchasing system.

Trademarks

        We believe that our trademarks and other proprietary rights are important to our success and we aggressively protect such trademarks. All of our trademarks are either registered or have pending registration applications. We are not aware of any current or pending suits in connection with our trademarks. We currently hold 18 trademarks. We have registrations for trademarks in an aggregate of 22 countries. We have also registered a series of Internet domain names relating to our business, services and products.

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Competition

        The fitness industry is highly competitive and fragmented. The five largest fitness club owner/operators, excluding franchise operators, accounted for less than 7% of commercial fitness clubs in the United States in 2002.

        Budget clubs offer limited services, primarily free weights and strength-training machines with a modest group fitness class schedule, if any, and usually charge a nominal initiation fee and low monthly membership fees. We do not compete directly with budget clubs, such as those offered by Bally's and Gold's Gyms, as we do not target customers with the same demographic characteristics as the members of budget clubs.

        Full-service clubs offer a combination of workout alternatives, including strength training equipment, free weights, cardio equipment, group fitness and personal training. Full-service clubs, such as those operated by Town Sports International, Crunch, New York Health & Racquet, Multiplex and Lake Shore Athletic Clubs, generally command a premium to the budget clubs and can be further classified based on price and amenities. Our membership fees are higher than many of our full-service competitors. We believe we are able to maintain such pricing based upon the perceived value of our commitment to the member experience combined with our innovative and diverse programming, high-quality member services, superior club design and overall high standards for operating our facilities.

        Urban country clubs, such as the East Bank Club in Chicago and clubs operated by The Sports Club Company, are generally larger than 100,000 square feet, with additional sports facilities such as basketball courts, swimming pools and tennis courts and featuring non-fitness amenities such as restaurants, salons, laundry/dry-cleaning services and executive locker rooms. Urban country clubs charge high initiation fees and membership dues. We believe we compare favorably with the urban country clubs, based upon price, the convenience of our numerous locations, and services offered.

        In addition, employers, residential buildings, and public and other not-for-profit organizations (including parks, YMCAs and college clubs) offer fitness facilities. These facilities provide alternatives to membership in a commercial fitness club, and constitute a competitive factor in the industry.

        We believe several competitive factors influence success in the fitness club business, including convenience, price, customer service, quality of operations, quality programming and ability to secure prime real estate at economical rates. We believe that our integrated, branded lifestyle offering focused on enabling our targeted customer base to get results and the price-to-value relationship are very attractive compared to that of our competitors. The combination of an exceptional member experience created through innovative programming, high-quality service and operations and superior club design positions us as one of the few recognized brands within the industry. Our offering of ancillary services and products further distinguishes us as a lifestyle brand.

Employees

        We have approximately 2,487 as of March 31, 2004 employees, of which approximately 890 are employed full-time. Approximately 99 employees compose our corporate staff working in Manhattan. None of our employees are subject to collective bargaining agreements or union representation. Although we experience turnover of non-management personnel, we have not experienced difficulty in finding new employees. We believe relations with our employees are good. We believe that we offer competitive compensation and employee benefits. We have developed a corporate culture that emphasizes a complete understanding of the Equinox vision, member experience and results orientation. We reinforce our team's understanding of our corporate culture by maintaining ongoing recruiting and training programs to identify and develop new managers and employees to support our

55

growth in both new and existing markets. In addition to EFTI, we have formal training programs for our general managers-in-training and membership advisors.

Government Regulation

        Our operations and business practices are subject to regulation at the federal, state and, in some cases, local levels. State and local consumer protection laws and regulations govern our advertising, sales and other trade practices.

        Statutes and regulations affecting the fitness industry have been enacted in states in which we conduct business. Typically, these statutes and regulations prescribe certain forms and provisions of membership contracts, including:

•

Giving the member the right to cancel the contract, in most cases, within three business days after signing;



•

Requiring an escrow of funds received from pre-opening sales or the posting of a bond or proof of financial responsibility; and



•

Establishing maximum prices and terms for membership contracts.

        In addition, we are subject to other types of federal and state regulations governing the sale of memberships. These laws and regulations are subject to varying interpretations by a number of states and federal enforcement agencies and the courts. We maintain internal review procedures in order to comply with these requirements and believe that our activities are in substantial compliance with all applicable statutes, rules and decisions.

        Under so-called state "cooling off" statutes, a member has the right to cancel his or her membership for a period of three days and, in such event, is entitled to a refund of any payment made. In addition, our membership agreements provide that a member may cancel his or her membership at any time for qualified medical reasons or if the member relocates a certain distance away from any of our facilities. The specified procedures for cancellation in these circumstances vary due to differing state laws. In each instance, the canceling member is entitled to a refund of prepaid amounts only. Further, where permitted by law, we assess a cancellation fee that we offset against any refunds owed.

        Our locations are also subject to zoning and other regulations relating to the operation of health clubs and other facilities open to the public.

Legal Proceedings

        We are involved in various claims and lawsuits arising in the normal course of business. We believe that the ultimate outcome of these matters will not have a material adverse affect on our business, results of operations, cash flows or financial condition.

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MANAGEMENT

        The names, ages and positions of the directors and executive officers of Equinox as of March 31, 2004 are set forth below. Directors are elected annually and hold office until their successors are elected and qualified, or until their earlier removal or resignation.

Name	Age	Position
Charles F. Baird, Jr.	50	Director, Chairman
Harvey Spevak	39	Director, President and Chief Executive Officer
Scott Rosen	45	Executive Vice President and Chief Financial Officer
Christopher J. Peluso	43	Executive Vice President and Chief Operating Officer
Jeff Grayson	34	Vice President, Chief Technology Officer
Glenn Hopkins	38	Director
Benjamin B. James(1)	46	Director
John Richards	54	Director
Adam Saltzman(2)	34	Director
Mark Tricolli	32	Director
William E. Watts(1)	50	Director
Edward D. Yun(2)	36	Director

(1)

Member, Compensation Committee.

(2)

Member, Audit Committee. None of our Audit Committee members at present would be considered to be independent within the meaning of the Sarbanes-Oxley Act of 2002.

        Each of our officers is elected by the Board of Directors to hold office until the next succeeding annual meeting of the Board of Directors. None of our officers has any family relationship with any director or other officer. "Family relationship" for this purpose means any relationship by blood, marriage or adoption, not more remote than first cousin.

        The business experience of each of the directors, executive officers and employees listed above is as follows:

        Charles F. Baird, Jr. was elected Chairman of Equinox in December 2000. Mr. Baird is the founder and a Managing Director of North Castle. Prior to founding North Castle in 1997, Mr. Baird served as a Managing Director of AEA Investors, Inc., and from 1978 to 1989 he worked at Bain & Company as an Executive Vice President and North American Management Committee member. Mr. Baird is a trustee of the Alger Fund. He currently serves as chairman of the Board of Directors for Leiner Health Products, Grand Expeditions, EAS and Elizabeth Arden Salon Holdings, Inc., corporations in which investment partnerships managed by North Castle have investments. Mr. Baird also serves on the Boards of Directors of the Ultimate Juice Company, Enzymatic Therapy, Inc., and CRC Health Group, Inc., corporations in which investment partnerships managed by North Castle have investments.

        Harvey Spevak has been President and Chief Executive Officer of Equinox since December 1999 after joining as President and Chief Operating Officer in January 1999. He became a member of the Board of Directors in January 1999. Prior to joining Equinox, he served as Vice President of Chelsea Piers. Mr. Spevak is on the Board of Directors of Elizabeth Arden Salon Holdings, Inc. and is a member of the Young Presidents Organization and the Council for the Fresh Air Fund.

        Scott Rosen was elected Executive Vice President and Chief Financial Officer upon joining the Company in August 2003. Prior to joining Equinox, Mr. Rosen served as Executive Vice President and Chief Financial Officer for J. Crew Group from 1994 to 2003. Prior to J. Crew, Mr. Rosen was Vice President and Divisional Controller for the Women's Sportswear Group, a division of Liz Claiborne, Inc.

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        Christopher J. Peluso was elected Executive Vice President and Chief Operating Officer upon joining the Company in December 2002. Before joining Equinox, Mr. Peluso was a vice president at JPMorgan Asset Management where he was employed since 1999. From 1997 to 1999, he was President and Chief Operating Officer of WH Smith USA, where he operated their book and music division and served as a senior vice president of Marketing for Borders Group, Inc.

        Jeff Grayson has nine years of technology industry experience including roles ranging from software developer to Chief Technology Officer. Prior to joining the Equinox team, Jeff was CTO of ReferralNetworks where he managed the IT department, defined product strategy and drove the deal which resulted in the company's successful sale. In previous roles, Jeff has led teams of technologists for Deutsch Bank, Keyspan Energy, Lucent Technologies, Sputnik7 Media, RadioShack, Wit Capital and SportsYA! Media. Jeff's background includes a BA from the University of Pennsylvania, and a Masters from NYU combining Computer Science from The Courant Institute of Mathematics and MBA work from The Stern School of Business.

        Glenn Hopkins became a member of the Board of Directors in December 2000. He is a Partner of J.W. Childs and has been at J.W. Childs since 1995.

        Benjamin B. James became a member of the Board of Directors in December 2000. He is a Principal of North Castle since 1998. Prior to joining North Castle, Mr. James co-founded the Private Finance Group at PPM America. Mr. James currently serves on the Board of Directors of Enzymatic Therapy, Inc. and Leiner Health Products, corporations in which investment partnerships managed by North Castle have an investment.

        John Richards became a member of the Board of Directors in February 2003. He is the President and Chief Executive Officer of Elizabeth Arden Salon Holdings, Inc. Before joining Elizabeth Arden Salon Holdings, Inc. in October 2001, Mr. Richards served as the President and Chief Executive Officer of Dean & Deluca after serving as President of North American Operations for Starbucks Coffee Company.

        Adam Saltzman became a member of the Board of Directors in December 2000. He is a Vice President of North Castle. Prior to joining North Castle, Mr. Saltzman spent four years as an associate with merchant banking firm StoneCreek Capital. Mr. Saltzman currently serves on the Board of Directors of Elizabeth Arden Salon Holdings, Inc. and Healthnotes, corporations in which investment partnerships managed by North Castle have an investment.

        Mark Tricolli became a member of the Board of Directors in 2003. He is a Vice President of J.W. Childs and has been at J.W. Childs since 2000. Previously, he was an associate in the Merchant Banking Division of Goldman Sachs from 1999 to 2000. Mr. Tricolli is also a director of InSight Holdings Corp., a corporation in which an investment partnership managed by J.W. Childs has an investment.

        William E. Watts became a member of the Board of Directors in January 2001. He is an Operating Partner of J.W. Childs and has been at J.W. Childs since 2001. Previously, he was President and Chief Executive Officer of General Nutrition Companies, Inc. from 1991 until 2001. Prior to being named President and Chief Executive Officer in 1991, he held the positions of President and Chief Operating Officer of General Nutrition, Inc., President and Chief Operating Officer of General Nutrition Center, Inc., Senior Vice President of Retailing and Vice President of Retail Operations.

        Edward D. Yun became a member of the Board of Directors in December 2000. He is a Partner of J.W. Childs and has been at J.W. Childs since 1996. Mr. Yun is also a director of InSight Holdings Corp. and Universal Hospital Services, Inc., corporations in which investment partnerships managed by J.W. Childs have an investment.

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Compensation of Directors

        Members of the Board of Directors of Equinox are not compensated; however, all directors are reimbursed for travel and reasonable expenses incurred in performing their duties as directors.

Compensation of Executive Officers

        The following table sets forth the compensation earned by our Chief Executive Officer and each of the three additional most highly compensated executive officers (each, a "Named Executive Officer") during or with respect to the last three fiscal years.

								Long-Term Compensation
				Annual Compensation
Name and Principal Position								Securities Underlying Options(#)	All Other Compensation ($)(2)
			Year	Salary($)		Bonus($)
Harvey Spevak			2003	$	373,962	$	288,235	—	$	24,000
	President and Chief Executive Officer		2002	$	350,000	$	201,250	34,397		24,000
			2001		300,000		125,000	—		24,000
Scott Rosen(1)			2003		103,846		25,000	100,000		—
	Executive Vice President and Chief Financial Officer
Kenneth P. Fleischer			2003		247,200		96,655	—
	Executive Vice President and Chief		2002		247,200		96,655	—		24,000
		Financial Officer	2001		240,000		75,000	178,000		24,000
Chris Peluso			2003		238,846		—	15,000		—
	Chief Operating Officer		2002		8,846			35,000
			2001		—		—	—		—
Jeff Grayson			2003		166,154		19,200	5,000		—
	Vice President, Chief Technology		2002		91,154		19,200	10,000		—
	Officer

(1)

Scott Rosen joined the Company in August 2003 as Executive Vice President and Chief Financial Officer.

(2)

During 2003, each of Messrs. Spevak and Fleischer received a travel and expense allowance of $2,000 per month.

Option Grants During 2003

        The following table sets forth information concerning individual grants of stock options made during 2003 to the Named Executive Officers.

							Potential Realizable Value at Assumed Annual Rates of Stock Appreciation for Option Term
		% of Total Options Granted to Employees during 2003
	Number of securities underlying options granted(1)
				Exercise Price ($/share)		Expiration Date
							5%(2)		10% (2)
Harvey Spevak	—	—			—	—		—
Scott Rosen	100,000	54.5	%	$	12.00	9/3/2013	$	755,000	$	1,912,000
Kenneth P. Fleischer	—	—			—	—		—		—
Chris Peluso	15,000	8.2	%	$	12.00	9/3/2013	$	113,250	$	286,800
Jeff Grayson	5,000	2.7	%	$	12.00	9/3/2013	$	37,750	$	95,600

(1)

All options were granted under the Equinox Holdings, Inc. 2000 Stock Incentive Plan, which is administered by our Board of Directors. Generally, the options granted under this plan become

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exercisable upon a change of control or public offering (as each such term is defined in the plan) if our certain holders of our common stock achieve a specified rate of return.

(2)

Potential realizable value is based on the assumed annual growth for each of the grants, shown over their ten-year option term. Actual gains, if any, on stock option exercises are dependent on the future value of the stock.

Fiscal Year-End Option Value Table

        The following table sets forth information for each named executive officer with regard to the aggregate value of options held at December 31, 2003. No options were exercised by such executive officers during the year ended December 31, 2003.

	Number of Securities Underlying Unexercised Options at December 31, 2003
			Value of Unexercised In-the-Money Options at December 31, 2003($)(1)
Name
	Exercisable	Unexercisable	Exercisable		Unexercisable
Harvey Spevak	95,123	380,397	$	1,140,525	$	654,283
Scott Rosen	—	100,000		—		—
Kenneth P. Fleischer	25,000	—		299,750		—
Chris Peluso	—	—		—		—
Jeff Grayson	—	20,000		—		17,200

(1)

The fair market value of our common stock used to calculate the value of unexercised in-the-money options at December 31, 2003 is based on the per share price at which we sold shares of our common stock on January 28, 2003.

Employment and Other Agreements with our Named Executive Officers

        Harvey Spevak.    During December 2000, Equinox entered into an employment agreement with Mr. Spevak, whereby he agreed to continue as our Chief Executive Officer and a member of our board of directors. This employment agreement had an initial term of three years and currently renews automatically for successive one-year periods (unless either party gives prior written notice). Pursuant to this employment agreement, Mr. Spevak currently receives an annual base salary of $372,000, and is entitled to an annual bonus based upon the satisfaction of certain performance targets as determined by our board of directors and to participate in benefit and perquisite programs of Equinox to the same extent as other senior executives of Equinox. Also, Mr. Spevak received a commencement grant of options to purchase 380,397 shares of our common stock pursuant to our Stock Incentive Plan.

        If Equinox terminates Mr. Spevak's employment other than for Cause (as defined in the employment agreement), or Mr. Spevak terminates his employment for Good Reason (as defined in the employment agreement), then Equinox will pay Mr. Spevak his full salary through the date of termination, a pro-rata bonus through the date of termination and all other earned but unpaid amounts, if any, to which Mr. Spevak is entitled. Further, Equinox will pay Mr. Spevak an amount equal to Mr. Spevak's base salary for 18 months following the expiration of the term of the employment agreement and will continue to provide Mr. Spevak the welfare benefits provided to him prior to his termination. If Mr. Spevak's employment is terminated by Equinox for Cause or by Mr. Spevak other than for Good Reason, Equinox will pay to Mr. Spevak his full salary through the date of termination in addition to any other amounts owed to Mr. Spevak under any compensation or benefit plan or program of Equinox excluding, in the case of a termination by Mr. Spevak for Cause, any accrued but unpaid incentive bonus. Upon termination of Mr. Spevak's employment for any reason, Mr. Spevak will also be subject to customary 18-month post-termination non-compete, non-solicitation and non-disparagement provisions.

        Scott Rosen.    During September 2003, Equinox entered into an employment agreement with Mr. Rosen, whereby he became our Executive Vice President and Chief Financial Officer. This employment agreement has an initial term of three years and will renew automatically for successive

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one-year periods (unless either party gives prior written notice). Pursuant to this employment agreement, Mr. Rosen currently receives an annual base salary of $300,000, which will be reviewed annually beginning in 2005. Mr. Rosen is entitled to an annual bonus based upon the satisfaction of certain performance targets as determined by our board of directors, subject to a maximum annual bonus of $210,000. For 2003, Mr. Rosen was also paid a pro-rata incentive bonus, and a signing bonus in the amount of $55,000. Mr. Rosen is eligible to participate in benefit and perquisite programs of Equinox to the same extent as other senior executives of Equinox. Also, Mr. Rosen received a commencement grant of options to purchase up to 100,000 shares of our common stock pursuant to our Stock Incentive Plan.

        If Equinox terminates Mr. Rosen's employment other than for Cause (as defined in the employment agreement), or Mr. Rosen shall terminate his employment for Good Reason (as defined in the employment agreement), then Equinox will pay Mr. Rosen his full salary through the date of termination, a pro-rata bonus through the date of termination and all other earned but unpaid amounts, if any, to which Mr. Rosen is entitled. Further, following the expiration of the term of the employment agreement, Equinox will pay Mr. Rosen an amount equal to Mr. Rosen's base salary for six months, plus one additional month for each year Mr. Rosen had been employed with Equinox prior to his termination, subject to a maximum of 15 months total, and will continue to provide Mr. Rosen the welfare benefits provided to him prior to his termination. If Mr. Rosen's employment is terminated by Equinox for Cause or by Mr. Rosen other than for Good Reason, Equinox will pay to Mr. Rosen his full salary through the date of termination in addition to any other amounts owed to Mr. Rosen under any compensation or benefit plan or program of Equinox excluding, in the case of a termination by Mr. Rosen for Cause, any accrued but unpaid incentive bonus. Upon termination of Mr. Rosen's employment for any reason, Mr. Rosen will also be subject to customary nine-month post-termination non-compete, non-solicitation and non-disparagement provisions.

        Chris Peluso.    During November 2002, Equinox entered into an employment agreement with Mr. Peluso, whereby he became our Chief Operating Officer. Pursuant to this employment agreement, Mr. Peluso currently receives an annual base salary of $230,000 and is entitled to an annual bonus based upon the satisfaction of certain performance targets as determined by our board of directors. Also, Mr. Peluso received a commencement grant of options to purchase 85,000 shares of our common stock.

        If Mr. Peluso's employment is terminated by Equinox other than for Cause (as defined in the employment agreement), he will be entitled to receive severance pay equal to five months' base salary if terminated prior to the second anniversary of his employment. Thereafter, the amount of severance pay will increase by one month's base salary at each anniversary of Mr. Peluso's employment. If Mr. Peluso's employment is terminated for any other reason, Mr. Peluso will be entitled to receive any accrued and unpaid base salary. Upon termination of Mr. Peluso's employment for any reason, Mr. Peluso will also be subject to customary 12-month post-termination non-compete, 18-month non-solicitation and 18-month non-disparagement provisions.

        Jeff Grayson.    During April 2002, Equinox entered into an employment agreement with Mr. Grayson, whereby he became our Chief Technology Officer. Pursuant to this employment agreement, Mr. Grayson currently receives an annual base salary of $165,000 and is entitled to an annual bonus based upon the satisfaction of certain performance targets as determined by our board of directors. Also, Mr. Grayson received a commencement grant of options to purchase 10,000 shares of our common stock and a $5,000 bonus.

        If Mr. Grayson's employment is terminated by Equinox other than for Cause (as defined in the employment agreement), he will be entitled to receive severance pay equal to one week's salary for each six months of service to Equinox at the time of his termination. The amount of Mr. Grayson's severance will not exceed more than one-half of his base salary at the time of termination. Upon termination of Mr. Grayson's employment for any reason, Mr. Grayson will also be subject to customary 12-month post-termination non-compete, 18-month non-solicitation and 18-month non-disparagement provisions.

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        Kenneth P. Fleischer.    During March 2003, Equinox entered into a separation agreement with Mr. Fleischer. Pursuant to this agreement, Mr. Fleischer generally received approximately $268,000, plus a pro-rata incentive bonus in respect of Equinox's 2002 fiscal year. This amount was generally payable in installments over a nine-month period and was in consideration for Mr. Fleischer's agreement to provide us with certain transitional services, his agreement to cancel his options, excluding 25,000 options granted to him under our 1998 Stock Incentive Plan, which remain outstanding following his termination, a mutual release of claims and amounts due under Mr. Fleischer's employment agreement. In addition, Mr. Fleischer agreed to continue to be bound by customary non-compete, non-solicitation and non-disparagement provisions for a period of nine months following the completion of his transition assistance.

Compensation Committee Interlocks And Insider Participation

        The Board of Directors established a Compensation Committee to review all compensation arrangements for executive officers of Equinox. The individuals serving on the Compensation Committee during 2002 were Benjamin B. James and William E. Watts, both non-employee directors. North Castle and J.W. Childs receive an annual fee for management and financial consulting services they provide to us and are reimbursed for out-of-pocket expenses. Equinox has also agreed to indemnify the members of the boards employed by North Castle and J.W. Childs against certain liabilities incurred under the federal securities laws, other laws regulating our business and certain other claims and liabilities with respect to their services for Equinox. See "Related Party Transactions."

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table sets forth certain information regarding the beneficial ownership of Equinox common stock as of March 31, 2004, by: (i) each person or entity who owns of record or beneficially more than 5% or more of any class of our voting securities; (ii) each director and each of Named Executive Officer of Equinox; and (iii) all directors and Named Executive Officers of Equinox as a group.

Name and Address of Beneficial Owner(1)	Number of Shares of Common Stock Beneficially Owned(1)	Percent of Class(1)
Equinox Holdings, L.P.(2) c/o North Castle Partners, L.L.C. 183 East Putnam Avenue Greenwich, CT 06830	8,773,075	92.90	%
Executive Officers and Directors
Charles F. Baird, Jr.(2)	—	—
Glenn A. Hopkins(2)	—	—
Benjamin B. James(2)	—	—
Christopher J. Peluso	—	—
John Richards	—	—
Scott Rosen	—	—
Adam M. Saltzman(2)	—	—
Harvey Spevak(3)	96,406	1.02	%
Mark J. Tricolli(2)	—	—
William E. Watts(2)	—	—
Edward D. Yun(2)	—	—
Jeff Grayson	—	—
Executive Officers and Directors as a Group
(12 persons)	96,406	1.02	%

(1)

"Beneficial owner" refers to a person who has or shares the power to vote or direct the voting of a security or the power to dispose or direct the disposition of the security or who has the right to acquire beneficial ownership of a security within 60 days. More than one person may be deemed to be a beneficial owner of the same securities. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares subject to options and warrants held by that person that are currently exercisable or exercisable within 60 days of March 31, 2004 are deemed outstanding. Such shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person.

(2)

NCP-EH GP, L.L.C. is one of the general partners of Equinox Holdings, L.P. The sole member of NCP-EH GP, L.L.C. is North Castle Partners II, L.P., a private investment fund managed by North Castle Partners LLC. JWC-EH, LLC is the second general partner of Equinox Holdings, L.P. The sole member of JWC-EH, LLC is J.W. Childs Equity Partners II, L.P., a private investment fund managed by J.W. Childs Associates, L.P. By virtue of their status, North Castle and J.W. Childs may be deemed to be beneficial owners of the shares owned by Equinox Holdings, L.P. Mr. Baird and Mr. James are partners of North Castle and Mr. Saltzman is a vice president of North Castle and by virtue of their status may be deemed to share voting and investment power with respect to the shares in which North Castle has direct or indirect beneficial ownership. Mr. Hopkins, Mr. Watts and Mr. Yun are partners of J. W. Childs Associates, L.P. and Mr. Tricolli is a vice president of J.W. Childs Associates, L.P. By virtue of their status, Mr. Hopkins, Mr. Watts, Mr. Yun and Mr. Tricolli may be deemed to share voting and investment power with respect to the shares in which J.W. Childs Associates, L.P. has direct or indirect beneficial ownership. 97,263 of these shares are held indirectly through Equinox Holdings, L.P. by a third party financial institution.

(3)

Consists of (i) 1,283 shares held of record and (ii) 95,123 shares issuable upon exercise of rollover options that have already vested or will vest within 60 days.

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RELATED PARTY TRANSACTIONS

North Castle Partners, L.L.C. and J.W. Childs Associates, L.P.

        Equinox Holdings, L.P. currently holds 91% of the outstanding common stock of Equinox. One of the two general partners of Equinox Holdings, L.P. is NCP-EH GP, L.L.C., whose sole member is North Castle Partners II, L.P., a private investment fund managed by North Castle Partners, L.L.C. ("North Castle"). Charles F. Baird, Jr., a Partner of North Castle, is a Director of Equinox and has served as Chairman since December 2000. Benjamin B. James is a Partner of North Castle and a Director of Equinox. Adam Saltzman is a Vice President of North Castle and a Director of Equinox.

        The second general partner of Equinox Holdings, L.P. is JWC-EH, LLC, whose sole member is J.W. Childs Equity Partners II, L.P. The general partner of J.W. Childs Equity Partners II, L.P. is J.W. Childs Advisors II, L.P. J.W. Childs Equity Partners II, L.P. is a private investment fund managed by J.W. Childs Associates, L.P. ("J.W. Childs"). Glenn A. Hopkins, William E. Watts and Edward D. Yun are Partners of J.W. Childs and Directors of Equinox. Mark J. Tricolli is a Vice President of J.W. Childs and a Director of Equinox.

Consulting Agreement

        Pursuant to a consulting agreement dated as of December 15, 2000, North Castle and J.W. Childs receive from Equinox (1) an annual fee for business, management and financial consulting services provided to Equinox and (2) reimbursement of out-of-pocket expenses. Such consulting services include helping Equinox establish and maintain banking, legal and other business relationships, and assisting management in developing and implementing corporate and business strategies for improving our operational, marketing and financial performance. The annual fee was established by means of an arms length negotiation among us and North Castle and J.W. Childs at the time of their intial investment in Equinox during our December 2002 recapitalization, at levels they believed were appropriate to the nature and types of services being performed. The consulting agreement currently provides for an annual fee of $0.8 million, payable semi-annually, which we may increase, but not decrease without the consent of both North Castle and J.W. Childs. However, any increase in the annual fee is subject to applicable limitations under the terms of our existing and future debt. The consulting agreement also provides that Equinox will indemnify North Castle, J.W. Childs, certain affiliates and their respective directors, officers, partners, members, managers, employees, agents and controlling persons against certain liabilities arising under the federal securities laws, other laws regulating our business and certain other claims and liabilities. The consulting agreement also provides that North Castle and J.W. Childs will perform financial advisory, investment banking and similar services with respect to proposals for any acquisition (by merger, asset acquisition or otherwise) by Equinox and its subsidiaries. The fee for such services in connection with future transactions would be an amount equal to 1% of the transaction value for the applicable transaction. North Castle and J.W. Childs will not be paid a fee for this transaction.

Stockholders Agreement

        Equinox is party to a stockholders agreement, dated as of December 15, 2000, as amended, under which the parties thereto have made certain agreements regarding matters further described below, including the voting of their shares and the governance of Equinox.

        Board of Director and Designation Rights.    The stockholders agreement provides that the board of directors of Equinox will consist of ten members, nine individuals nominated by Equinox Holdings, L.P. and, so long as certain stockholders own collectively 5% of the Company's outstanding common stock, Donato Errico, Jr. At any time at which a vacancy is created on the board as a result of the death, disability, retirement, resignation or removal before the expiration of his or her term as director, then the party that nominated such director will have the right to nominate a replacement.

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        Actions of the Board; Affiliate Agreements.    The stockholders agreement provides that actions of the board will require the affirmative vote of at least a majority of the directors present at a duly convened meeting at which a quorum is present or the unanimous written consent of the board. The affirmative vote of at least six directors is required to take certain actions.

        Board Committees.    The stockholders agreement provides for Equinox to have an audit committee and a compensation committee. Each committee will have two directors, consisting of members nominated by Equinox Holdings, L.P.'s nominees.

        Observation and Information Rights.    The stockholders agreement provides that a certain stockholder will have the right to designate a representative to attend meetings of the board of directors and to receive copies of all written materials provided to the board. The representative will not have any right to vote on any matter presented to the board. The representative may be obliged to maintain the confidentiality of information received in connection with the exercise of their respective rights.

        Transfer Restrictions.    Subject to certain exceptions, the stockholder parties to the stockholders agreement may not transfer any shares of Equinox's common stock prior to an initial public offering.

Registration Rights Agreement

        In connection with our recapitalization in 2000, we entered into a registration rights agreement, dated as of December 15, 2000, with Equinox Holdings, L.P., NCP Co-Investment Fund, L.P., certain holders of our common stock put warrants, certain members of management and other Equinox shareholders. Pursuant to the terms of the registration rights agreement, Equinox Holdings, L.P. may, at any time, request that Equinox effect the registration under the Securities Act of all or part of its registrable securities (as defined below). After an initial public offering, holders of 51% or more of the warrants relating to Equinox's common stock may also request that we effect the registration under the Securities Act of all or part of such holder's registrable securities. Upon receipt of such a request, Equinox is required to promptly give written notice of such requested registration to all holders of registrable securities and, thereafter, to use its reasonable best efforts to effect the registration under the Securities Act of all registrable securities which it has been requested to register pursuant to the terms of the registration rights agreement. Equinox will pay all expenses in connection with the first four successfully effected registrations requested by Equinox Holdings, L.P. and up to two successfully effected registrations requested by the warrant holders.

        "Registrable securities" means:

•

shares of Equinox common stock issued in connection with the recapitalization to members of management or directors of Equinox for so long as any such shares constitute restricted securities;



•

shares of Equinox common stock issuable pursuant to any stock subscription agreement;



•

shares of Equinox common stock issued upon exercise of the common stock put warrants; and



•

any securities issued or issuable with respect to Equinox common stock referred to above as a result of a conversion, exchange, stock dividend or distribution, stock split or reverse stock split, combination, recapitalization, merger, consolidation or other reorganization thereof.

        The registration rights agreement also provides that, with certain exceptions, the parties thereto will have certain incidental registration rights in the event that the company at any time proposes to register any of its equity securities and the registration form to be used may be used for the registration of securities otherwise registrable under the registration rights agreement.

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        In addition to the provisions set forth above, the registration rights agreement contains other terms and conditions including those customary to agreements of this kind.

Related Party Leases

        Donato Errico, Jr., a former member of our Board of Directors during 2003 and current shareholder, is a partner in partnerships that lease space to us at two locations. The partnerships received approximately $1.0 million for each location pursuant to the leases and related agreements for the fiscal years ending December 31, 2002 and 2003.

Exit Payment

        Under our Amended and Restated Stock Purchase Agreement and Plan of Merger as amended as of December 14, 2000, we must pay our founding stockholders $10 million on the earlier of an initial public offering, a change of control or December 15, 2010. We must pay an additional $5.0 million at the same time if the internal rate of return of our equity sponsors exceeds a specified amount.

Stock Option Plans

        Under the terms of the Equinox Holdings, Inc. 1998 Stock Incentive Plan (the "1998 Plan"), options to purchase 1,000,000 shares of common stock may be granted. The 1998 Plan is closed and there are no further options available for grant. As of March 31, 2004, there were 284,919 outstanding options granted under the 1998 Plan. As of March 31, 2004, 1,085,450 options were authorized under the Equinox Holdings, Inc. 2000 Stock Incentive Plan and options to purchase 961,104 shares of Equinox common stock were outstanding.

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DESCRIPTION OF CAPITAL STOCK

        Pursuant to our Certificate of Incorporation, we are authorized to issue 20 million shares of common stock with a par value $0.01 per share (the "Common Stock"), of which 9,443,247 shares were outstanding as of December 31, 2003. We are also authorized to issue 400,000 shares of preferred stock with a par value of $0.01 per share. We redeemed our 130,166 shares of preferred stock and at December 31, 2003 had no preferred shares outstanding. These redeemed shares are authorized and unissued.

        We filed a Certificate of Designation setting forth the rights, preferences and terms of 100,000 shares of our designated Senior Redeemable Preferred Stock. We may not issue the Senior Redeemable Preferred Stock other than under the contingent circumstances described below under "—Common Stock Put Warrants."

        Our Certificate of Incorporation provides that to the fullest extent permitted by the General Corporation Law of the State of Delaware (including, without limitation, Section 102(b)(7)), as amended from time to time, none of our directors shall be personally liable to us or to our stockholders for monetary damages for breach of fiduciary duty as a director.

        The following summary of certain provisions of the capital stock does not purport to be complete and is subject to, and qualified in its entirety by, the provisions of our Certificate of Incorporation, our By-laws, the Certificate of Designation for the Senior Redeemable Preferred Stock, the instruments governing the common stock put warrants and by the provisions of applicable law.

Common Stock

        Holders of shares of our Common Stock are entitled to the rights, preferences and privileges, subject to the qualifications, limitations and restrictions, as set forth in the Certificate of Incorporation or otherwise required by law. Subject to the Stockholder's Agreement described under "Related Party Transactions," holders of our Common Stock are entitled to one vote per share on all matters to be voted on by the Company's stockholders.

        Dividends may be paid on the Common Stock, as and when declared by our board of directors. Any such dividend may be paid in cash, property, or shares of the Corporation's capital stock, subject to all of the rights of the preferred stock and any applicable provisions of law.

        During 2003 we issued approximately 833,000 shares of Common Stock for approximately $10.0 million. In addition options to purchase 5,000 shares were exercised during 2003 for approximately $51,000.

Common Stock Put Warrants

        In connection with the issuance of our outstanding subordinated notes, we issued common stock put warrants to purchase, at a purchase price of $0.01 per share, an aggregate of 879,214 shares of our Common Stock (or approximately 8% of the Company on a fully diluted basis as of the date hereof). The common stock put warrants will remain outstanding following repayment of the subordinated notes.

        The common stock put warrants contain anti-dilution and other protective provisions and contain affirmative covenants requiring us to, among other things, furnish specified financial statements, maintain proper books and records and maintain appropriate insurance. The common stock put warrants also contain negative covenants that, among other things, restrict our ability to change our certificate of incorporation and restrict, in a manner similar to the notes offered hereby, our ability to engage in transactions with affiliates.

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        In addition, commencing on December 15, 2006, holders of a majority interest in the common stock put warrants will have a right to require us to use our best efforts to purchase the common stock put warrants at fair market value unless we have previously consummated a qualifying initial public offering of our common stock. Effective on the issue date of the notes offered hereby, the common stock put warrants will provide that if we fail to purchase the warrants within 60 days of such a demand by holders of a majority interest in the common stock put warrants, each warrant holder's right under the common stock put warrants, including the holder's right to purchase shares of Common Stock, will convert automatically and irrevocably without any further action or acknowledgement on the part of the Company or the holder, into Senior Redeemable Preferred Stock equal to the value of that holder's common stock put warrants. The holders' rights relating to our obligation to purchase the common stock put warrants will be subordinated to the prior payment in full in cash of all of our indebtedness (including the notes offered hereby and amounts under our new revolving credit facility) in the event of an insolvency, liquidation, winding-up, bankruptcy or similar event.

        The Senior Redeemable Preferred Stock referred to above, if issued, will rank senior to all our other preferred stock, equity or equity-linked securities (other than the debt portion of convertible debt), whether now in existence or created hereafter ("Junior Securities").

        Dividends on the Senior Redeemable Preferred Stock will accrue daily and be cumulative and compounded quarterly, at a rate of 18% per annum from the date of issuance. The dividend rate will increase by 1% per annum every six months up to a maximum rate per share of 22% per annum. We will have the option to pay the quarterly dividends in cash. All dividends paid with respect to the shares of the Senior Redeemable Preferred Stock will be paid pro rata to the holders.

        Optional Redemption.    We may redeem the Senior Redeemable Preferred Stock, at our option and at any time, for an amount equal to $1,000 multiplied by the number of Senior Redeemable Preferred Stock shares redeemed, together plus all accrued and unpaid dividends thereon to the applicable redemption date. Any such optional redemption shall be on a pro rata basis.

        Mandatory Redemption.    We will be required to redeem the Senior Redeemable Preferred Stock, for a redemption price per share equal to $1,000 plus the amount of all accrued and unpaid dividends thereon through the date of redemption, in cash, upon the earliest to occur of: (a) six months following the stated or accelerated maturity of the notes being offered in this offering, (b) 91 days following a complete refinancing or complete redemption of the notes, (c) an extension in the maturity or an increase in the principal amount of the notes, (d) the closing of our first underwritten offering of Common Stock to the public pursuant to an effective registration statement under the Securities Act, provided that such offering exceeds $35 million and our Common Stock is listed for trading on the New York Stock Exchange or the American Stock Exchange or for quotation on the NASDAQ National Market by us or any subsidiary, (e) 91 days following a "Change of Control" as defined under the notes, and (f) an insolvency event. Notwithstanding the foregoing, all obligations to effect such a mandatory redemption are subject to the prior satisfaction of any similar put or redemption obligations under the notes.

        Liquidation.    In the event of any liquidation or winding-up of the Company, holders of Senior Redeemable Preferred Stock will be entitled to receive, in preference of Junior Securities, an amount equal to the full amount of the Senior Redeemable Preferred Stock outstanding (which will be calculated as the number of preferred stock shares outstanding multiplied by $1,000) plus all accrued and unpaid dividends.

        Certain Rights of Holders.    The Senior Redeemable Preferred Stock will contain affirmative covenants. We will be required to deliver to the holders of the Senior Redeemable Preferred Stock all information publicly filed with the SEC. We will be required to obtain the consent of the holders of a majority of the outstanding shares of Senior Redeemable Preferred Stock to take certain actions,

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including but not limited to the following: (1) declaring and paying dividends and making distributions in respect to our capital stock, other than dividends on Junior Securities paid-in-kind and the making of the Exit Payment described under "Related Party Transactions," (2) amending or changing our organizational documents in a manner adverse to holders of Senior Redeemable Preferred Stock, (3) authorizing or issuing securities ranked senior or equally to the Senior Redeemable Preferred Stock, (4) altering or changing the rights, preferences or privileges of the Senior Redeemable Preferred Stock, (5) repurchasing or redeeming our capital stock (with the exception of certain repurchases of equity of management and employees), (6) increasing the authorized number of shares of Senior Redeemable Preferred Stock, (7) permitting the purchase or redemption of any Junior Securities by any entity directly or indirectly controlled by the Company, (8) entering into certain transactions with affiliates, and (9) taking any other action that could adversely alter or change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Senior Redeemable Preferred Stock.

        In addition, the consent of each holder of Senior Redeemable Preferred Stock will be required to reduce the stated value per share or the dividend rate or to amend any provisions relating to the time of payment, ranking or mandatory redemption features of the Senior Redeemable Preferred Stock.

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DESCRIPTION OF CERTAIN INDEBTEDNESS

        We have no outstanding indebtedness other than the old notes and an aggregate of $2.2 million in capital leases and similar obligations. In addition, we expect to have up to $3.5 million of reimbursement obligations for cash collateralized standby letters of credit under our new revolving credit facility or issued by another financial institution and, subject to conditions described below, approximately $21.5 million of additional commitments under our new revolving credit facility.

New Revolving Credit Facility

        The following summarizes the basic terms of our new revolving credit facility. The closing of the new revolving credit facility was a condition to the closing of the offering of the old notes. Availability of the new revolving credit facility is subject to specified post-closing actions with respect to collateral which we expect to accomplish prior to needing access to the facility and subject to a borrowing base formula.

        Our new revolving credit facility, with Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as administrative agent and lead arranger, UBS Loan Finance LLC, as syndication agent, and Wachovia Bank, National Association, as documentation agent, has a maturity of five years, provides for borrowings of up to $25.0 million (with a subfacility for the issuance of letters of credit) expiring on December 16, 2008.

        Prepayments (without permanent reductions to the commitments) under the new revolving credit facility are required in an amount equal to 100% of (a) certain insurance proceeds received by us, (b) the net cash proceeds of issuances of certain equity and debt securities and (c) the net cash proceeds of certain asset sales and dispositions by us, in each case subject to certain exceptions and reinvestment rights.

        Voluntary prepayments and commitment reductions are permitted in whole or in part, subject to minimum prepayment or reduction requirements. Such voluntary prepayments and commitment reductions may be made without premium or penalty other than customary LIBOR breakage costs.

        All of our obligations under the new revolving credit facility are unconditionally guaranteed by each of our existing and subsequently acquired or organized domestic subsidiaries. The new revolving credit facility and the related guarantees will be secured by a first-priority security interest in substantially all of our and our domestic subsidiaries' present and future assets and all present and future assets of each guarantor, including but not limited to (i) a first-priority pledge of all of the outstanding capital stock owned by us and each domestic guarantor and (ii) perfected first-priority security interests in all of our present and future tangible and intangible assets and the present and future tangible and intangible assets of each guarantor, in each case, subject to certain exceptions.

        Loans under the new revolving credit facility, at our option, will bear interest at either the prime rate or a floating rate equal to the reserve adjusted London inter-bank offered rate ("LIBOR"), in each case plus a margin based on leverage. In addition to paying interest on any outstanding principal amount under the new revolving credit facility, we will be required to pay an unused revolving credit facility fee. For each letter of credit we issue, we will be required to pay at a rate per annum equal to the applicable margin for LIBOR loans. The applicable interest rate will increase by 2% during any payment default.

        The credit agreement documentation contains certain customary representations and warranties and contains customary restrictive affirmative, negative and financial covenants including leverage ratios and an interest coverage ratio and capital expenditure and dividend payment restrictions.

        Events of default under the credit agreement include (i) our failure to pay principal or interest when due, (ii) our material breach of any representations or warranty, (iii) covenant defaults, (iv) events of bankruptcy and (v) a change of control. We will pay the senior lenders and agents certain syndication and administration fees, reimburse certain expenses and provide certain indemnities to the senior lenders and the agents, in each case which are customary for credit facilities of this type.

        In the event of default, our loan commitment will terminate and all of the obligations shall become immediately due and payable without presentment, demand, protest or other notice of any kind.

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DESCRIPTION OF NOTES

General

        We issued the old notes, and will issue the new notes, under an indenture (the "Indenture") dated as of December 16, 2003 among Equinox Holdings, Inc., the Guarantors and U.S. Bank National Association, as Trustee. The terms of the new notes are identical in all material respects to the terms of the old notes, except that the new notes will be registered under the Securities Act, and therefor will not contain restrictions on transfer, will not contain provisions relating to additional interest, will bear a different CUSIP number from the old notes and will not entitle their holders to registration rights. The new notes will otherwise evidence the same debt as the old notes and will be entitled to the benefits of the Indenture.

        The following summary of the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of the Indenture (a copy of the form of which may be obtained from us), including the definitions of certain terms therein and those terms made a part of the Indenture by reference to the TIA as in effect on the date of the Indenture. The definitions of most of the capitalized terms used in the following summary are set forth below under "—Certain Definitions." For purposes of this "Description of Notes," references to the "Company" are to Equinox Holdings, Inc. and not to any of its Subsidiaries.

        The Notes will be our unsecured obligations, ranking equal in right of payment to all of our unsubordinated debt. The Notes will be effectively subordinated to all existing and future secured debt of the Company to the extent of the value of the assets securing such debt. As of December 31, 2003, the aggregate principal amount of secured Indebtedness of the Company and its subsidiaries who are Guarantors was $3.3 million, and the Company had an additional $21.5 million of secured borrowings available under the Credit Agreement, subject to conditions on availability.

        We will issue the Notes in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof. Initially, the Trustee will act as Paying Agent and Registrar for the Notes. The Notes may be presented for registration or transfer and exchange at the offices of the Registrar, which initially will be the Trustee's corporate trust office. We may change any Paying Agent and Registrar without notice to holders of the Notes. We will pay principal (and premium, if any) on the Notes at the Trustee's corporate office in New York, New York. At our option, interest may be paid at the Trustee's corporate trust office or by check mailed to the registered address of Holders.

Principal, Maturity and Interest

        The Notes will be unlimited in aggregate principal amount, with $160 million aggregate principal amount issued on December 16, 2003, and will mature on December 15, 2009. Additional Notes ("Additional Notes") may be issued from time to time under the Indenture in an unlimited amount, subject to the limitations set forth under "—Certain Covenants—Limitation on Incurrence of Additional Indebtedness." The Notes and any such Additional Notes will be treated as a single class for all purposes under the Indenture.

        Interest on the Notes will accrue at the rate per annum set forth on the front cover of this prospectus and will be payable semiannually in cash on each June 15 and December 15 to the persons who are registered Holders at the close of business on the June 1 and December 1 immediately preceding the applicable interest payment date. Interest on the Notes was first payable on June 15, 2004. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from and including the date of issuance.

        The Notes will not be entitled to the benefit of any mandatory sinking fund.

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Redemption

        Optional Redemption.    The Notes will be redeemable, at the Company's option, in whole at any time or in part from time to time, on and after December 15, 2006, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on December 15 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption:

Year	Percentage
2006	104.500	%
2007	102.250	%
2008 and thereafter	100.000	%

        Optional Redemption upon Public Equity Offerings.    At any time, or from time to time, on or prior to December 15, 2006, the Company may, at its option, use the net cash proceeds of one or more Equity Offerings (as defined below) to redeem up to 35% of the principal amount of Notes issued under the Indenture at a redemption price equal to 109% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption; provided that:

(1)

at least 65% of the principal amount of Notes issued under the Indenture remains outstanding immediately after any such redemption; and

(2)

the Company shall make such redemption not more than 120 days after the consummation of any such Equity Offering.

        As used in the preceding paragraph, "Equity Offering" means an underwritten public offering of Qualified Capital Stock of the Company that generates gross proceeds to the Company of at least $35.0 million.

Selection and Notice of Redemption

        In the event that less than all of the Notes are to be redeemed at any time, selection of such Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which such Notes are listed or, if such Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however:

(1)

that no Notes of a principal amount of $1,000 or less shall be redeemed in part; and



(2)

that if a partial redemption is made with the proceeds of an Equity Offering, selection of the Notes or portions thereof for redemption shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to DTC procedures), unless such method is otherwise prohibited.

        Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption as long as the Company has deposited with the Paying Agent funds in satisfaction of the applicable redemption price pursuant to the Indenture.

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Guarantees

        All of the Company's existing subsidiaries as of December 16, 2003 have jointly and severally guaranteed the Company's obligations under the Indenture and the Notes fully and unconditionally on a senior unsecured basis. In the future, any Domestic Restricted Subsidiary of a specified size, and any subsidiary that guarantees Indebtedness of the Company, will guarantee the Company's obligations under the Indenture and the Notes on a senior unsecured basis as described under "—Certain Covenants—Additional Subsidiary Guarantees." The obligations of each Guarantor under its Guarantee will be limited as necessary to prevent the Guarantee from constituting a fraudulent conveyance or fraudulent transfer under applicable law.

        Each Guarantor may consolidate with or merge into or sell all or substantially all of its assets to the Company or another Guarantor that is a Restricted Subsidiary of the Company without limitation, or with other Persons upon the terms and conditions set forth in the Indenture. See "—Certain Covenants—Merger, Consolidation and Sale of Assets." In the event a Guarantor ceases to be a Subsidiary of the Company in a transaction that complies with the provisions set forth in "—Certain Covenants—Limitation on Asset Sales" and the other covenants contained in the Indenture, then the Guarantor's Guarantee will be released.

Change of Control

        Upon the occurrence of a Change of Control, each Holder will have the right to require that the Company purchase all or a portion of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer"), at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of purchase; provided that the Company shall not be obligated to make a Change of Control Offer pursuant to this covenant if, no later than the 30th day after the Change of Control, it has mailed an irrevocable notice of redemption for all of the Notes in accordance with the provisions described under "—Redemption—Optional Redemption" and it subsequently has not failed to consummate such redemption. Upon any failure to consummate the redemption for which such notice was given, the Company's obligation to offer to repurchase Notes pursuant to this covenant shall be reinstated.

        Within 30 days following the date upon which the Change of Control occurred, the Company must send, by first class mail, a notice to each Holder, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. Such notice will state, among other things, the purchase date, which must be no earlier than 30 days nor later than 45 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Holders electing to have a Note purchased pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third business day prior to the Change of Control Payment Date.

        The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.

        If a Change of Control Offer is made, there can be no assurance that the Company will have available funds sufficient to pay the Change of Control purchase price for all the Notes that might be delivered by Holders seeking to accept the Change of Control Offer. The Credit Agreement contains, and any future other agreements relating to other indebtedness to which we become a party may contain, restrictions or prohibitions on the Company's ability to repurchase Notes or may provide that an occurrence of a Change of Control constitutes an event of default under, or otherwise requires

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payments of amounts borrowed under, those agreements. If a Change of Control occurs at a time when the Company is prohibited from repurchasing the Notes, we could seek the consent of our then existing lenders to the repurchase of the Notes or could attempt to refinance the Credit Agreement. If the Company does not obtain such consent or repay the indebtedness, it would remain prohibited from repurchasing the Notes. In that case, failure to repurchase tendered Notes would constitute an Event of Default under the Indenture and may constitute a default under the terms of other indebtedness that we may enter into from time to time. In the event the Company is required to purchase outstanding Notes pursuant to a Change of Control Offer, the Company expects that it would seek third party financing to the extent it does not have available funds to meet our purchase obligations. However, there can be no assurance that the Company would be able to obtain such financing.

        Neither the Board of Directors of the Company nor the Trustee may waive the covenant relating to a Holder's right to redemption upon a Change of Control. Restrictions in the Indenture described herein on the ability of the Company and its Restricted Subsidiaries to incur additional Indebtedness, to grant liens on its property, to make Restricted Payments and to make Asset Sales may also make more difficult or discourage a takeover of the Company, whether favored or opposed by the management of the Company. Consummation of any such transaction in certain circumstances may require redemption or repurchase of the Notes, and there can be no assurance that the Company or the acquiring party will have sufficient financial resources to effect such redemption or repurchase. Such restrictions and the restrictions on transactions with Affiliates may, in certain circumstances, make more difficult or discourage any leveraged buyout of the Company or any of its Subsidiaries by the management of the Company. While such restrictions cover a wide variety of arrangements that have traditionally been used to effect highly leveraged transactions, the Indenture may not afford the Holders of Notes protection in all circumstances from the adverse aspects of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction.

        The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Change of Control" provisions of the Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Change of Control" provisions of the Indenture by virtue thereof.

Certain Covenants

        The Indenture contains, among others, the following covenants:

        Limitation on Incurrence of Additional Indebtedness.    (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively "incur") any Indebtedness (other than Permitted Indebtedness); provided, however, that the Company or any Guarantor may incur Indebtedness and any Restricted Subsidiary may incur Acquired Indebtedness, in each case if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.00 to 1.00 if such incurrence is before October 1, 2005 or 2.25 to 1.00 if such incurrence is on or after October 1, 2005.

        (b)   Notwithstanding the provisions of the preceding paragraph, the Company will not incur any Indebtedness if such Indebtedness is by its express terms subordinate in right of payment to any other Indebtedness of the Company, unless such Indebtedness is also by its express terms made subordinate in right of payment to the Notes to the same extent and in the same manner as such Indebtedness is subordinated to other Indebtedness of the Company; provided that Indebtedness shall not be

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considered subordinate in right of payment solely by reason of being unsecured (or not guaranteed) or being secured (or guaranteed) to a greater or lesser extent.

        Limitation on Restricted Payments.    The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly:

(1)

declare or pay any dividend or make any distribution (other than dividends or distributions payable in the Qualified Capital Stock of the Company) on or in respect of shares of the Company's Capital Stock to holders of such Capital Stock;



(2)

purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or make any Exit Payment;



(3)

make any principal payment on, or purchase, defease, redeem, prepay or otherwise acquire or retire for value, prior to:



(a)

any scheduled final maturity,



(b)

any scheduled or mandatory repayment or



(c)

any scheduled sinking fund payment,

of any Indebtedness of the Company that is by its express terms subordinate in right of payment to the Notes (other than Indebtedness to a Restricted Subsidiary); or

(4)

make any Investment (other than Permitted Investments)

(each of the foregoing actions set forth in clauses (1), (2), (3) and (4) (other than any exception thereto) being referred to as a "Restricted Payment"); if at the time of such Restricted Payment or immediately after giving effect thereto:

(A)

a Default shall have occurred and be continuing; or



(B)

the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the covenant described under paragraph (a) of the "—Limitation on Incurrence of Additional Indebtedness" covenant; or



(C)

the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Issue Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined reasonably and in good faith by the Board of Directors of the Company) shall exceed the sum of, without duplication:

        (i)    50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned subsequent to the end of the most recent fiscal quarter immediately prior to the Issue Date and on or prior to the end of the most recently ended fiscal quarter for which internal financial statements are available as of the date the Restricted Payment occurs (treating such period as a single accounting period), plus

        (ii)   100% of the amount by which Indebtedness or Disqualified Capital Stock of the Company or any of its Restricted Subsidiaries incurred after the Issue Date is reduced on the Company's consolidated balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) of such Indebtedness or Disqualified Capital Stock into Qualified Capital Stock of the Company plus 100% of the aggregate net cash proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock or received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale of Qualified Capital Stock of the Company, in each case subsequent to the Issue Date and on or prior to the date the Restricted Payment occurs (except, in each case, to

75

the extent such proceeds are used to purchase, redeem, or otherwise retire or acquire Capital Stock or subordinated Indebtedness as set forth in the clause (2)(b) or (3)(b)(x) of the next paragraph), plus

        (iii)  without duplication, an amount equal to the sum of

(x)

in the case of the disposition or repayment of any Investment in any Person or the release of a guarantee constituting a Restricted Payment made after the Issue Date, an amount equal to the cash proceeds of such disposition or repayment, less the cost of the disposition of such Investment and net of taxes and, in the case of guarantees, less any amounts paid under such guarantee;



(y)

the aggregate amount returned in cash on or with respect to Investments (other than Permitted Investments) made subsequent to the Issue Date, whether through interest payments, principal payments, dividends or other distributions or payments; provided that such amount shall not exceed the amount included as a Restricted Payment under clause (C) above with respect to such Investment; and



(z)

so long as the Designation thereof was treated as a Restricted Payment made after the Issue Date, with respect to any Unrestricted Subsidiary that has been redesignated as a Restricted Subsidiary after the Issue Date in accordance with "—Limitation on Designations of Unrestricted Subsidiaries," the fair market value of the Company's interest in such Subsidiary; provided that such amount shall not exceed the amount included as a Restricted Payment under clause (C) above with respect to such Designation and any Investment in such Subsidiary.

        Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph will not prohibit:

(1)

the payment of any dividend or redemption payment within 60 days after the date of declaration of such dividend or the mailing of such irrevocable redemption notice if the dividend or redemption payment, as the case may be, would have been permitted on the date of declaration or the date of mailing of such notice;



(2)

the purchase, redemption, or other retirement or acquisition of any shares of Capital Stock of the Company, either



(a)

solely in exchange for shares of Qualified Capital Stock of the Company or



(b)

through the application of net proceeds of a substantially concurrent sale for cash (other than to a Restricted Subsidiary of the Company) of shares of Qualified Capital Stock of the Company;



(3)

the purchase, redemption, or other retirement or acquisition of any Indebtedness of the Company that is by its express terms subordinate in right of payment to the Notes either



(a)

solely in exchange for shares of Qualified Capital Stock of the Company, or



(b)

through the application of net proceeds of a substantially concurrent sale for cash (other than to a Restricted Subsidiary of the Company) of



(x)

shares of Qualified Capital Stock of the Company or



(y)

Refinancing Indebtedness;



(4)

repurchases by the Company of Capital Stock of the Company or options or warrants to purchase Capital Stock of the Company, stock appreciation rights or any similar equity interest in the Company from consultants, directors, officers and employees of the Company

76

or any of its Subsidiaries or their authorized representatives upon the death, disability, retirement or termination of employment of such consultants, directors, officers or employees in an aggregate amount not to exceed $1.0 million in any calendar year plus the amount of any proceeds received under key-man life insurance policies that are used to make such payments; provided that any amounts not utilized under this clause (4) in any calendar year may be carried forward to the immediately subsequent calendar year only;

(5)

so long as no Default shall have occurred and be continuing, the purchase, redemption, defeasance or other acquisition or retirement of Indebtedness of the Company that is by its express terms subordinate in right of payment to the Notes following a Net Proceeds Offer or Change of Control Offer after complying with the covenants set forth under "—Limitation on Asset Sales" and "—Change of Control";



(6)

so long as no Default shall have occurred and be continuing, Restricted Payments in an aggregate amount since the Issue Date not to exceed $2.0 million;



(7)

any Restricted Payments made as part of the Transactions;



(8)

so long as no Default has occurred and is continuing, the declaration and payment of dividends or distributions to holders of any class or series of Disqualified Capital Stock of the Company or any of its Restricted Subsidiaries issued or incurred after the Issue Date in accordance with the covenant set forth under "—Limitation on Incurrence of Additional Indebtedness";



(9)

the issuance of the Warrant Preferred Stock in exchange for the Warrants following the occurrence of any Warrant Put;



(10)

the payment of any dividend on Common Stock of the Company following an underwritten initial public offering of Company Common Stock in an amount not to exceed 6% per annum of the aggregate net proceeds received by the Company from such public offering; and



(11)

payments to holders of Capital Stock of the Company in lieu of the issuance of fractional shares of such Capital Stock, in an aggregate amount since the Issue Date not to exceed $50,000, and payments or distributions to stockholders pursuant to appraisal rights required under applicable law in connection with any consolidation, merger or transfer of assets that complies with the covenant described under "—Merger, Consolidation and Sale of Assets."

In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date in accordance with clause (C) of the second preceding paragraph, amounts expended pursuant to clauses (1), (4), (6), (8), (10) and (11) of the immediately preceding paragraph shall be included in such calculation.

        Limitation on Asset Sales.    The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:

(1)

the Company or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Board of Directors of the Company); and



(2)

at least 75% of the consideration received by the Company or the applicable Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash or Cash Equivalents and shall be received at the time of such disposition; provided, however, that the amount of:



(a)

any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet or the notes thereto) of the Company or any Restricted Subsidiary (other

77

than Indebtedness that by its terms is expressly subordinate in right of payment to the Notes) that are assumed by the transferee in such Asset Sale and from which the Company or such Restricted Subsidiary is released or is otherwise no longer liable and

(b)

any notes or other obligations received by the Company or by any such Restricted Subsidiary from such transferee that are immediately converted by the Company or by such Restricted Subsidiary into cash or Cash Equivalents (to the extent of the cash or Cash Equivalents received), shall be deemed to be cash for the purposes of this provision.

        Upon the consummation of an Asset Sale, the Company shall apply, or cause the applicable Restricted Subsidiary to apply, an amount equal to the Net Cash Proceeds relating to such Asset Sale within 360 days of receipt thereof either:

(1)

to (i) permanently reduce Indebtedness under any Credit Facility (and, in the case of any such Indebtedness under any revolving credit facility, effect a corresponding permanent reduction in the availability under such revolving credit facility), any senior secured Indebtedness, any Capitalized Lease Obligations or other Indebtedness ranking pari passu with the Notes or Guarantees and (ii) in the case of an Asset Sale by a Restricted Subsidiary that is not a Guarantor, permanently reduce Indebtedness of such Restricted Subsidiary; provided, however, that if the Company permanently reduces unsecured Indebtedness that ranks pari passu with the Notes pursuant to this covenant, it must make an equal and ratable Net Proceeds Offer to all holders of Notes as provided in the following paragraph,



(2)

to make an investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets that will be used in the Permitted Business, including in each case, without limitation, by way of capital expenditures or the purchase of Capital Stock in a Person engaged in a Permitted Business that becomes a Restricted Subsidiary ("Replacement Assets") or



(3)

a combination of prepayment and investment permitted by the foregoing clauses (1) and (2).

        On the 361st day after an Asset Sale or such earlier date, if any, as the Board of Directors of the Company or of such Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in the preceding paragraph (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds that have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in the preceding paragraph (each a "Net Proceeds Offer Amount") shall be applied by the Company or such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date not less than 45 nor more than 60 days following the applicable Net Proceeds Offer Trigger Date, the maximum principal amount of Notes and, if the Company so elects, other Indebtedness of the Company and the Guarantors that ranks pari passu in right of payment with the Notes or the Guarantees, as the case may be (to the extent required by the instrument governing such other Indebtedness), that may be purchased out of the Net Proceeds Offer Amount. Any Notes and other Indebtedness to be purchased pursuant to a Net Proceeds Offer shall be purchased pro rata based on the aggregate principal amount of Notes and such other Indebtedness outstanding, and all Notes shall be purchased at an offer price in cash in an amount equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. To the extent the aggregate principal amount of Notes and other Indebtedness validly tendered and not withdrawn by holders exceeds the Net Proceeds Offer Amount, Notes and other Indebtedness, if any, shall be purchased pro rata based on the aggregate principal amount of tendered Notes and other Indebtedness, if any.

        The Company may defer the Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $10.0 million resulting from one or more Asset Sales (at which time, the entire unutilized Net Proceeds Offer Amount, not just the amount in excess of $10.0 million, shall be applied as required pursuant to the preceding paragraph). To the extent the

78

aggregate principal amount of Notes and other Indebtedness tendered pursuant to a Net Proceeds Offer is less than the Net Proceeds Offer Amount, the Company may use such Deficiency in any manner otherwise permitted by the Indenture. Upon completion of the purchase of all Notes and other Indebtedness tendered pursuant to a Net Proceeds Offer, the amount of the Net Proceeds Offer Amount, if any, shall be reset to zero.

        Notwithstanding the four immediately preceding paragraphs, the Company and its Restricted Subsidiaries will be permitted to consummate an Asset Sale without complying with such paragraphs to the extent:

(1)

at least 75% of the consideration for such Asset Sale constitutes Replacement Assets; and



(2)

the Company or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Board of Directors of the Company);

provided that any consideration not constituting Replacement Assets received by the Company or any of its Restricted Subsidiaries in connection with any Asset Sale permitted to be consummated under this paragraph shall constitute Net Cash Proceeds subject to the provisions of the four preceding paragraphs.

        Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 30 days following the Net Proceeds Offer Trigger Date, with a copy to the Trustee, and shall comply with the procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their Notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open for a period of 20 business days or such longer period as may be required by law.

        The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Asset Sale" provisions of the Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Asset Sale" provisions of the Indenture by virtue thereof.

        Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries.    The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:

(1)

pay dividends or make any other distributions on or in respect of Capital Stock;



(2)

make loans or advances or to pay any Indebtedness or other obligation owed to the Company or any other Restricted Subsidiary; or



(3)

transfer any of its property or assets to the Company or any other Restricted Subsidiary,

in each case except for such encumbrances or restrictions existing under or by reason of:

(a)

applicable law, rule or regulation;



(b)

the Indenture, the Notes and the Guarantees;

79

(c)

any customary restriction with respect to the subletting, assignment, change of control or transfer of any property or asset that is subject to a lease, license or similar contract, or the assignment, change of control or transfer of any lease, license or other contract;



(d)

any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by the Indenture;



(e)

customary provisions restricting dispositions of real property interests set forth in any reciprocal easement agreements of the Company or any Restricted Subsidiary;



(f)

any agreement governing Purchase Money Indebtedness that imposes encumbrances or restrictions on the property or assets so acquired;



(g)

with respect to any Restricted Subsidiary (or any of its property or assets), an agreement entered into for the direct or indirect sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary (or the property or assets that are subject to such restriction) pending the closing of such sale or disposition;



(h)

(i) any instrument governing Acquired Indebtedness, which encumbrance or restriction was in existence at the time of such acquisition (but not created in contemplation thereof or to provide all or any portion of the funds or credit support utilized to consummate such acquisition) and is not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person so acquired (including, but not limited to, such Person's direct and indirect Subsidiaries); and (ii) any agreement (x) with respect to a Restricted Subsidiary that was not a Restricted Subsidiary of the Company on the Issue Date, in existence at the time such Person becomes a Restricted Subsidiary, not incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary, and not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person that becomes the Restricted Subsidiary (including, but not limited to, such Person's direct and indirect Subsidiaries or (y) with respect to any asset acquired, in existence at the time of such acquisition, not incurred in connection with or in contemplation of such acquisition and not applicable to any assets other than the assets so acquired;



(i)

agreements existing on the Issue Date (other than the Credit Agreement) to the extent and in the manner such agreements are in effect on the Issue Date;



(j)

any Credit Facility (including the Credit Agreement) or any agreement governing any other Indebtedness of the Company or any Restricted Subsidiary permitted to be incurred under the Indenture; provided that, with respect to any agreement governing such other Indebtedness, the provisions relating to such encumbrance or restriction are no less favorable to the Company in any material respect than the provisions contained in the Credit Agreement as in effect on the Issue Date;



(k)

restrictions on the transfer of assets subject to any Lien permitted under the Indenture imposed by the holder of such Lien;



(l)

restrictions imposed by any agreement to sell assets or Capital Stock permitted under the Indenture to any Person pending the closing of such sale;



(m)

customary provisions in joint venture agreements and other similar agreements in each case relating solely to the respective joint venture or similar entity or to the equity interest therein; or

80

(n)

any agreement or instrument that extends, renews, refinances or replaces any of the agreements or instruments containing any of the encumbrances or restrictions referred to in clause (b) and (d) through (k) above; provided, however, that the provisions relating to such encumbrance or restriction contained in any such agreement or instrument are no less favorable to the Company in any material respect as determined by the Board of Directors of the Company in its reasonable and good faith judgment than the provisions relating to such encumbrance or restriction contained in agreements referred to in such clause (b) and (d) through (k) above.

        Limitation on Preferred Stock of Restricted Subsidiaries.    The Company will not permit any of its Restricted Subsidiaries that are not Guarantors to issue any Preferred Stock (other than to the Company or to a Wholly Owned Restricted Subsidiary) or permit any Person (other than the Company or a Wholly Owned Restricted Subsidiary) to own any Preferred Stock of any Restricted Subsidiary that is not a Guarantor.

        Limitation on Liens.    The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or permit or suffer to exist any Lien (an "Initial Lien") upon any property or assets of the Company or any of its Restricted Subsidiaries whether owned on the Issue Date or acquired after the Issue Date, or any proceeds therefrom, unless:

(1)

in the case of Liens securing Subordinated Indebtedness, the Notes or the Guarantee of such Guarantor, as the case may be, are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens for so long as such Subordinated Indebtedness is secured by such Lien; and



(2)

in all other cases, the Notes or the Guarantees, as the case may be, are secured on an equal and ratable basis for so long as such Lien is in place, except for



(a)

Liens existing as of the Issue Date to the extent and in the manner such Liens are in effect on the Issue Date;



(b)

Liens securing Obligations in respect of a principal amount of Indebtedness Incurred under any Credit Facility in an aggregate principal amount not to exceed the amount permitted to be incurred under clause (2) of the definition of "Permitted Indebtedness";



(c)

Liens securing the Notes and Guarantees;



(d)

Liens on assets of any Restricted Subsidiary of the Company in favor of the Company or any Restricted Subsidiary and Liens on the assets of the Company in favor of a Restricted Subsidiary that is a Guarantor;



(e)

Liens in favor of the Company or any Guarantor;



(f)

Liens securing Refinancing refunding, extension, renewal or replacement (in whole or in part) of any Indebtedness or other Obligation that has been secured by a Lien permitted under the Indenture and that has been incurred in accordance with the provisions of the Indenture; provided, however, that such new Liens are limited to all or part of the same property or assets of the Company or any of its Restricted Subsidiaries (plus improvements, decisions, proceeds or dividends or distributions in respect thereof) securing the Indebtedness or other obligation so Refinanced, refinanced, extended, renewed or replaced; and



(g)

Permitted Liens.

        Any such Lien thereby created in favor of the Notes or any Guarantee will be automatically and unconditionally released and discharged upon (i) the release and discharge of all Initial Liens to which it relates or (ii) any sale, exchange or transfer to any Person not an Affiliate of the Company of the

81

property or assets securing all such Initial Liens or of all of the Capital Stock held by the Company or any Restricted Subsidiary in, or all or substantially all the assets of, any Restricted Subsidiary creating all such Initial Liens.

        Merger, Consolidation and Sale of Assets.    The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and its Restricted Subsidiaries) to any Person unless:

(1)

either:



(a)

the Company will be the surviving or continuing corporation or



(b)

the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition of properties and assets of the Company and of its Restricted Subsidiaries substantially as an entirety (the "Surviving Entity")



(x)

will be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and



(y)

will expressly assume, by supplemental indenture (in form reasonably satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Notes and the performance of every covenant of the Notes, the Indenture and the Registration Rights Agreement on the part of the Company to be performed or observed;



(2)

except in the case of a transaction solely involving the Company and a Guarantor, immediately after giving effect to such transaction and the assumption contemplated by clause (1)(b)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the covenant described under paragraph (a) of the "—Limitation on Incurrence of Additional Indebtedness" covenant;



(3)

immediately before and immediately after giving effect to such transaction and the assumption contemplated by clause (1)(b)(y) above (including, without limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred and any Lien granted in connection with or in respect of the transaction), no Default shall have occurred or be continuing; and



(4)

the Company or the Surviving Entity shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating to the effect that all conditions precedent in the Indenture relating to such transaction have been satisfied.

        For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, will be deemed to be the transfer of all or substantially all of the properties and assets of the Company.

        The Indenture will provide that upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, in which the Company is not the continuing corporation, the Surviving Entity shall succeed to, and be substituted

82

for, and may exercise every right and power of, the Company under the Indenture and the Notes with the same effect as if such Surviving Entity had been named as such. Thereafter the predecessor Company shall be relieved of all obligations and covenants under the Indenture, except that the predecessor Company in the case of a lease of all or substantially all of its assets will not be released from the obligation to pay the principal of and interest on the Notes.

        Each Guarantor (other than any Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and the Indenture in connection with any transaction complying with the provisions of "—Limitation on Asset Sales") will not, and the Company will not cause or permit any Guarantor to, consolidate with or merge with or into any Person other than the Company or any other Guarantor unless:

(1)

the entity formed by or surviving any such consolidation or merger (if other than the Guarantor) or to which such sale, lease, conveyance or other disposition shall have been made is a corporation, limited liability company or partnership organized and existing under the laws of the United States or any State thereof or the District of Columbia;



(2)

such entity assumes by supplemental indenture all of the obligations of the Guarantor on the Guarantee; and



(3)

immediately after giving effect to such transaction, no Default shall have occurred and be continuing.

        Any merger or consolidation of a Guarantor with and into the Company (with the Company being the surviving entity) need only comply with clause (4) of the first paragraph of this covenant.

        None of the foregoing shall prohibit any transfer by the Company of the Capital Stock of, or other Investments in, one or more of its Subsidiaries to any Guarantor.

Limitation on Transactions with Affiliates.

(1)

The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of its Affiliates (other than a transaction not directly or indirectly with an Affiliate that has the effect of benefiting all shareholders proportionally) (each, an "Affiliate Transaction"), other than:



(a)

Affiliate Transactions permitted under paragraph (2) below; and



(b)

Affiliate Transactions on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary.

        All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of $1.0 million will be approved by the Board of Directors of the Company, such approval to be evidenced by a Board Resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Restricted Subsidiary enters into an Affiliate Transaction (or a series of related Affiliate Transactions related to a common plan) that involves payments or other property with an aggregate fair market value of more than $7.5 million, the Company or such Restricted Subsidiary, as the case may be, will, prior to the consummation thereof, obtain an opinion from an Independent Financial Advisor stating that such transaction or series of related transactions are fair to the Company or to the relevant Restricted Subsidiary, as the case may be, from a financial point of view.

83

(2)

The restrictions set forth in paragraph (1) shall not apply to:



(a)

reasonable fees and compensation paid to and indemnity provided on behalf of officers, directors, employees or consultants of the Company or any Restricted Subsidiary as determined in good faith by the Company's Board of Directors;



(b)

transactions exclusively between or among the Company and any of its Restricted Subsidiaries or exclusively between or among such Restricted Subsidiaries; provided that such transactions are not otherwise prohibited by the Indenture;



(c)

Restricted Payments and Permitted Investments permitted by the Indenture;



(d)

any sale, issuance or grant of any equity interest (other than Disqualified Capital Stock);



(e)

transactions arising out of agreements existing on the Issue Date to the extent and in the manner such agreements are in effect on the Issue Date;



(f)

the Transactions;



(g)

transactions with customers, suppliers or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of the Indenture, on customary terms no less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary; and



(h)

management or advisory fees to North Castle Partners and J.W. Childs Associates, L.P. or their respective affiliates in accordance with the terms of the Management Agreement as in effect on the Issue Date, as the same may be modified or amended so long as such modification or amendment does not increase the amount of management or advisory fees to be paid thereunder, plus reimbursement of reasonable out-of-pocket expenses.

        Additional Subsidiary Guarantees.    If (a) any Subsidiary of the Company that is not a Guarantor guarantees or becomes otherwise obligated for any of the Company's Indebtedness (other than solely as a result of a guarantee by the Company of such Subsidiary's primary obligations), or (b) the Company or any of its Restricted Subsidiaries transfers or causes to be transferred, in one transaction or a series of related transactions, any property to any Domestic Restricted Subsidiary that is not a Guarantor having total assets (after giving effect to such transfer) with a book value in excess of $500,000, or if the Company or any of its Restricted Subsidiaries shall organize, acquire or otherwise invest in another Domestic Restricted Subsidiary having total assets with a book value in excess of $500,000, then such guarantor, transferee or acquired or other Restricted Subsidiary shall:

(1)

execute and deliver to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall guarantee all of the Company's obligations under the Notes and the Indenture on the terms set forth in the Indenture; and



(2)

deliver to the Trustee one or more opinions of counsel to the effect that such supplemental indenture has been duly authorized, executed and delivered by such Restricted Subsidiary and constitutes a legally valid, binding and enforceable obligation of such Restricted Subsidiary.

        Thereafter, such Restricted Subsidiary shall be a Guarantor for all purposes of the Indenture; provided, however, that to the extent that a Restricted Subsidiary is subject to any instrument governing Acquired Indebtedness, as in effect at the time of acquisition thereof, that prohibits such Restricted Subsidiary from issuing a Guarantee, such Restricted Subsidiary shall not be required to execute such a supplemental indenture until it is permitted to issue such Guarantee pursuant to the terms of such Acquired Indebtedness.

84

        Reports to Holders.    Whether or not required by the rules and regulations of the Commission, so long as any Notes are outstanding, the Company will furnish by filing with the Commission or (if not filing with the Commission) by sending to the registered holders of Notes with a copy to the Trustee:

(1)

all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and its consolidated Subsidiaries and, with respect to annual financial information only, a report thereon by the Company's certified independent accountants; and



(2)

the information that would be required to be included in all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports,

in each case within the time periods specified in the Commission's rules and regulations (or, if later, within 180 days after the Issue Date).

        In addition, following the consummation of the exchange offer contemplated by the Registration Rights Agreement, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and reports with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, the Company has agreed that, for so long as any Notes remain outstanding, it will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

        Limitation on Designations of Unrestricted Subsidiaries.    The Company may designate any Subsidiary of the Company (other than a Subsidiary of the Company that, following such designation, would own Capital Stock of a Restricted Subsidiary) as an "Unrestricted Subsidiary" under the Indenture (a "Designation") only if:

(1)

no Default shall have occurred and be continuing at the time of or after giving effect to such Designation; and



(2)

the Company would be permitted under the Indenture to make an Investment at the time of Designation (assuming the effectiveness of such Designation) in an amount (the "Designation Amount") equal to the fair market value of the Investments of the Company and its Restricted Subsidiaries in such Subsidiary on such date.

        In the event of any such Designation, the Company shall be deemed to have made an Investment constituting a Restricted Payment pursuant to the covenant described under "—Limitation on Restricted Payments" for all purposes of the Indenture in the Designation Amount.

        The Indenture further provides that the Company may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"), whereupon such Subsidiary shall then constitute a Restricted Subsidiary, if:

(1)

no Default shall have occurred and be continuing at the time of and after giving effect to such Revocation; and



(2)

all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if incurred at such time, have been permitted to be incurred for all purposes of the Indenture.

85

        All Designations and Revocations must be evidenced by Board Resolutions of the Company certifying compliance with the foregoing provisions.

Events of Default

        The following events are defined in the Indenture as "Events of Default":

(1)

the failure to pay interest on any Note when the same becomes due and payable and the default continues for a period of 30 days;



(2)

the failure to pay the principal on any Note, when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer) on the date specified for such payment in the applicable offer to purchase;



(3)

a default in the observance or performance of any other covenant or agreement contained in the Indenture which default continues for a period of 30 days after the Company receives written notice specifying the default (and demanding that such default be remedied) from the Trustee or the Holders of at least 25% of the outstanding principal amount of the Notes (except in the case of a default with respect to the covenant described under "—Certain Covenants—Merger, Consolidation and Sale of Assets," which will constitute an Event of Default with such notice requirement but without such passage of time requirement);



(4)

the failure to pay at final maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness of the Company or any Restricted Subsidiary, or the acceleration of the final stated maturity of any such Indebtedness (which acceleration is not rescinded, annulled or otherwise cured within 20 days of receipt by the Company or such Restricted Subsidiary of notice of any such acceleration) if the aggregate principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at final maturity or which has been accelerated (in each case with respect to which the 20-day period described above has passed), aggregates $5.0 million or more at any time;



(5)

one or more judgments in an aggregate amount in excess of $5.0 million (to the extent not covered by insurance) shall have been rendered against the Company or any of its Significant Subsidiaries and such judgments remain undischarged, unpaid or unstayed for a period of 60 days after such judgment or judgments become final and nonappealable;



(6)

certain events of bankruptcy affecting the Company or any of its Significant Subsidiaries; or



(7)

any Guarantee of a Significant Subsidiary ceases to be in full force and effect or any Guarantee of a Significant Subsidiary is declared to be null and void and unenforceable or any Guarantee of a Significant Subsidiary is found to be invalid or any Guarantor that is a Significant Subsidiary denies its liability under its Guarantee (other than by reason of release of a Guarantor in accordance with the terms of the Indenture).

        If an Event of Default (other than an Event of Default specified in clause (6) above relating to the Company) shall occur and be continuing, the Trustee or the Holders of at least 25% in principal amount of outstanding Notes may declare the principal of and accrued interest on all the Notes to be due and payable by notice in writing to the Company and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (its "Acceleration Notice"), and the same shall become immediately due and payable. If an Event of Default specified in clause (6) above relating to the Company occurs and is continuing, then all unpaid principal of, and premium, if any, and accrued and unpaid interest on all of the outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder.

86

        The Indenture provides that, at any time after a declaration of acceleration with respect to the Notes as described in the preceding paragraph, the Holders of a majority in principal amount of the Notes may rescind and cancel such declaration and its consequences:

(1)

if the rescission would not conflict with any judgment or decree;



(2)

if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration;



(3)

to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid;



(4)

if the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances; and



(5)

in the event of the cure or waiver of an Event of Default of the type described in clause (6) of the description above of Events of Default, the Trustee shall have received an officers' certificate and an opinion of counsel that such Event of Default has been cured or waived.

No such rescission shall affect any subsequent Default or impair any right consequent thereto.

        The Holders of a majority in principal amount of the Notes may waive any existing Default under the Indenture, and its consequences, except a default in the payment of the principal of or interest on any Notes.

        Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture and under the TIA. Subject to the provisions of the Indenture relating to the duties of the Trustee, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request, order or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable indemnity. Subject to all provisions of the Indenture and applicable law, the Holders of a majority in aggregate principal amount of the then outstanding Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee.

        Under the Indenture, the Company is required to provide an officers' certificate to the Trustee promptly upon any such officer obtaining knowledge of any Default or Event of Default (provided that such officers shall provide such certification at least annually whether or not they know of any Default or Event of Default) that has occurred and, if applicable, describe such Default or Event of Default and the status thereof.

Legal Defeasance and Covenant Defeasance

        The Company may, at its option and at any time, elect to have its obligations and the obligations of the Guarantors discharged with respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes, except for:

(1)

the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on the Notes when such payments are due;



(2)

the Company's obligations with respect to the Notes concerning



•

issuing temporary Notes,



•

registration of Notes,



•

mutilated, destroyed, lost or stolen Notes and

87

•

the maintenance of an office or agency for payments;



(3)

the rights, powers, trust, duties and immunities of the Trustee and our obligations in connection therewith; and



(4)

the Legal Defeasance provisions of the Indenture.

        In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or an Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, reorganization and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Notes.

        In order to exercise either Legal Defeasance or Covenant Defeasance,

(1)

the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders cash in U.S. dollars, non-callable U.S. government obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be;



(2)

in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that



(a)

the Company has received from, or there has been published by, the Internal Revenue Service a ruling or



(b)

since the date of the Indenture, there has been a change in the applicable federal income tax law,






in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;



(3)

in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;



(4)

no Default shall have occurred and be continuing on the date of such deposit (other than a Default or an Event of Default resulting from the borrowing of funds to be applied to such deposit and the grant of any Lien securing such borrowings);



(5)

such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, the Indenture (other than a Default or an Event of Default resulting from the borrowing of funds to be applied to such deposit and the grant of any Lien securing such borrowings) or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound;

88

(6)

the Company shall have delivered to the Trustee an officers' certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others;



(7)

the Company shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with;



(8)

the Company shall have delivered to the Trustee an opinion of counsel to the effect that assuming no intervening bankruptcy of the Company between the date of deposit and the 91st day following the date of deposit and that no Holder is an insider of the Company, after the 91st day following the date of deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and



(9)

certain other customary conditions precedent are satisfied.

        Notwithstanding the foregoing, the opinion of counsel required by clauses (2)(a) and (3) above need not be delivered if all the Notes not theretofore delivered to the Trustee for cancellation:

(1)

have become due and payable;



(2)

will become due and payable on the maturity date within one year; or



(3)

are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by such Trustee in the name, and at the expense, of the Company.

Satisfaction and Discharge

        The Indenture will be discharged and will cease to be of further effect (except as to surviving rights or registration of transfer or exchange of the Notes, as expressly provided for in the Indenture) as to all Notes then outstanding when:

(1)

either



(a)

all the Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation, or



(b)

all Notes not theretofore delivered to the Trustee for cancellation (x) have become due and payable (y) will become due and payable at their stated maturity within one year or (z) will become due and payable within one year under arrangements reasonably satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense of, the Company and, in each case, the Company has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Notes to the date of deposit together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be;



(2)

the Company has paid all other sums payable by the Company under the Indenture; and



(3)

the Company has delivered to the Trustee an officers' certificate and an opinion of counsel stating that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture have been complied with.

89

Modification of the Indenture

        From time to time, the Company, the Guarantors and the Trustee, without the consent of the Holders, may amend the Indenture for certain specified purposes, including curing ambiguities, defects or inconsistencies or so long as such change does not adversely affect the rights of any of the Holders in any material respect. Other modifications and amendments of the Indenture may be made with the consent of the Holders of a majority in principal amount of the then outstanding Notes issued under the Indenture, except that, without the consent of each Holder affected thereby, no amendment may:

(1)

reduce the amount of Notes whose Holders must consent to an amendment;



(2)

reduce the rate of or change the time for payment of interest, including defaulted interest, on any Notes;



(3)

reduce the principal of or change the fixed maturity of any Notes, or change the date on which any Notes are subject to redemption or repurchase, or reduce the redemption or repurchase price therefor;



(4)

make any Notes payable in money other than that stated in the Notes;



(5)

make any change in provisions of the Indenture protecting the right of each Holder to receive payment of principal of and interest on such Note on or after the due date thereof or to bring suit to enforce such payment, or permitting Holders of a majority in principal amount of Notes to waive Defaults or Events of Default;



(6)

after an obligation arises to make and consummate a Change of Control Offer in the event of a Change of Control or make and consummate a Net Proceeds Offer with respect to any Asset Sale that has been consummated, amend, change or modify in any material respect the obligation to make such Change of Control Offer or such Net Proceeds Offer, as the case may be, or modify any of the provisions or definitions with respect thereto; or



(7)

modify or change any provision of the Indenture or the related definitions so as to make the Notes or any Guarantee expressly subordinate in right of payment to other Indebtedness of the Company or the applicable Guarantee; provided that ranking shall not be affected by the existence or lack thereof of a security interest or by priority with respect to a security interest.

Governing Law

        The Indenture provides that it, and the Notes, will be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that such principles are not mandatorily applicable by statute and the application of the law of another jurisdiction would be required thereby.

The Trustee

        The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it by the Indenture, and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of his own affairs.

        The Indenture and the provisions of the TIA contain certain limitations on the rights of the Trustee, should it become a creditor of the Company or of a Subsidiary of the Company, to obtain payments of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. Subject to the TIA, the Trustee will be permitted to engage in other transactions; provided that if the Trustee acquires any conflicting interest as described in the TIA, it must eliminate such conflict or resign.

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Certain Definitions

        Set forth below is a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all such terms, as well as any other terms used herein for which no definition is provided.

        "Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or at the time it merges or consolidates with the Company or any of its Restricted Subsidiaries or assumed in connection with the acquisition of assets from such Person and in each case not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary or such acquisition, merger or consolidation.

        "Affiliate" means, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing.

        "Affiliate Transaction" has the meaning set forth under "—Certain Covenants—Limitation on Transactions with Affiliates."

        "Asset Acquisition" means

(1)

an Investment by the Company or any Restricted Subsidiary in any other Person pursuant to which such Person shall become a Restricted Subsidiary or shall be merged with or into the Company or any Restricted Subsidiary; or



(2)

the acquisition by the Company or any Restricted Subsidiary of the assets of any Person (other than a Restricted Subsidiary) which constitute all or substantially all of the assets of such Person or comprise any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business, including, without limitation, the acquisition of an individual health club.

        "Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer for value by the Company or any of its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any Person other than the Company or a Restricted Subsidiary of:

(1)

any Capital Stock of any Restricted Subsidiary; or



(2)

any other property or assets of the Company or any Restricted Subsidiary other than in the ordinary course of business;

provided, however, that Asset Sales shall not include

(a)

any transaction or series of related transactions for which the Company or its Restricted Subsidiaries receive aggregate consideration of less than $1.0 million,



(b)

the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets of the Company as permitted under "—Certain Covenants—Merger, Consolidation and Sale of Assets,"



(c)

disposals or replacements of obsolete equipment in the ordinary course of business,



(d)

the sale, lease, conveyance, disposition or other transfer by the Company or any Restricted Subsidiary of assets or property to the Company or one or more Restricted Subsidiaries, and



(e)

any Restricted Payment permitted under "—Certain Covenants—Limitation on Restricted Payments," or any Permitted Investment or Permitted Lien.

91

        "Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof.

        "Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee.

        "Business Day" means a day other than a Saturday, Sunday or other day in which commercial banking institutions (including, without limitation, the Federal Reserve System) or the corporate trust office of the Trustee are authorized or required by law to close in New York City.

        "Capitalized Lease Obligation" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP.

        "Capital Stock" means:

(1)

with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of Common Stock and Preferred Stock of such Person;



(2)

with respect to any Person that is not a corporation, any and all partnership, membership or other equity interests of such Person; and



(3)

any warrants, rights or options to purchase or acquire any of the foregoing, including, without limitation, the Warrants.

        "Cash Equivalents" means:

(1)

marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States (or, with respect to funds generated by operations outside the United States, the United Kingdom or another member of the European Union (as in existence on the Issue Date)), in each case maturing within one year from the date of acquisition thereof;



(2)

marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody's;



(3)

commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's;



(4)

overnight deposits, and time deposit accounts, certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia (or, with respect to funds generated by operations outside the United States, the United Kingdom or another member of the European Union (as in existence on the Issue Date)) or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250.0 million (or the foreign currency equivalent);



(5)

repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (1) above entered into with any bank meeting the qualifications specified in clause (4) above; and



(6)

investments in money market funds that invest substantially all their assets in securities of the types described in clauses (1) through (5) above.

92

        "Change of Control" means the occurrence of one or more of the following events:

(1)

any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (other than any such group existing solely by virtue of the Stockholders Agreement or the Limited Partnership, if the Permitted Holders continue to have the right to designate a majority of the Board of Directors of the Company) (a "Group"), together with any Affiliates thereof (whether or not otherwise in compliance with the provisions of the Indenture), other than to a Permitted Holder;



(2)

the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of the Indenture);



(3)

any Person or Group, other than a Permitted Holder, shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company; or



(4)

the replacement of a majority of the Board of Directors of the Company over a two-year period from the directors who constituted the Board of Directors of the Company at the beginning of such period, and such replacement shall not have been approved by one or more Permitted Holders or by a vote of at least a majority of the Board of Directors of the Company then still in office who either were members of any such Board of Directors at the beginning of such period or whose election as a member of any such Board of Directors was previously so approved.

        "Change of Control Offer" has the meaning set forth under "—Change of Control."

        "Change of Control Payment Date" has the meaning set forth under "—Change of Control."

        "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of, such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock.

        "Consolidated EBITDA" means, for any period, the sum (without duplication) of:

(1)

Consolidated Net Income for such period; and



(2)

to the extent Consolidated Net Income has been reduced thereby,



(a)

all income taxes of the Company and its Restricted Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary or nonrecurring gains or losses or taxes attributable to sales or dispositions outside the ordinary course of business),



(b)

Consolidated Interest Expense for such period, and



(c)

Consolidated Non-cash Charges for such period less any non-cash items increasing Consolidated Net Income for such period, all as determined on a consolidated basis for the Company and its Restricted Subsidiaries in accordance with GAAP.

        "Consolidated Fixed Charge Coverage Ratio" means the ratio of Consolidated EBITDA during the four full fiscal quarters for which financial statements are available (the "Four Quarter Period") ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a

93

pro forma (including any pro forma expense and cost reductions calculated on a basis consistent with Regulation S-X under the Securities Act) basis for the period of such calculation to:

(1)

the incurrence or repayment of any Indebtedness of the Company or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period; and



(2)

any Asset Sales (without giving effect to the exceptions in clauses (a) and (e) in the definition thereof) or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of the Company or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any Consolidated EBITDA attributable to the assets that are the subject of the Asset Acquisition or Asset Sale (without giving effect to the exceptions in clauses (a) and (e) in the definition thereof) during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such asset sale or Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If the Company or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if the Company or any such Restricted Subsidiary had directly incurred or otherwise assumed such guaranteed Indebtedness, but only to the extent of such guarantee.

        Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio":

(1)

interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and that will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date;



(2)

if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate shall be calculated by applying such optional rate as the Company shall designate; and



(3)

notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements.

        "Consolidated Fixed Charges" means, with respect to the Company for any period, the sum, without duplication, of:

(1)

Consolidated Interest Expense for such period; plus

(2)

the product of



(a)

the amount of all dividend payments on any series of Preferred Stock of the Company (other than dividends paid or accrued in Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued during such period (without duplication), and

94

(b)

a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local income tax rate of such Person, expressed as a decimal.

        "Consolidated Interest Expense" means, for any period, the sum of, without duplication:

(1)

the aggregate of the interest expense of the Company and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, including without limitation, all such interest expense consisting of



(a)

any amortization of debt discount,



(b)

the net costs under Interest Swap Obligations,



(c)

all capitalized interest, and



(d)

the interest portion of any deferred payment obligation; and



(2)

the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by the Company and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP.

        "Consolidated Net Income" means, with respect to the Company, for any period, the aggregate net income (or loss) of the Company and its Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; provided that there shall be excluded therefrom:

(1)

after-tax gains or losses from Asset Sales (without regard to the $1.0 million limitation set forth in the definition thereof) or abandonment or reserves relating thereto;



(2)

extraordinary or nonrecurring gains or losses;



(3)

the net income (but not loss) of any Restricted Subsidiary to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is restricted by a contract, operation of law or otherwise;



(4)

the net income of any Person, other than the Company or a Restricted Subsidiary, except to the extent of cash dividends or distributions paid to the Company or to a Restricted Subsidiary by such Person;



(5)

income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued);



(6)

any non-cash compensation charge arising from any grant of stock, stock options or other equity based awards;



(7)

any non-cash income or expense arising from changes in the fair market value of the Warrants;



(8)

fees, expenses and charges associated with the Transactions; and



(9)

in the case of a successor to the Company by consolidation or merger or as a transferee of the Company's assets, any net income of the successor corporation prior to such consolidation, merger or transfer of assets.

        "Consolidated Non-cash Charges" means, for any period, the aggregate depreciation, amortization and other non-cash expenses of the Company (including, without limitation, charges related to the impairment of long-lived assets and non-cash compensation expense) and its Restricted Subsidiaries reducing Consolidated Net Income of the Company for such period, determined on a consolidated

95

basis in accordance with GAAP (including deferred rent but excluding any other such charge which requires an accrual of or a reserve for cash charges for any future period).

        "Covenant Defeasance" has the meaning set forth under "—Legal Defeasance and Covenant Defeasance."

        "Credit Agreement" means the Credit Agreement dated as of the Issue Date by and among the Company, the lenders from time to time party thereto in their capacities as lenders thereunder and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as agent, together with all agreements, instruments and other documents relating thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements, instrument or other document may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, and including any agreement, instrument or other document extending the maturity of, refinancing, replacing, renewing, refunding or otherwise restructuring (including increasing the amount of available borrowings thereunder or adding Subsidiaries of the Company as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders.

        "Credit Facility" means one or more debt facilities (including, without limitation, the Credit Agreement) providing for revolving credit loans, term loans, letters of credit or other Indebtedness, including all agreements, instruments and documents executed and delivered pursuant to or in connection with any of the foregoing (including notes, letters of credit, guarantees, security agreements, mortgages and other collateral documents), in each case as the same may be amended, amended and restated, supplemented, modified, refunded, renewed or extended, refinanced, replaced or otherwise restructured, in whole or in part from time to time (including increasing the amount of available borrowings thereunder or adding Restricted Subsidiaries of the Company as additional borrowers or guarantors thereunder) with respect to all or any portion of the Indebtedness under such agreement or agreements or any successor or replacement agreement or agreements and whether by the same or any other agent, lender or group of lenders and whether provided under any original Credit Facility or one or more other credit agreements, financing agreements or other Credit Facilities or otherwise.

        "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in currency values.

        "Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default.

        "Designation" has the meaning set forth under "—Certain Covenants—Limitation on Designations of Unrestricted Subsidiaries."

        "Designation Amount" has the meaning set forth under "—Certain Covenants—Limitation on Designations of Unrestricted Subsidiaries."

        "Disqualified Capital Stock" means that portion of any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof on or prior to the final maturity date of the Notes; provided, however, that (i) if such Capital Stock is issued to any employee in the ordinary course of business or to any plan for the benefit of employees of the Company or its Subsidiaries or by any such plan to such employees, such Capital Stock shall not constitute Disqualified Capital Stock solely because it may be required to be repurchased by the Company in order to satisfy applicable statutory or regulatory obligations or as a result of such employee's termination, death or disability, and (ii) such Capital Stock shall not constitute Disqualified Capital Stock solely because it

96

may be required to be repurchased by the Company upon the occurrence of a change in ownership of the Company. "Disqualified Capital Stock" shall not include the Warrants or the Warrant Preferred Stock, as each are in effect on the Issue Date or as the terms thereof have been established as of the Issue Date.

        "Domestic Restricted Subsidiary" means a Restricted Subsidiary incorporated or otherwise organized or existing under the laws of the United States or any state thereof.

        "Equity Offering" has the meaning set forth under "—Redemption—Optional Redemption Upon Public Equity Offerings."

        "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto.

        "Exit Payment" means any exit payment or additional exit payment to the founding shareholders provided for in the Stock Purchase Agreement and Plan of Merger by and among certain shareholders of the Company, NCP-EH Recapitalization Corp. and NCP-EH, L.P. dated as of October 16, 2000 (as amended as of December 14, 2000), as amended, modified, supplemented or replaced from time to time.

        "fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting in good faith and shall be conclusive and evidenced by a Board Resolution of the Board of Directors of the Company.

        "Foreign Restricted Subsidiary" means a Restricted Subsidiary that is not a Domestic Restricted Subsidiary.

        "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Issue Date. All ratios and computations based on GAAP contained in the Indenture shall be computed in conformity with GAAP applied on a consistent basis, except that calculations made for purposes of determining compliance with the terms of the covenants and with other provisions of the Indenture shall be made without giving effect to (i) the deduction or amortization of any premiums, fees and expenses incurred in connection with any financings or any other permitted incurrence of Indebtedness and (ii) depreciation, amortization or other expenses recorded as a result of the application of purchase accounting in accordance with Accounting Principles Board Opinion Nos. 16 and 17 and FASB Nos. 141 and 142.

        "Guarantee" means each guarantee of the Company's obligations under the Indenture and the Notes by the Guarantors.

        "Guarantor" means: (1) each of the Guarantors listed on Schedule A to the Indenture; and (2) each of the Company's Restricted Subsidiaries that in the future executes a supplemental indenture in which such Restricted Subsidiary agrees to be bound by the terms of the Indenture as a Guarantor; provided that any Person constituting a Guarantor as described above shall cease to constitute a Guarantor when its respective Guarantee is released in accordance with the terms of the Indenture.

        "incur" has the meaning set forth under "—Certain Covenants—Limitation on Incurrence of Additional Indebtedness."

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        "Indebtedness" means with respect to any Person, without duplication:

(1)

all Obligations of such Person for borrowed money;



(2)

all Obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;



(3)

all Capitalized Lease Obligations of such Person;



(4)

all Obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all Obligations under any title retention agreement (but excluding trade accounts payable and other accrued liabilities arising in the ordinary course of business);



(5)

all Obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction;



(6)

guarantees of such Person and other contingent obligations of such Person in respect of Indebtedness of any other Person of the type referred to in clauses (1) through (5) above and clause (8) below to the extent of the lesser of the maximum amount of such guarantee, or the outstanding amount of such Indebtedness of such other Person;



(7)

all Obligations of any other Person of the type referred to in clauses (1) through (6) which are secured by any Lien on any property or asset of the first such Person, the amount of such Obligation being deemed to be the lesser of the fair market value of such property or asset or the amount of the Obligation so secured;



(8)

all Obligations of such Person under currency swap agreements and interest swap agreements of such Person; and



(9)

all Disqualified Capital Stock issued by such Person and all Preferred Stock issued by Restricted Subsidiaries of such Person with the amount of Indebtedness represented by such Disqualified Capital Stock or Preferred Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price.

        For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value shall be determined reasonably and in good faith by the Board of Directors of the Company. The principal amount of Indebtedness of any Person at any date shall be the outstanding balance on such date of all unconditional Obligations as described above, and the maximum liability with respect to principal upon the occurrence of the contingency giving rise to the Obligation, on any contingent Obligations at such date; provided, however, that the amount outstanding at any time of any Indebtedness incurred with original issue discount is the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP.

        "Independent Financial Advisor" means an accounting, banking or valuation firm:

(1)

that does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Company; and



(2)

that, in the sole judgment of the Board of Directors of the Company, is qualified to perform the task for which it is to be engaged.

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A firm shall not be deemed to have a financial interest in the Company merely by virtue of an indirect interest in Capital Stock in the Company unless such interest constitutes Beneficial Ownership (as defined in Rule 13d-3 of the Exchange Act) of more than a de minimus amount.

        "Initial Purchasers" means Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC and Wachovia Capital Markets, LLC.

        "Interest Swap Obligations" means the obligations of any Person pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements.

        "Investment" means, with respect to any Person, any direct or indirect loan or other extension of credit or credit support (including, without limitation, a guarantee of or other direct or indirect liability for Indebtedness) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other Person. "Investment" shall exclude extensions of trade credit by the Company and by its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of the Company or such Restricted Subsidiary, as the case may be, as determined in good faith by the Company. If the Company or any Restricted Subsidiary sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary such that, after giving effect to any such sale or disposition, it ceases to be a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Common Stock of such Restricted Subsidiary not sold or disposed of.

        "Issue Date" means December 16, 2003.

        "Landlord Loans" has the meaning set forth under clause (4) of the definition of "Permitted Indebtedness."

        "Legal Defeasance" has the meaning set forth under "—Legal Defeasance and Covenant Defeasance."

        "Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest).

        "Limited Partnership" means Equinox Holdings, L.P., a Delaware limited partnership, and its related organizational documents and limited partnership agreement, as amended, modified or supplemented and in effect from time to time.

        "Management Agreement" means the Consulting Agreement, dated as of December 15, 2000, among North Castle Partners, J.W. Childs Associates, L.P. and the Company.

        "Moody's" means Moody's Investors Service, Inc.

        "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (other than the portion of any such deferred payment constituting interest) received by the Company or any of its Restricted Subsidiaries from such Asset Sale net of:

(1)

reasonable out-of-pocket expenses and fees relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions);

99

(2)

taxes paid or payable after taking into account any reduction in consolidated tax liability due to available tax credits or deductions and any tax sharing arrangements;



(3)

repayment of Indebtedness that is secured by the assets sold in the relevant Asset Sale and that is required to be repaid in connection with such Asset Sale; and



(4)

appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale.

        "Obligations" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness.

        "Permitted Business" means the business of the Company and its Restricted Subsidiaries as existing on the Issue Date or businesses reasonably related thereto.

        "Permitted Holder" means any of North Castle Partners, J.W. Childs Associates, L.P. or their respective Affiliates.

        "Permitted Indebtedness" means, without duplication, each of the following:

(1)

Indebtedness represented by the Notes issued in the Offering and the Indenture in an aggregate principal amount not to exceed $160.0 million (and the Exchange Notes issued in exchange therefor) and the related Guarantees;



(2)

Indebtedness incurred pursuant to the Credit Agreement or any other Credit Facility in an aggregate principal amount at any time outstanding not to exceed $30.0 million incurred under this clause (2), plus the principal amount of Indebtedness not utilized under clause (4) below not to exceed $5.0 million, less the amount of all required principal payments actually made by the Company in respect of the loans under the Credit Agreement that were incurred under this clause (2) in accordance with the provisions set forth under "—Certain Covenants—Limitation on Asset Sales" (which, in the case of revolving loans, are accompanied by a corresponding permanent commitment reduction);



(3)

other Indebtedness (including Capitalized Lease Obligations) of the Company and its Restricted Subsidiaries outstanding on the Issue Date;



(4)

Purchase Money Indebtedness, Indebtedness from lessors of real property incurred in connection with the initial development and construction of a fitness club to be located at such real property ("Landlord Loans") and Capitalized Lease Obligations in an aggregate principal amount for all Indebtedness incurred by the Company and its Restricted Subsidiaries pursuant to this clause (4) not to exceed $10.0 million outstanding at any one time, plus the principal amount of Indebtedness not utilized under clause (2) above but not to exceed $5.0 million;



(5)

Interest Swap Obligations covering Indebtedness of the Company or any of its Restricted Subsidiaries; provided, however, that such Interest Swap Obligations are entered into to protect the Company and its Restricted Subsidiaries from fluctuations in interest rates on Indebtedness incurred in accordance with the Indenture to the extent the notional principal amount of such Interest Swap Obligation does not exceed, at the time of incurrence thereof, the principal amount of the Indebtedness to which such Interest Swap Obligation relates;

100

(6)

Indebtedness under Currency Agreements; provided that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder;



(7)

Indebtedness of a Restricted Subsidiary to the Company or to another Restricted Subsidiary for so long as such Indebtedness is held by the Company, a Restricted Subsidiary or a holder of a Lien permitted under the Indenture, in each case subject to no Lien held by a Person other than the Company, a Restricted Subsidiary or a holder of a Lien permitted under the Indenture; provided that if as of any date any Person other than the Company, a Restricted Subsidiary or a holder of a Lien permitted under the Indenture owns or holds any such Indebtedness or holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness pursuant to this clause (7);



(8)

Indebtedness of the Company to a Restricted Subsidiary for so long as such Indebtedness is held by a Restricted Subsidiary or a holder of a Lien permitted under the Indenture, in each case subject to no Lien other than a Lien permitted under the Indenture; provided that:



(a)

any Indebtedness of the Company to any Restricted Subsidiary that is not a Guarantor is unsecured and by its express terms subordinated in right of payment, pursuant to a written agreement, to the Company's monetary obligations under the Indenture and the Notes, and



(b)

if as of any date any Person other than a Restricted Subsidiary or the holders of a Lien permitted under the Indenture owns or holds any such Indebtedness or any Person holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the Company under this clause (8);



(9)

Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within four Business Days of incurrence;



(10)

Indebtedness of the Company or any of its Restricted Subsidiaries represented by letters of credit for the account of the Company or such Restricted Subsidiary, as the case may be, in order to provide security for workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in each case in the ordinary course of business;



(11)

Refinancing Indebtedness;



(12)

Indebtedness represented by guarantees by the Company or its Restricted Subsidiaries of Indebtedness otherwise permitted to be incurred under the Indenture; provided that, in the case of a guarantee by a Restricted Subsidiary, such Restricted Subsidiary complies with the covenant described under "—Certain Covenants—Additional Subsidiary Guarantees" to the extent applicable;



(13)

Indebtedness of the Company or any of its Restricted Subsidiaries in respect of bid, payment and performance bonds, bankers' acceptances, workers' compensation claims, surety or appeal bonds, payment obligations in connection with self-insurance or similar obligations, and bank overdrafts (and letters of credit in respect thereof) in the ordinary course of business; and



(14)

additional Indebtedness of the Company and the Restricted Subsidiaries in an aggregate principal amount not to exceed $5.0 million at any one time outstanding (which amount may, but need not, be incurred in whole or in part under the Credit Agreement).

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        For purposes of determining any particular amount of Indebtedness under the "Limitation on Incurrence of Additional Indebtedness" covenant, guarantees, Liens or letter of credit obligations supporting Indebtedness otherwise included in the determination of such particular amount shall not be included. For purposes of determining compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Indebtedness described in clauses (1) through (14) above or is permitted to be incurred pursuant to the Consolidated Fixed Charge Coverage Ratio provisions of such covenant, the Company shall, in its sole discretion, classify (or later reclassify) such item of Indebtedness in any manner that complies with such covenant. Accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, the payment of dividends on Disqualified Capital Stock in the form of additional shares of the same class of Disqualified Capital Stock and change in the amount outstanding due solely to the result of fluctuations in the exchange rates of currencies will not be deemed to be an incurrence of Indebtedness for purposes of the "Limitation on Incurrence of Additional Indebtedness" covenant.

        "Permitted Investments" means:

(1)

Investments by the Company or any Restricted Subsidiary in any Person that is or will become immediately after such Investment a Restricted Subsidiary or that will merge or consolidate into the Company or a Restricted Subsidiary;



(2)

Investments in the Company by any Restricted Subsidiary; provided that any Indebtedness incurred by the Company evidencing such Investment by a Restricted Subsidiary that is not a Guarantor is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under the Notes and the Indenture;



(3)

Investments in cash and Cash Equivalents;



(4)

loans and advances to directors, employees and officers of the Company and its Restricted Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of $1.0 million at any one time outstanding;



(5)

Currency Agreements and Interest Swap Obligations entered into in the ordinary course of the Company's or a Restricted Subsidiary's businesses and otherwise in compliance with the Indenture;



(6)

other Investments, including Investments in Unrestricted Subsidiaries, not to exceed $5.0 million at any one time outstanding;



(7)

Investments in securities of trade creditors or members received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or members or in good faith settlement of delinquent obligations of such trade creditors or members;



(8)

Investments represented by guarantees that are otherwise permitted under the Indenture;



(9)

Investments the payment for which is Qualified Capital Stock of the Company;



(10)

Investments made by the Company or its Restricted Subsidiaries as a result of consideration received in connection with an Asset Sale (or an asset sale that is not an Asset Sale) made in compliance with the covenant described under "—Certain Covenants—Limitation on Asset Sales;" and



(11)

the acquisition by the Company of obligations of one or more officers, directors or employees of the Company or any of its Subsidiaries in connection with such officers', directors' or employees' acquisition of shares of Capital Stock of the Company so long as no cash is paid

102

by the Company or any of its Subsidiaries to such officers, directors or employees in connection with the acquisition of any such obligations.

        "Permitted Liens" means the following types of Liens:

(1)

Liens for taxes, assessments or governmental charges or claims either



(a)

not delinquent or



(b)

contested in good faith by appropriate proceedings and as to which the Company or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP;



(2)

statutory and contractual Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof;



(3)

Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money);



(4)

judgment Liens not giving rise to an Event of Default;



(5)

(a) easements, rights-of-way, building and zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or of any of its Restricted Subsidiaries, (b) mortgages, liens, security interests, restrictions, encumbrances or any other matters of record placed by any developer or landlord on property over which the Company or any Subsidiary has easement rights or on any leased property, and subordination or similar agreements relating thereto, and (c) any condemnation or eminent domain proceedings affecting any real property;



(6)

(a) any interest or title of a lessor under any Capitalized Lease Obligation; provided that such Liens do not extend to any property or assets other than the leased property subject to such Capitalized Lease Obligation (including multiple leased properties subject to the same Capitalized Lease Obligation with the same lessor) or (b) Landlord Loans secured by assets (other than by Capital Stock or assets located at a property other than the fitness club to which such Landlord Loan relates);



(7)

purchase money Liens to finance property or assets of the Company or any Restricted Subsidiary acquired after the Issue Date; provided, however, that



(a)

the related Purchase Money Indebtedness shall not exceed the cost of such property or assets and shall not be secured by property or assets of the Company or any Restricted Subsidiary other than the property and assets so acquired and



(b)

the Lien securing such Indebtedness shall be created within 90 days of such acquisition;



(8)

Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account

103

of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;

(9)

Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof;



(10)

Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and set-off;



(11)

Liens securing Interest Swap Obligations which Interest Swap Obligations relate to Indebtedness that is otherwise permitted to be secured under the Indenture;



(12)

Liens securing Indebtedness under Currency Agreements relating to debt permitted to be secured under the Indenture;



(13)

Liens on assets of a Restricted Subsidiary that is not a Guarantor to secure Indebtedness and other obligations of such Restricted Subsidiary that are otherwise permitted under the Indenture;



(14)

leases, subleases, licenses and sublicenses granted to others that do not materially interfere with the ordinary course of business of the Company and its Restricted Subsidiaries;



(15)

banker's Liens, rights of setoff and similar Liens with respect to cash and Cash Equivalents on deposit in one or more bank accounts in the ordinary course of business;



(16)

Liens arising from filing Uniform Commercial Code financing statements regarding leases;



(17)

Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of custom duties in connection with the importation of goods;



(18)

Liens existing on property or assets of a Person at the time such Person becomes a Restricted Subsidiary of the Company (or at the time the Company or a Subsidiary acquires such property or assets); provided, however, that such Liens are not created in connection with, or in contemplation of, such other Person becoming such a Restricted Subsidiary (or such acquisition of such property or assets), and that such Liens are limited to all or part of the same property or assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured (or, under the written arrangements under which such Liens arose, could secure) the obligations to which such Liens related;



(19)

Liens on Capital Stock or other securities of an Unrestricted Subsidiary that secure Indebtedness or other obligations of such Unrestricted Subsidiary;



(20)

any encumbrance or restriction (including, but not limited to, put and call agreements) with respect to Capital Stock of any joint venture or similar arrangement pursuant to any joint venture or similar agreement or securing the obligations of such joint venture or similar arrangement;



(21)

Liens (a) arising by operation of law (or by agreement to the same effect) in the ordinary course of business, (b) on property or assets under construction (and related rights) in favor of a contractor or developer or arising from progress or partial payments by a third party relating to such property or assets, (c) on receivables (including related rights), (d) on cash set aside at the time of the incurrence of any Indebtedness or government securities purchased with such cash, in either case to the extent that such cash or government securities prefund the payment of interest on such Indebtedness and are held in an escrow account or similar arrangement to be applied for such purpose, (e) in favor of the Company or any Restricted

104

Subsidiary (other than Liens on property or assets of the Company in favor of any Restricted Subsidiary that is not a Guarantor) or (f) arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into in the ordinary course of business; and

(22)

additional Liens securing Obligations in respect of an aggregate principal amount of outstanding Indebtedness in a principal amount not to exceed $5.0 million at any one time.

        "Person" means an individual, partnership, corporation, limited liability company, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof.

        "Preferred Stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation.

        "Purchase Money Indebtedness" means Indebtedness of the Company or its Restricted Subsidiaries incurred for the purpose of financing all or any part of the purchase price, or the cost of installation, construction or improvement, of any property.

        "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock.

        "Refinance" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings.

        "Refinancing Indebtedness" means any Refinancing by the Company or any Restricted Subsidiary of Indebtedness incurred in accordance with the covenant described under "—Certain Covenants—Limitation on Incurrence of Additional Indebtedness" (other than pursuant to clause (2), (4), (5), (6), (7), (8), (9), (10), (12), (13) or (14) of the definition of Permitted Indebtedness), in each case that does not:

(1)

result in an increase in the aggregate principal amount of Indebtedness of such Person as of the date of such proposed Refinancing (plus the amount of any fees and premium required to be paid under the terms of the instrument governing such Indebtedness and plus the amount of reasonable expenses incurred by the Company or any Restricted Subsidiary in connection with such Refinancing); or



(2)

create Indebtedness with a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced; or



(3)

if the Indebtedness being refinanced is Subordinated Indebtedness, create Indebtedness with a final maturity earlier than the final maturity of the Indebtedness being Refinanced (or, if shorter, the final stated maturity of the Notes); provided that



(a)

if such Subordinated Indebtedness being Refinanced is Indebtedness solely of the Company or a Guarantor, then such Refinancing Indebtedness shall be Indebtedness solely of the Company or a Guarantor, and



(b)

such Refinancing Indebtedness shall be subordinate to the Notes or such Guarantee at least to the same extent and in the same manner as the Indebtedness being Refinanced.

        "Registration Rights Agreement" means the Registration Rights Agreement dated as of December 16, 2003 among the Company and the Initial Purchasers.

        "Replacement Assets" means assets of a kind used or usable in the business of the Company and its Restricted Subsidiaries as conducted on the date of the relevant Asset Sale.

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        "Restricted Subsidiary" means any Subsidiary of the Company that has not been designated by the Board of Directors of the Company, by a Board Resolution of the Company delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in compliance with the covenant described under "—Certain Covenants—Limitation on Designations of Unrestricted Subsidiaries." Any such Designation may be revoked by a Board Resolution of the Company delivered to the Trustee, subject to the provisions of such covenant.

        "Revocation" has the meaning set forth under "—Certain Covenants—Limitation on Designations of Unrestricted Subsidiaries."

        "S&P" means Standard & Poor's Ratings Service.

        "Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Company or a Restricted Subsidiary of any property, whether owned by the Company or any Restricted Subsidiary at the Issue Date or later acquired, which has been or is to be sold or transferred by the Company or by such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such Property.

        "Significant Subsidiary" will have the meaning set forth in Rule 1.02(w) of Regulation S-X under the Securities Act.

        "Stockholders Agreement" means the Stockholders Agreement dated as of December 15, 2000 among the Company and the holders of Capital Stock of the Company party thereto, as amended, modified or supplemented and in effect from time to time.

        "Subordinated Indebtedness" means Indebtedness of the Company or any Guarantor that is by its express terms subordinated in right of payment to the Notes or the Guarantee of such Guarantor, as the case may be.

        "Subsidiary", with respect to any Person, means:

(1)

any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person; or



(2)

any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person.

        "Surviving Entity" has the meaning set forth under "—Certain Covenants—Merger, Consolidation and Sale of Assets."

        "Transactions" means the following transactions contemplated in connection with the offering of the Notes: (1) the repayment of the outstanding principal amount under the Company's existing credit agreement and the termination of all related commitments; (2) the repayment of the entire outstanding principal amount under the Company's existing senior notes due 2007; (3) the repayment of the entire outstanding principal amount under the Company's existing senior subordinated notes due 2008; (4) the redemption of the Company's preferred stock outstanding on the Issue Date; (5) a payment of $5.0 million that is contractually required to be paid by the Company to its founding stockholders; and (6) the payment of accrued and unpaid interest, redemption premiums, transaction fees and expenses (including amendment fees paid to holders of the Warrants) related to the foregoing.

        "Unrestricted Subsidiary" means any Subsidiary of the Company designated as such pursuant to and in compliance with the covenant described under "—Certain Covenants—Limitation on Designations of Unrestricted Subsidiaries." Any such designation may be revoked by a Board Resolution of the Company delivered to the Trustee, subject to the provisions of such covenant.

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        "Warrants" means those Common Stock Purchase Warrants summarized under "Description of Capital Stock," as amended by an amendment thereto as of November 8, 2003, as in effect on the Issue Date.

        "Warrant Preferred Stock" means the Senior Redeemable Preferred Stock of the Company which may be issued upon exercise of the Warrant Put, as such is in effect or contemplated to be put into effect as of the Issue Date.

        "Warrant Put" means those provisions in Section 9 of the Warrants, as in effect on the Issue Date.

        "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing:

(1)

the then outstanding aggregate principal amount of such Indebtedness into



(2)

the sum of the total of the products obtained by multiplying



(a)

the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by



(b)

the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment.

        "Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of which all the outstanding voting securities (other than in the case of a foreign Restricted Subsidiary, directors' qualifying shares or an immaterial amount of shares required to be owned by other Persons pursuant to applicable law) are owned by the Company or another Wholly Owned Restricted Subsidiary.

Book-Entry, Delivery and Form

        The new notes will be represented by one or more notes in registered, global form ("Global Notes") deposited with the trustee as custodian for the Depository Trust Company, New York, New York ("DTC") and registered in the name of Cede &Co. as nominee of DTC, in each case for credit to the accounts of DTC participants and indirect participants (each described below) including, without limitation, the Euroclear System and Clearstream Banking. All interests in a Global Note may be subject to the procedures and requirements of DTC.

        Except in the limited circumstances set forth below, notes in certificated form will not be issued.

Depository Procedures

        The following description of the operations and procedures of DTC are provided solely as a matter of convenience. These operations and procedures are solely within their control and are subject to changes by them from time to time. We take no responsibility for these operations and procedures and urge you to contact the system or their participants directly to discuss these matters.

        DTC has advised us that DTC is a limited-purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "Clearing Agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and to facilitate the clearance and settlement of transactions in such securities between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical transfer and delivery of certificates. Participants include securities brokers and dealers, banks and trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies, which we refer to as "indirect participants", that clear through or maintain a custodial relationship with a participant,

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either directly or indirectly. Persons who are not participants may beneficially own securities held by or on behalf of DTC only through the participants or the indirect participants.

        We expect that pursuant to procedures established by DTC:

•

upon the deposit of the Global Notes, DTC will credit, on its internal system, the principal amount of notes of the individual beneficial interests represented by such global securities to the respective accounts of persons who have accounts with such depositary; and



•

ownership of beneficial interests in the Global Notes will be shown on, and the transfer of such ownership will be effected only through, records maintained by DTC (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants).

        So long as DTC, or its nominee, is the registered owner or holder of the notes, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the notes represented by such Global Notes for all purposes under the indenture governing the notes. No beneficial owner of an interest in any of the Global Notes will be able to transfer that interest except in accordance with DTC's procedures, in addition to those provided for under the indenture with respect to the notes.

        Payments of the principal of, premium (if any) and interest (as defined) on the Global Notes will be made to DTC or its nominee, as the case may be, as the registered owner thereof. None of us, the Trustee or any Paying Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest.

        We expect that DTC or its nominee, upon receipt of any payment of principal, premium (if any) or interest in respect of the Global Notes, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the Global Notes as shown on the records of DTC or its nominee. We also expect that payments by participants to owners of beneficial interests in the Global Notes held through such participants will be governed by standing instructions and customary practice, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants.

        Transfers between participants in DTC will be effected in the ordinary way in accordance with DTC rules and will be settled in clearinghouse funds. If a holder requires physical delivery of a certificated security for any reason, including to sell notes to persons in states which require physical delivery of the notes, or to pledge such securities, such holder must transfer its interest in such Global Note, in accordance with the normal procedures of DTC and with the procedures set forth in the indenture governing the notes.

        DTC has advised us that it will take action permitted to be taken by a holder of notes only at the direction of one or more participants to whose account the DTC interests in such Global Note are credited and only in respect of such portion of the aggregate principal amount of notes as to which such participant or participants has or have given such direction. However, if there is an event of default under the indenture governing the notes, DTC reserves the right to exchange the Global Notes for legended notes in certificated form, which it will distribute to its participants.

        Although DTC, Euroclear and Clearstream Banking have agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Notes among participants of DTC, Euroclear and Clearstream Banking, they are under no obligation to perform such procedures, and such procedures may be discontinued at any time. Neither we nor the Trustee nor any of their respective agents will have any responsibility for the performance by DTC Euroclear or Clearstream Banking or their

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respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations.

        Certificated Securities

        Under certain limited conditions, a person having a beneficial interest in a Global Note may receive notes in the form of certificated securities in exchange for such beneficial interests. Upon any such issuance, the trustee is required to register such certificated securities in the name of, and cause the same to be delivered to, such person or persons (or the nominee of any thereof). We will issue definitive notes in exchange for the Global Notes if at any time:

•

DTC is unwilling or unable to continue as a depositary for the Global Notes and we do not appoint a successor depositary within 90 days, or



•

an event of default under the indenture has occurred and is continuing, or



•

we, in our sole discretion, notify the trustee in writing that we elects to cause the issuance of notes in the form of certificated securities under the indenture.

        Neither we nor the trustee will be liable for any delay by the global notes holder or DTC in identifying the beneficial owners of notes and we and the trustee may conclusively rely on, and will be protected in relying on, instructions from the global notes holder or DTC for these purposes.

Registration Rights

        The summary set forth below of certain provisions of the registration rights agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the registration rights agreement, a copy of which is filed as an exhibit to the registration statement of which this prospectus is a part.

        Pursuant to the registration rights agreement with the initial purchasers we and the guarantors have agreed to use our reasonable best efforts to file with the SEC a registration statement for this exchange offer and to use our reasonable best efforts to cause it to become effective. The registration statement of which this prospectus is a part constitutes the registration statement to be filed pursuant to the Registration Rights Agreement. The Registration Rights Agreement provides that, unless the exchange offer would not be permitted by applicable law or SEC policy, we and the guarantors will use our reasonable best efforts to:

•

file the exchange offer registration statement with the SEC on or prior to 60 days after the issue date,



•

cause the exchange offer registration statement to be declared effective by the SEC on or prior to 180 days after the issue date, and



•

commence the exchange offer and issue, on or prior to 211 days after the issue date, new notes in exchange for all notes tendered prior thereto in the exchange offer.

We agreed to use our reasonable best efforts to file with the SEC a shelf registration statement (the "Shelf Registration Statement") to cover resale of the Transfer Restricted Notes (as defined in the Registration Rights Agreement) by the holders thereof if:

•

we are not permitted to file the exchange offer registration statement or to consummate the exchange offer because the exchange offer is not permitted by applicable law or SEC policy,



•

the exchange offer is not for any other reason consummated within 211 days after the issue date, or

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•

any holder of notes notifies us within a specified time period that (a) due to a change in law or policy it is not entitled to participate in the exchange offer, (b) due to a change in law or policy it may not resell the Exchange Notes acquired by it in the exchange offer to the public without delivering a prospectus and the prospectus contained in the exchange offer registration statement is not appropriate or available for such resale by such holder, or (c) it is an Initial Purchaser that is a broker-dealer and owns notes acquired directly from us or an affiliate of ours,

If obligated to file a Shelf Registration Statement, we will use our reasonable best efforts to file prior to 60 days after such filing obligation arises and use our reasonable best efforts to cause the Shelf Registration Statement to be declared effective by the SEC on or prior to 120 days after such obligation arises.

        We will use our reasonable best efforts to keep such Shelf Registration Statement continuously effective, supplemented and amended until the second anniversary of the effective date of the Shelf Registration Statement or such shorter period that will terminate when all the Transfer Restricted Notes covered by the Shelf Registration Statement have been sold pursuant thereto. We will have a right to suspend the effectiveness of the Shelf Registration Statement under certain circumstances, for a limited period.

        If (i) we fail to file any of the registration statements required by the Registration Rights Agreement on or before the date specified for such filing, (ii) any of such registration statements are not declared effective by the SEC on or prior to the date specified for such effectiveness (the "Effectiveness Target Date"), subject to certain limited exceptions, (iii) we fail to consummate the Exchange Offer within 45 days of the Effectiveness Target Date with respect to the Exchange Offer Registration Statement, or (iv) the Shelf Registration Statement or the Exchange Offer Registration Statement is declared effective but thereafter, subject to certain limited exceptions, ceases to be effective or usable in connection with the Exchange Offer or resale of Transfer Restricted Notes, as the case may be, during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (i) through (iv) above, a "Registration Default"), then we will pay additional interest ("Additional Interest") in cash to each holder of Transfer Restricted Notes, with respect to the first 90-day period (or portion thereof) while a Registration Default is continuing immediately following the occurrence of such Registration Default, in an amount equal to 0.25% per annum of the principal amount of the notes. The amount of Additional Interest will increase by an additional 0.25% per annum of the principal amount of the notes for each subsequent 90-day period (or portion thereof) while a Registration Default is continuing until all Registration Defaults have been cured, up to a maximum amount of 1.00% per annum of the principal amount of the notes. Following the cure of a particular Registration Default, the accrual of Additional Interest with respect to such Registration Default will cease and the interest rate will revert to the prior rate.

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MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS

        The following is a summary of the material United States federal income tax consequences of the exchange of old notes for new notes pursuant to the exchange offer and the ownership and disposition of the new notes to the beneficial owners, and the principal U.S. estate tax consequences of the ownership of the notes to the individuals who are non-U.S. holders (as defined below).

        This summary is based on provisions of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed U.S. Treasury regulations promulgated thereunder (the "Treasury Regulations") and administrative and judicial interpretations thereof, all as of the date hereof and all of which are subject to change, possibly on a retroactive basis.

        This summary applies only to a beneficial owner of an old note that acquired such old note at the initial offering for the original offering price and that acquires a new note pursuant to the exchange offer. This summary assumes that the new notes are held as capital assets. This summary does not address all of the tax consequences that may be relevant to particular holders in light of their personal circumstances, or to certain types of holders (such as banks and other financial institutions, real estate investment trusts, regulated investment companies, insurance companies, entities that are treated as partnerships for U.S. federal income tax purposes or other pass-through entities, tax-exempt organizations, dealers in securities, persons whose functional currency is not the U.S. dollar, or persons who hold the notes as part of a hedge or a straddle with other investments). In addition, this summary does not include any description of the tax laws of any state, local or non-U.S. government that may be applicable to a particular holder.

HOLDERS OF NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE PARTICULAR U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO THEM OF THE EXCHANGE, OWNERSHIP AND DISPOSITION OF THE NOTES, AS WELL AS THE TAX CONSEQUENCES UNDER STATE, LOCAL, NON-U.S. AND OTHER U.S. FEDERAL TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN TAX LAWS.

Exchange Offer

        The exchange of an old note for a new note will not constitute a taxable exchange of the old note. As a result, the new notes will have the same issue price as the old notes, and each holder will have the same adjusted tax basis in the new notes as it had in the old notes immediately before the exchange and the holding period of the new notes will include the holding period of the old notes.

Taxation of U.S. Holders

        As used herein, the term "U.S. holder" means a holder of a note that is, for U.S. federal income tax purposes,

        (a)   an individual who is a citizen or resident of the United States,

        (b)   a corporation or other entity treated as a corporation created or organized in the United States or under the laws of the United States or any political subdivision thereof,

        (c)   an estate the income of which is subject to U.S. federal income tax purposes regardless of its source or

        (d)   a trust if

        (1)   a court within the United States is able to exercise primary supervision over the administration of the trust and at least one U.S. person has authority to control all substantial decisions of the trust, or

        (2)   the trust was in existence on August 20, 1996, and has elected to continue to be treated as a U.S. person.

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        Payment of Interest on the Notes Other than Certain Additional Payments.    In general, interest paid on a note will be taxable to a U.S. holder as ordinary interest income, as received or accrued, in accordance with such holder's method of accounting for federal income tax purposes.

        Certain Additional Payments.    At the time we issued the old notes, there was a possibility that we would have been obliged to pay additional interest if the exchange offer registration statement were not timely filed or declared effective within the applicable time periods, as described above under the heading "Description of Notes—Registration Rights", or we would have been obliged to pay 101% of the principal amount of the notes in case of a redemption described above under the heading "Description of Notes—Change of Control", and that, in each case, the notes would be treated as contingent payment debt instruments. At the time we issued the old notes, we took the position that the likelihood that such additional interest would become payable, or that such redemption would take place was remote or incidental, and therefore the possibility that payments of such additional interest may be made or that such redemption may occur should not cause the notes to be treated as contingent payment debt instruments. Notwithstanding the fact that a small amount of additional interest has become payable, we continue to believe that the payment of such additional interest is incidental and the possibility of such redemption is remote or incidental and that neither the old notes nor the new notes are contingent payment debt instruments. Accordingly, such additional interest should be taxable to a U.S. holder as ordinary interest income, as received or accrued, in accordance with such holder's method of accounting for federal income tax purposes. The Company's position is binding on each U.S. holder for federal income tax purposes, unless such U.S. holder discloses in the proper manner to the IRS that it is taking a different position. Our position is not, however, binding on the Internal Revenue Service (the "IRS"), and if the IRS were successfully to maintain that the notes are contingent payment debt instruments, the timing and character of income and gain realized on the notes may be different from the consequences described herein.

        U.S. holders should consult their tax advisors as to the tax considerations relating to debt instruments providing for certain additional payments.

        Sale, Exchange or Retirement of the Notes.    Upon the sale, exchange, redemption, or other taxable disposition of a new note, a U.S. holder will generally recognize taxable gain or loss equal to the difference between the sum of the cash and the fair market value of all other property received on such disposition (except to the extent such cash or property is attributable to accrued interest, which will be taxable as ordinary income to the extent not previously included in income) and such U.S. holder's adjusted tax basis in the note, which should be the U.S. holder's purchase price for the old notes exchanged.

        Gain or loss recognized on the disposition of a note generally will be capital gain or loss, and will be long-term capital gain or loss if, at the time of such disposition, the U.S. holder's holding period for the note is more than one year. A reduced tax rate on long-term capital gain will apply to an individual U.S. holder. The deduction for net capital losses is subject to certain limitations.

        Backup Withholding and Information Reporting.    In general, the Company will report to each U.S. holder and the IRS amounts paid on or with respect to the notes unless such U.S. holder is an exempt recipient (such as a corporation).

        Certain non-corporate U.S. holders of the notes (including all individuals) may be subject to backup withholding. In general, backup withholding with respect to the notes will apply to a non-corporate U.S. holder if the U.S. holder:

•

fails to furnish its Taxpayer Identification Number, or TIN (which for an individual is the U.S. holder's Social Security number);



•

furnishes an incorrect TIN;



•

is notified by the IRS that it has failed to properly report payments of interest and dividends; or

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•

under certain circumstances, fails to certify, under penalties of perjury, that it has furnished a correct TIN and has not been notified by the IRS that it is subject to backup withholding due to underreporting of interest or dividends, or otherwise fails to comply with applicable requirements of the backup withholding rules.

        The backup withholding rate is currently 28%.

        The amount of any backup withholding from a payment to a U.S. holder will be allowed as a refund or a credit against such U.S. holder's U.S. federal income tax liability, provided that the required procedures are followed.

Taxation of Non-U.S. Holders

        The following is a summary of the material U.S. federal income and estate tax considerations relating to the ownership and disposition of the notes by a non-U.S. holder. As used herein, the term "non-U.S. holder" means:

•

an individual who is neither a citizen nor a resident of the United States;



•

a corporation (or any entity treated as a corporation for U.S. federal income tax purposes) that is not created or organized in or under the laws of the United States or any political subdivision thereof;



•

an estate the income of which is not subject to U.S. federal income taxation regardless of its source; or



•

a trust unless (1) it is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person.

        For purposes of the following discussion, interest and gain on the sale, exchange or other disposition of the notes will be considered "U.S. trade or business income" if such income or gain (a) is effectively connected with the conduct of a trade or business in the United States, and (b) in the case of a resident of a country with an income tax treaty between that country and the United States qualifying for the benefits of such treaty, is attributable to a permanent establishment in the United States, in each case of a particular non-U.S. holder.

        U.S. Federal Withholding Tax.    A non-U.S. holder will generally be subject to U.S. federal withholding tax at a 30% rate (or, if certain tax treaties apply, such lower rate as provided therein), in respect of interest income on the notes. Such withholding tax will not apply, however, if each of the following requirements is satisfied:

•

the non-U.S. holder provides to the Company or the Company's paying agent its name, address and certain other information on an appropriate IRS form (or substitute form) and certifies, under penalties of perjury, that it is not a U.S. person, or the non-U.S. holder holds its new notes through certain foreign intermediaries or certain foreign partnerships and certain certification requirements are satisfied;



•

the non-U.S. holder does not actually or constructively own 10% or more of the Company's voting stock; and



•

the non-U.S. holder is not a controlled foreign corporation, within the meaning of the Code, that is actually or constructively related to the Company.

        In general, U.S. federal withholding tax will not apply to any gain or income realized by a non-U.S. holder on the disposition of the notes.

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        U.S. Federal Income Tax.    If the interest is considered U.S. trade or business income with respect to a non-U.S. holder, withholding tax will not apply to interest income on the notes paid to such non-U.S. holder if certain certification requirements are satisfied. Such non-U.S. holder generally will be subject to U.S. federal income tax with respect to such income in the same manner as U.S. holders, as described above. Additionally, in such event, non-U.S. holders that are corporations may be subject to a branch profits tax on such income at a rate of 30% (or at a reduced rate under an applicable income tax treaty).

        A non-U.S. holder generally will not be subject to U.S. federal income tax in respect of gain or income realized upon the sale, exchange, redemption or other taxable disposition of the notes, unless (a) the gain is U.S. trade or business income, in which case such gain or income will be taxed on a net income basis in the same manner as interest that is U.S. trade or business income with respect to a non-U.S. holder (including the possible application of the branch profits tax) or (b) the holder is an individual who is present in the United States for a period or periods aggregating 183 or more days in the taxable year of the disposition and certain other conditions are met, in which case the non-U.S. holder will be subject to a 30% tax on the excess, if any, of such gain plus all other U.S. source capital gains recognized during the same taxable year over the non-U.S. holder's U.S. source capital losses recognized during such taxable year.

        As described under "—Taxation of U.S. Holders—Certain Additional Payments," the notes provide for the payment of certain additional payments. Non-U.S. holders should consult their tax advisors as to the tax considerations relating to debt instruments providing for such payments.

        Estate Tax.    Notes held by an individual who at the time of death is a non-U.S. holder generally will not be subject to U.S. federal estate tax, provided that (a) the individual does not at the time of death actually or constructively own 10% of more of the total combined voting power of all classes of stock of the Company entitled to vote and (b) the interest income on the notes is not effectively connected with the conduct of a U.S. trade or business by the individual.

        Recently enacted U.S. federal tax legislation provides for reductions in U.S. federal estate tax through 2009 and the elimination of such estate tax entirely in 2010. Under the legislation, such estate tax would be fully reinstated, as in effect prior to the reductions, in 2011.

        Backup Withholding and Information Reporting.    Generally, the amount of interest on the notes paid to a non-U.S. holder and the amount of any tax withheld from such payments must be reported annually to the IRS and to the non-U.S. holder. Copies of the information returns reporting such interest and withholding also may be made available to the tax authorities in the country in which a non-U.S. holder is a resident under the provisions of an applicable income tax treaty or agreement. Under certain circumstances, information reporting could also apply to payments of principal on the notes.

        Under certain circumstances, information reporting could also apply to payments of principal on the notes and backup withholding at applicable rates of U.S. federal income tax could apply to payments of principal and interest on the notes to a non-U.S. holder if such holder fails to certify under penalties of perjury that it is not a U.S. person or if the Company has actual knowledge or reason to know that the payee is a U.S. person.

        Payments of the proceeds of the sale, exchange, redemption or other taxable disposition of a note to or though a foreign office of a U.S. broker or of a foreign broker with certain specified U.S. connections will be subject to information reporting requirements, but generally not backup withholding, unless the payee is an exempt recipient or such broker has evidence in its records that the payee is not a U.S. person. Payments of the proceeds of the sale, exchange, redemption or other taxable disposition of a note to or through the U.S. office of a broker will be subject to information reporting and backup withholding at applicable rates unless the payee certifies as to his or her status as a non-U.S. person or otherwise establishes an exemption.

        Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder will be allowed as a refund or a credit against such non-U.S. holder's U.S. federal income tax liability, provided that the required procedures are followed.

114

PLAN OF DISTRIBUTION

        Each broker-dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for old notes where such old notes were acquired as a result of market-making activities or other trading activities. We agreed that, for a period of 90 days after the expiration date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until                        , 2004, all dealers effecting transactions in the new notes may be required to deliver a prospectus.

        We will not receive any proceeds from any sale of new notes by broker-dealers. New notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such new notes. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such new notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of new notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act.

        For a period of 90 days after the expiration date we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer other than commissions or concessions of any brokers or dealers and will indemnify certain holders of the notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act.

        Based on interpretations by the Staff of the Commission as set forth in no-action letters issued to third parties (including Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated (available June 5, 1991), K-III Communications Corporation (available May 14, 1993) and Shearman & Sterling (available July 2, 1993), we believe that the new notes issued pursuant to the exchange offer may be offered for resale, resold and otherwise transferred by any holder of such new notes, other than any such holder that is a broker-dealer or an "affiliate" of us within the meaning of Rule 405 under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that:

•

such new notes are acquired in the ordinary course of business,



•

at the time of the commencement of the exchange offer such holder has no arrangement or understanding with any person to participate in a distribution of such new notes, and



•

such holder is not engaged in, and does not intend to engage in, a distribution of such new notes.

        We have not sought, and do not intend to seek, a no-action letter from the Commission with respect to the effects of the exchange offer, and there can be no assurance that the Staff would make a similar determination with respect to the new notes as it has in such no-action letters.

115

LEGAL MATTERS

        The validity of the new notes and the guarantees will be passed upon for the Company by Rosen & Weinhaus, LLP, general counsel to the Company.

EXPERTS

        The consolidated financial statements and schedule of Equinox Holdings, Inc. as of December 31, 2003 and 2002 and for each of the years in the three-year period ended December 31, 2003, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

        In connection with the exchange offer, we have filed with the Securities and Exchange Commission, or the SEC, a registration statement on Form S-4 under the Securities Act of 1933 relating to the new notes to be issued in the exchange offer. For a more complete understanding of this exchange offer, you should refer to the registration statement, including its exhibits. Statements contained in this prospectus as to the contents of any contract or other document referred to are not necessarily complete and, in each instance, if the contract or document is filed as an exhibit, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement, each statement being qualified in all respects by that reference.

        The indenture pursuant to which the notes are issued requires us to distribute to the holders of the notes annual reports containing our financial statements audited by our independent public accountants and quarterly reports containing unaudited condensed consolidated financial statements for the first three quarters of each fiscal year. Following completion of the exchange offer, we will file annual, quarterly and current reports and other information with the SEC. The public may read and copy any reports or other information that we file with the SEC at the SEC's public reference room, Room 1024 at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. These documents are also available to the public at the web site maintained by the SEC at http://www.sec.gov. You may also obtain a copy of the exchange offer registration statement at no cost by writing or telephoning us at the following address:

Equinox Holdings, Inc.
895 Broadway
3^rd Floor
New York, New York 10003
Attention: Chief Financial Officer
Telephone: (212) 677-0181

        IN ORDER TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST DOCUMENTS FROM US NO LATER THAN            , 2004, WHICH IS FIVE DAYS BEFORE THE EXPIRATION DATE OF THE EXCHANGE OFFER ON             , 2004.

        We have not authorized anyone to give you any information or to make any representations about the transactions we discuss in this prospectus other than those contained in this prospectus. If you are given any information or representation about these matters that is not discussed, you must not rely on that information. This prospectus is not an offer to sell or a solicitation of an offer to buy securities anywhere or to anyone where or to whom we are not permitted to offer to sell securities under applicable law.

116

        In making an investment decision investors must rely on their own examination of the issuer and the terms of the offering, including the merits and risks involved. These securities have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary is a criminal offense.

Trademarks and Trade Names

        We own or have rights to trademarks or trade names that we use in conjunction with the operation of our business. In addition, our name, logo and website name and address are our service marks or trademarks. Each trademark, trade name or service mark by any other company appearing in this prospectus belongs to its holder. Some of the more important trademarks that we own or have rights to include Equinox and Equinox Fitness Clubs.

Market and Industry Data

        Market data used throughout this prospectus were obtained from internal company surveys, consultants' reports and industry publications. Consultants' reports and industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. We have not independently verified this market data. Similarly, internal company surveys, while believed by us to be reliable, have not been verified by any independent sources. Unless otherwise indicated, market data used throughout this prospectus refers to the U.S. population, U.S. industries and U.S. market segments only. The market and industry data relating to fitness club membership, used throughout this prospectus, are sourced from industry publications relating to the fitness club industry as a whole. Industry data for 2003 will not be available until late 2004.

        The market and industry data used throughout this prospectus relating to financial performance metrics including revenue per member, revenue from ancillary services, and membership retention rates, are sourced from the same industry publications, but relating to the commercial fitness club sector only.

117

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2003, 2002 (restated) and 2001 (restated)

	Page
Independent Auditor's Report	F-2
Consolidated Balance Sheets at December 31, 2003 and December 31, 2002 (restated)	F-3
Consolidated Statements of Income for the years ended December 31, 2003, 2002 (restated) and 2001 (restated)	F-4
Consolidated Statements of Changes in Stockholders' Deficit and Comprehensive Income for the years ended December 31, 2003, 2002 (restated) and 2001 (restated)	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 (restated) and 2001 (restated)	F-6
Notes to Consolidated Financial Statements	F-7
Unaudited Interim Financial Statements:
Consolidated Condensed Balance Sheets as of March 31, 2004 and December 31, 2003 (restated)	F-28
Consolidated Condensed Statements of Income for each of the three months ended September 30, 2003 and 2002	F-29
Consolidated Condensed Statements of Cash Flows for each of the three months ended March 31, 2004 and 2003	F-30
Notes to Unaudited Consolidated Condensed Financial Statement	F-31
SCHEDULE II
Valuation and Qualifying Accounts	F-32

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors
Equinox Holdings, Inc.:

We have audited the accompanying consolidated balance sheets of Equinox Holdings, Inc. and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, stockholders' equity (deficit) and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Equinox Holdings, Inc. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the accompanying consolidated financial statements, the Company has restated the consolidated balance sheet as of December 31, 2002, and the related consolidated statements of income, stockholders' deficit and comprehensive income, and cash flows for the years ended December 31, 2002 and 2001.

KPMG LLP

New York, New York
June 16, 2004

F-2

EQUINOX HOLDINGS, INC.

Consolidated Balance Sheets

			December 31,
			2003			2002
						(restated)
Assets
Current assets:
	Cash		$	42,709,057		$	1,244,913
	Marketable securities			69,914			57,260
	Accounts receivable—members, less allowance for doubtful accounts as of December 31, 2003 and 2002 of $112,420 and $89,399, respectively			1,545,565			1,509,622
	Deferred income taxes			2,526,809			2,360,123
	Prepaid expenses and other current assets (Note 5)			8,969,749			6,547,363
		Total current assets		55,821,094			11,719,281
	Property and equipment, net			114,627,750			94,302,318
	Deferred income taxes			4,374,866			—
	Other assets			5,015,120			1,578,753
	Goodwill, net (Note 3(e))			2,503,054			2,503,054
	Deferred financing costs, net (Note 9)			6,961,231			3,411,385
		Total assets	$	189,303,115		$	113,514,791
Liabilities and Stockholders' Deficit
Current liabilities:
	Accounts payable		$	1,086,705		$	926,915
	Accrued expenses			4,248,311			5,313,094
	Deferred revenue			24,966,440			19,824,913
	Current installments of long-term debt			123,375			9,087,134
	Current installments of capital lease obligations			1,251,799			1,655,583
	Due to affiliated entities			786,644			—
		Total current liabilities		32,463,274			36,807,639
	Deferred revenue			495,160			393,187
	Long-term debt, excluding current installments (Note 9)			161,500,647			83,527,573
	Capital lease obligations, net of current installments			1,123,401			1,429,829
	Deferred income taxes			—			1,647,053
	Deferred rent (Note 16)			16,206,119			11,535,718
	Common stock put warrants (Note 10)			9,653,768			10,541,775
	Due to founding stockholders (Note 4)			2,935,192			4,212,153
		Total long term liabilities		191,914,287			113,287,288
		Total liabilities		224,377,561			150,094,927
Commitments and contingencies
Stockholders' deficit:
	10% Cumulative preferred stock; $0.01 par value. Authorized 400,000 shares; 120,872 shares issued and outstanding as of December 31, 2002. None issued and outstanding as of December 31, 2003			—			1,208,725
	Common stock, $0.01 par value. Authorized 20,000,000 shares 9,443,247 8,604,913 shares issued and outstanding as of December 31, 2003 and 2002, respectively			94,432			86,049
	Additional paid-in capital			82,920,208			72,842,183
	Accumulated other comprehensive income			14,078			1,423
	Accumulated deficit			(118,103,164	)		(110,718,516	)
		Total stockholders' deficit		(35,074,446	)		(36,580,136	)
		Total liabilities and stockholders' deficit	$	189,303,115		$	113,514,791

F-3

EQUINOX HOLDINGS, INC.

Consolidated Statements of Income

			For the years ended December 31,
			2003			2002			2001
						(restated)			(restated)
Membership fees			$	75,677,255		$	63,369,094		$	52,489,482
Personal training				24,999,924			17,709,161			15,023,607
Other revenue				15,449,506			14,196,434			11,907,117
		Total revenue		116,126,685			95,274,689			79,420,206
Expenses:
	Compensation and related			48,201,876			37,572,450			31,273,802
	Rent and occupancy			16,645,996			11,869,691			9,793,216
	General and administrative			21,280,466			15,975,858			13,378,238
	Related-party management fees			1,007,063			1,164,031			1,199,455
	Stock compensation expense			35,000			312,516			1,022,260
	Depreciation and amortization			9,749,647			6,849,914			5,785,024
		Total operating expenses		96,920,048			73,744,460			62,451,995
		Income from operations		19,206,637			21,530,229			16,968,211
Other income (expense):
	Interest expense			(33,692,518	)		(12,707,900	)		(13,297,540	)
	Interest income			132,139			7,923			148,762
	Other income (expense)			900,247			(2,869,311	)		1,187,789
		Total other expense		(32,660,132	)		(15,569,288	)		(11,960,989	)
		Income before benefit from (provision) for income taxes		(13,453,495	)		5,960,941			5,007,222
Benefit from (provision for) income taxes				6,188,608			(4,137,258	)		(2,007,507	)
		Net income (Loss)	$	(7,264,887	)	$	1,823,683		$	2,999,715

F-4

EQUINOX HOLDINGS, INC.
Consolidated Statements of Changes in Stockholders' Deficit and Comprehensive Income (Loss)
Years ended December 31, 2003, 2002 (restated) and 2001 (restated)

		Preferred shares		Preferred stock			Common shares	Common stock		Additional paid-in capital			Accumulated other comprehensive income			Retained earnings (accumulated deficit			Total
Balance, December 31, 2000 (restated)		—			—		7,632,284	$	76,323	$	71,517,133		$	37,347		$	(110,968,951	)	$	(39,338,148	)
	Net income	—			—		—		—		—			—			2,999,715			2,999,715
	Unrealized loss on available for sale securities	—			—		—		—		—			(2,750	)		—			(2,750	)
	Comprehensive income																			2,996,965
	Issuance of preferred stock to investors for cash	100,000			1,000,000		—		—		—			—			—			1,000,000
	Accrued dividends on preferred stock	9,474			94,741		—		—		—			—			(94,741	)		—
	Options granted	—			—		—		—		1,022,260			—			—			1,022,260
	2000 contingent share payment	—			—		972,629		9,726		(9,726	)		—			—			—
Balance, December 31, 2001 (restated)		109,474			1,094,741		8,604,913		86,049		72,529,667			34,597			(108,063,977	)		(34,318,923	)
	Net income	—			—		—		—		—			—			1,823,683			1,823,683
	Unrealized loss on available for sale securities	—			—		—		—		—			(33,174	)		—			(33,174	)
	Comprehensive income																			1,790,509
	Options granted	—			—		—		—		312,516			—			—			312,516
	Accrued dividends on preferred stock	11,398			113,984		—		—		—			—			(113,984	)		—
	Payment of escrowed restricted cash to former shareholders	—			—		—		—		—			—			(4,364,238	)		(4,364,238	)
Balance, December 31, 2002 (restated)		120,872			1,208,725		8,604,913		86,049		72,842,183			1,423			(110,718,516	)		(36,580,136	)
	Net loss	—			—		—		—		—			—			(7,264,887	)		(7,264,887	)
	Unrealized gain on available for sale securities	—			—		—		—		—			12,655			—			12,655
	Comprehensive loss																			(7,252,232	)
	Issuance of common stock to investors for cash	—			—		833,334		8,333		9,991,675			—			—			10,000,008
	Options exercised	—			—		5,000		50		51,350			—			—			51,400
	Options granted										35,000									35,000
	Payment of preferred capital to former shareholders	(120,872	)		(1,328,486	)														(1,328,486	)
	Accrued dividends on preferred stock				119,761												(119,761	)		—
Balance, December 31, 2003		—		$	—		9,443,247	$	94,432	$	82,920,208		$	14,078		$	118,103,164		$	(35,074,446	)

F-5

EQUINOX HOLDINGS, INC.

Consolidated Statements of Cash Flows

					For the years ended December 31,
					2003			2002			2001
								(restated)			(restated)
Cash flows from operating activities:
	Net (loss) income				$	(7,264,887	)	$	1,823,683		$	2,999,715
	Adjustments to reconcile net (loss) income to net cash provided by operating activities:
		Depreciation and amortization				9,749,647			6,849,914			5,785,024
		Allowance for doubtful accounts, net of write-offs				23,021			10,553			(223,125	)
		Interest expense				15,353,319			2,693,291			2,712,072
		Changes in fair market value of common stock put warrants				(888,007	)		2,848,652			(1,336,404	)
		Write-off of other receivables				—			169,274			—
		Stock compensation expense				35,000			312,516			1,022,260
		Accretive interest expense related to payable to founding stockholders				3,723,039			676,642			567,946
		Deferred rent				2,521,330			1,087,871			974,914
		Deferred income taxes				(6,188,608	)		2,413,257			1,859,906
		Changes in operating assets and liabilities:
			Accounts receivable—members			(58,964	)		236,901			(668,393	)
			Due (to) from affiliated entities, net			786,644			175,765			397,678
			Prepaid expenses and other current assets			(2,422,386	)		(2,989,240	)		(2,066,567	)
			Other assets			(3,436,370	)		(584,989	)		(96,382	)
			Accounts payable			159,793			(526,868	)		(744,590	)
			Accrued expenses			(1,064,780	)		347,268			2,832,233
			Deferred revenue			5,243,498			2,096,070			2,697,512
				Net cash provided by operating activities		16,271,289			17,640,560			16,713,799
Cash flows from investing activities:
	Purchases of property and equipment					(27,009,412	)		(21,376,996	)		(18,590,275	)
				Net cash used in investing activities		(27,009,412	)		(21,376,996	)		(18,590,275	)
Cash flows from financing activities:
	Payment to repurchase and retire preferred shares pursuant to the Recapitalization					(1,328,486	)		—			—
	Distributions to founding shareholder group					(5,000,000	)		—			—
	Proceeds from long-term debt					185,000,000			—			—
	Payment of deferred financing costs					(9,420,943	)		—			—
	Issuance of common stock to existing shareholders for cash					10,051,408			—			—
	Restricted cash					—			4,424,491			(237,491	)
	Payment of restricted cash to founding shareholder group					—			(4,364,238	)		—
	Repayment of notes payable					(125,898,307	)		(7,053,387	)		(47,546	)
	Repayment of capital lease obligations					(1,626,805	)		(1,540,896	)		(1,546,418	)
	Proceeds from notes payable					425,400			10,799,600			4,500,000
	Proceeds from issuance of preferred stock					—			—			1,000,000
				Net cash provided by financing activities		52,202,267			2,265,570			3,668,545
				Net (decrease) increase in cash and cash equivalents		41,464,144			(1,470,866	)		1,792,069
Cash at beginning of period						1,244,913			2,715,779			923,710
Cash at end of period					$	42,709,057		$	1,244,913		$	2,715,779
Supplemental disclosures of cash flow information:
	Cash paid during the period for:
		Interest			$	17,747,619		$	9,955,982		$	8,712,237
		Income taxes			$	1,292,680		$	1,718,000		$	1,442,619
Supplemental disclosures of noncash investing and financing activities:
	Capital lease obligations entered into for equipment				$	916,593		$	868,664		$	1,768,374
	Deferred rent capitalized during build-out				$	2,282,182		$	1,610,491		$	735,390
	Issuance of warrants pursuant to debt financing (Note 10)				$	—		$	—		$	987,912

F-6

EQUINOX HOLDINGS, INC.

Notes to Consolidated Financial Statements

(1) Description, Organization and Development of Business

(a)

Description of Business

        Equinox Holdings, Inc. (the Company) is engaged in the operation of full service fitness clubs under the trade name "Equinox Fitness Club" in New York, California, Illinois and Connecticut.

(b)

Organization and Development of Business

        The Company was formed on January 1, 1999 and consolidates the following wholly owned subsidiaries: Equinox 76^th Street, Inc.; Broadway Equinox, Inc.; Equinox 92^nd Street, Inc.; Equinox 85^th Street, Inc.; Equinox 63^rd Street, Inc.; Equinox White Plains Road, Inc.; Equinox 54^th Street, Inc.; Equinox 50^th Street, Inc.; Equinox 43^rd Street, Inc.; Equinox 44^th Street, Inc.; Equinox Wall Street, Inc.; Energy Wear, Inc.; Equinox Greenwich Avenue, Inc.; Equinox Fitness Pasadena, Inc.; Equinox Darien, Inc.; Equinox Lincoln Park, Inc.; Equinox Tribeca, Inc.; Equinox Columbus Centre, Inc.; Equinox West Hollywood, Inc.; Equinox Woodbury, Inc.; Equinox Gold Coast, Inc.; Equinox Tribeca Office, Inc.; Equinox Highland Park, Inc.; Equinox Wellness Center; Westchester Health and Fitness, Inc.; Equinox Management Company, Inc.; and The Equinox Group, Inc.

        During 2001, the Company opened fitness clubs in Greenwich Village (New York City) and in Pasadena, California. Additionally, the Company formed the following companies for which related fitness clubs remained unopened as of December 31, 2002: Equinox Tribeca, Inc. and Equinox Columbus Centre, Inc.

        During 2002, the Company opened fitness clubs in Darien, Connecticut and in Lincoln Park in Chicago, Illinois. Additionally, the Company formed the following companies for which related fitness clubs (and corporate office in the case of Equinox Tribeca Office, Inc.) remained unopened as of December 31, 2002: Equinox West Hollywood, Inc.; Equinox Woodbury, Inc.; Equinox Gold Coast, Inc.; Equinox Tribeca Office, Inc.; and Equinox Highland Park, Inc.

        During 2003, the Company opened fitness clubs in Tribeca (New York City), Woodbury, New York, West Hollywood, California, North Michigan in Chicago, Illinois and the corporate offices co-located with the Tribeca fitness club. The Company also formed the following companies for which related fitness clubs remained unopened as of December 31, 2003: Equinox Roslyn, Inc., Equinox Pine Street, Inc., Equinox Fitness Santa Monica, Inc., and Equinox Mamaroneck, Inc.

(2) Restatement of Previously Issued Financial Statements

        The Company has restated its balance sheet and statement of operations and stockholder's equity as of December 31, 2002 and for the years ended December 31, 2002 and 2001. The adjustment reduced the amounts of membership fees revenue recognized by $609,722 and $196,525 in 2002 and 2001, respectively. In addition $396,843 of previously recognized personal training revenue was prematurely recognized in 2002 and has been correctly reported in 2003. Revenues from members that were billed monthly were previously recognized when billed. The Company reviewed this practice and determined that it had incorrectly recorded revenue as monthly members were being billed one month in advance. As a result of this finding, the Company determined that it is more appropriate to recognize revenue from its monthly members in the month that they use the facilities. These revisions impacted previously reported deferred revenue, the beginning and ending accumulated deficit, deferred taxes, total revenue, income from operations, income before provision for income taxes and net income in each period. The effect of the adjustments prior to the year ending December 31, 2001 and impact to the Company's accumulated deficit as of January 1, 2001 was $1,558,769.

F-7

        The impacts to the Company's Statements of Operations are as follows:

		2002			2001
Total revenues as previously reported		$	96,281,254		$	79,616,731
Adjustment:
	Membership revenue		(609,722	)		(196,525	)
	Personal training revenue		(396,843	)		—
	Total revenues as restated	$	95,274,689		$	79,420,206
Income from operations as previously reported		$	22,536,794		$	17,164,736
Adjustment:
	Membership revenue		(609,722	)		(196,525	)
	Personal training revenue		(396,843	)		—
Income from operations, as restated		$	21,530,229		$	16,968,211
Income before provision for income taxes, as previously reported		$	6,967,506		$	5,203,747
Adjustment:
	Membership revenue		(609,722	)		(196,525	)
	Personal training revenue		(396,843	)		—
Income before provision for income taxes, as restated		$	5,960,941		$	5,007,222
Provision for income tax, as previously reported		$	(4,590,212	)	$	(2,095,943	)
Adjustment:
	Tax effect of reporting membership and personal training revenues		452,954			88,436
Provision for income tax, as restated		$	(4,137,258	)	$	(2,007,507	)
	Net income, as previously reported	$	2,377,294		$	3,107,804
Adjustment:
	Membership revenue		(609,722	)		(196,525	)
	Personal training revenue		(396,843	)		—
	Income tax adjustment		452,954			88,436
	Net income, as restated	$	1,823,683		$	2,999,715

F-8

        The impacts to the Company's Consolidated Balance Sheets are as follows:

		2002			2001
	Current portion of deferred revenue, as previously reported	$	15,787,694		$	14,798,650
Adjustment:
	Membership revenue		3,640,376			3,030,651
	Personal training revenue		396,843			—
	Current portion of deferred revenue, as restated	$	19,824,913		$	17,829,301
	Current portion of deferred income taxes, as previously reported	$	543,373		$	1,148,802
Adjustment:
	Tax effect of reporting membership and personal training revenues		1,816,750			1,363,793
	Current portion of deferred income taxes, as restated	$	2,360,123		$	2,512,595
	Accumulated deficit, as previously reported	$	(108,498,047	)	$	(106,397,119	)
Adjustment:
	Membership revenue		(3,640,376	)		(3,030,651	)
	Personal training revenue		(396,843	)		—
	Current deferred income tax		1,816,750			1,363,793
	Accumulated deficit, as restated	$	(110,718,516	)	$	(108,063,977	)

        There was no change in the Company's net operating cash flows, net cash used in investing activities or net cash provided from financing activities included in the Company's Statement of Cash Flows in 2002 and 2001. The impacts to the Company's cash flows within the operating activities are as follows:

		2002			2001
	Net income previously reported	$	2,377,294		$	3,107,804
Adjustment:
	Membership revenue		(609,722	)		(196,525	)
	Personal training revenue		(396,843	)		—
	Tax effect of reporting membership and other revenues		452,954			88,436
	Restated net income	$	1,823,683		$	2,999,715
	Deferred income taxes, as previously reported	$	2,866,211		$	1,948,342
Adjustment:
	Tax effect of reporting membership and other revenues		(452,954	)		(88,436	)
	Deferred income taxes, as restated	$	2,413,257		$	1,859,906
	Deferred revenue, as previously reported	$	1,089,505		$	2,500,987
Adjustment:
	Membership revenue		609,722			196,525
	Personal training revenue		396,843			—
	Deferred revenue, as restated	$	2,096,070		$	2,697,512

F-9

(3) Summary of Significant Accounting Policies

(a)

Principles of Consolidation

        The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All inter-company accounts and transactions have been eliminated in consolidation.

(b)

Cash and Cash Equivalents

        The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

(c)

Marketable Investment Securities

        The Company classifies its investments in marketable investment securities, which include only mutual fund investments, as available-for-sale in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Such securities are reported at fair value, with unrealized gains and losses included in equity. Gains and losses on the disposition of securities are recognized in earnings using the specific identification method in the period in which they occur. A decline, which is deemed to be other than temporary, in the market value of any available-for-sale security below cost results in a reduction in the carrying amount to fair value. Such impairment would be charged to earnings and would establish a new cost basis for the security.

(d)

Long-Lived Assets

        In accordance with SFAS No. 144, the Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets in question may not be recoverable. The Company reviews its long-lived assets at the individual fitness club level and groups its long-lived assets according to asset class (for machinery and equipment), and by location (for facilities) for purposes of assessing potential impairment. Impairment is measured based upon a comparison of the expected undiscounted future cash flows for each location to the carrying amount of asset groupings. Prior to the adoption of SFAS No. 144, the Company accounted for long-lived assets in accordance with SFAS No. 121, Accounting for Impairment of Long-Lived Assets to be Disposed of. There were no impairment charges recorded on long-lived assets.

(e)

Goodwill, Net

        The Company accounts for goodwill under SFAS No. 142, Goodwill and other Intangible Assets. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually (or more frequently, if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have indefinite lives are amortized over their useful lives (but with no maximum life).

        The Company adopted this standard effective January 1, 2002 and, accordingly, those intangible assets that continue to be classified as goodwill are not amortized. The Company assessed its intangible assets to identify goodwill separately from other identifiable intangibles during 2002. No adjustment was deemed necessary. In accordance with SFAS No. 142, intangible assets, including purchased goodwill, are evaluated periodically for impairment. Prior to the adoption of SFAS No. 142, goodwill was being amortized over 15 years. Amortization of goodwill (which arose from the Company's acquisition of

F-10

Energy Wear in December of 2000) was $178,790 in 2001. Goodwill, net is $2.5 million at December 31, 2003 and 2002.

        An independent valuation firm performed the Company's SFAS 142 evaluation as of the annual impairment testing date of December 31, 2003. The evaluation utilized an income valuation approach and contains reasonable and supportable assumptions and projections and reflect management's best estimate of future cash flows. The valuation firm's capitalization of cash flow valuation used a range of return rates that represented the Company's cost of capital and included an evaluation relative to the value of other relevant companies within the reporting unit's industry. The assumptions utilized by in these evaluations are consistent with those utilized in the Company's annual planning process. If the assumptions and estimates underlying the goodwill impairment evaluation are not achieved, the amount of the impairment could be adversely affected. Future impairment tests will be performed at least annually in conjunction with the Company's annual budgeting and forecasting process, with any impairment classified as an operating expense.

(f)

Restricted Cash

        In accordance with a cash escrow agreement (the Escrow Agreement), the Company had restricted $4,424,491 of its cash (including accrued interest) at December 31, 2001 to secure the former shareholder group's indemnification obligations under the Recapitalization agreement (see Note 4). The Escrow Agreement expired on March 15, 2002, and these escrowed funds were remitted to the former shareholders. The Company recorded an additional charge to stockholders' equity to reflect the resolution of this contingent portion of the original share purchase in the Recapitalization. At December 31, 2003, the Company has $3,717,258 in cash collateral located in other assets related to continuing letters of credit issued during 2003.

(g)

Derivative Instruments

        The Company accounts for its derivative financial instruments under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, became effective for the Company as of January 1, 2001.

        In May 2001, the Company entered into an interest rate swap agreement with a counterparty relating to the Company's term loan and revolving loan commitment. The swap agreement converted $15 million from floating rates to a fixed rate of 4.27% per annum. The net payments or receipts from this interest rate swap have been recorded as part of interest expense. The Company recorded a loss of $148,615 for the mark-to-market adjustment of the derivative instrument in the statement of income for 2001. The agreement expired on April 5, 2002 and the Company recorded a gain of $148,615 for the mark to market adjustment in the Statement of Income for 2002. There were no derivative instruments in effect as of December 31, 2002 and 2003.

(h)

Property and Equipment

        Property and equipment is stated at cost. Depreciation is calculated on a straight-line basis over the estimated useful life except leasehold improvements. For leasehold improvements, amortization is

F-11

calculated on a straight-line basis over the shorter of the estimated useful life or the lease term of the related asset. The estimated useful lives are as follows:

Leasehold improvements	Shorter of term of lease or useful life
Fitness equipment	5 years
Computer equipment and software	5 years
Other equipment	5 years
Office equipment	5 to 7 years
Furniture and fixtures	7 years

        Leased equipment meeting certain criteria is capitalized and the present value of the related lease payments is recorded as a liability. Amortization of capitalized leased assets is computed on the straight-line method over the term of the lease. Interest costs and rents incurred during the construction period of the Company's facilities are capitalized as leasehold improvements.

(i)

Accounting for Leases

        The Company has entered into various operating leases for property and equipment. All leases are payable in monthly installments, and rent expense is accounted for on a straight-line basis over the term of the lease. The Company capitalizes rent during the build out phase of its facilities.

(j)

Comprehensive Income (Loss)

        The Company complies with the provisions of SFAS No. 130, Reporting Comprehensive Income, which requires companies to report all changes in equity during a period, except those resulting from investments by owners and distributions to owners. Comprehensive income (loss) is the total of net income and all other nonowner changes in equity (other comprehensive income) such as unrealized gains or losses on securities classified as available-for-sale. Comprehensive income (loss) was approximately $(7.3) million, $1.8 million and $3.0 million for the years ended December 31, 2003, 2002 and 2001, respectively.

(k)

Start-Up Costs

        The Company complies with the provisions of Statement of Position (SOP) 98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5 requires costs of start-up activities and organization costs to be expensed as incurred. Pursuant to this standard, the Company has expensed all start-up costs related to newly formed clubs.

(l)

Deferred Financing Costs

        Deferred financing costs which resulted from the Company's procurement of long-term debt pursuant to the Recapitalization, (see note 4(a)) had been amortized as interest expense over the life of the credit agreement. In December 2003, upon the private offering (see note 9(c)) the balance of the Company's deferred financing costs of $4.6 million was expensed. In connection with our 2003 private offering and new senior secured revolving credit facility, approximately $7.0 million in deferred financing costs was capitalized and will be expensed through December 2009. The 2003 expense related to the amortization of the new deferred financing costs for the new senior notes issued in December 2003 was $51,000.

F-12

(m)

Revenue and Expense Recognition

Membership fees—As club memberships are sold, each member is charged an initiation fee as well as membership dues. The initiation fee is due up front and amortized over an estimated membership life of 24 months, commencing with the first month of the new member contract. The initial contract period is twelve months. Membership dues for members who pay annual dues up-front (both new membership sales and membership renewals) are amortized over a 12-month period commencing with the first month of the new member contract or renewal contract, as applicable. Membership dues for members who pay monthly are recognized in the period in which facility access is provided.

        Sales commissions and other direct expenditures paid with regard to deferred membership revenue are amortized over the period in which the related revenue is recognized as income. Deferred costs do not exceed related deferred revenue for the periods presented. Such costs are amortized over the life of the agreement.

        Personal training—Personal training revenues are recognized as services are performed. Personal training sessions purchased in advanced are recorded as deferred revenue and recognized as the services are performed.

        Other revenue—Other revenue includes revenue from services and retail merchandise sales. Other service revenue includes spa and pilates services. Revenues from spa services and pilates are recognized as services are performed. Spa and pilates services purchased in advance are recorded as deferred revenue and recognized as the services are performed. The Company recognizes revenue from retail merchandise sales upon delivery to the customer.

(n)

Income Taxes

        The Company accounts for income taxes under the asset and liability method in accordance with SFAS No. 109, Accounting for Income Taxes. Under the asset and liability method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of existing assets and liabilities and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Differences between assets and liabilities for financial statement and tax return purposes are principally related to deferred revenue and depreciable lives of assets.

(o)

Fair Value of Financial Instruments

        The Company complies with the provisions of SFAS No. 107, Disclosures about Fair Value of Financial Instruments. The carrying value of all financial instruments reflected in the accompanying consolidated balance sheets approximated fair value at December 31, 2003 and 2002.

(p)

Stock-Based Compensation

        In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure (SFAS No. 148). SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation as

F-13

originally provided by SFAS No. 123, Accounting for Stock-Based Compensation. Additionally, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. The transitional requirements of SFAS No. 148 are effective for all financial statements for fiscal years ending after December 12, 2002. The application of the disclosure portion of this standard has had no impact on our consolidated financial position or results of operations. As permitted under SFAS No 123, the Company applies the intrinsic value-based method prescribed by Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees and related interpretations) including FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation—an interpretation of APB No. 25, issued in March 2000, in accounting for its stock compensation plans. Under APB No. 25, the Company generally does not recognize compensation expense upon the issuance of its stock options because the exercise price equals the estimated fair market value at grant date.

(q)

Concentration of Credit Risk

        The Company's mix of accounts receivable from members is diverse. Approximately 88.7% and 92.6% of the Company's revenues are derived from operations in the Metropolitan New York area for the years ended December 31, 2003 and 2002, respectively.

(r)

Use of Estimates

        The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions relating to the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(s)

Recently Issued Accounting Pronouncements

        In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which establishes an accounting standard requiring the recording of the fair value of liabilities associated with the retirement of long-lived assets in the period in which they are incurred. The Company adopted SFAS No. 143 on January 1, 2003 and has determined that the adoption of SFAS No. 143 had no material effect on the Company's consolidated financial statements.

        On January 17, 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). Such Interpretation addresses the consolidation of variable interest entities ("VIEs"), including special purpose entities ("SPEs"), that are not controlled through voting interests or in which the equity investors do not bear the residual economic risks and rewards. The provisions of FIN 46 were effective immediately for transactions entered into by the Company subsequent to January 31, 2003 and became effective for all other transactions as of July 1, 2003. However, in October 2003, the FASB permitted companies to defer the July 1, 2003 effective date to December 31, 2003, in whole or in part. On December 24, 2003, the FASB issued a complete replacement of FIN 46 ("FIN 46R"), which clarified certain complexities of FIN 46 and generally requires adoption no later than December 31, 2003 for entities that were considered SPEs under previous guidance, and no later than March 31, 2004 for all other entities.

F-14

        Management believes that upon adoption of FIN 46 in the second quarter of 2004 the Company would consolidate Eclipse Development Inc. ("Eclipse"). Eclipse, wholly owned by Mr. Paul Boardman, provides an exclusive service to the Company for the site selection, acquisition, design, construction and maintenance services of its clubs. A master service agreement prohibits Eclipse and Mr. Boardman from performing services for anyone that competes with the Company's facilities. Eclipse is thinly capitalized and is highly dependent upon the business provided by the Company. Management believes that the impact on the consolidated balance sheet for 2004 would not be material as a result of this change in accounting principle since the historical payments made to Eclipse have been principally for capital expenditures. Further, the Company believes that the stock compensation costs recorded by the Company would decrease as a result of no longer treating Mr. Boardman and various other Eclipse employees as a non-employees of Equinox Holdings, Inc. Such costs amounted to $35,000, $312,516 and $1,022,260 for the years ended December 31, 2003, 2002 and 2001, respectively.

        Effective July 1, 2003, the company adopted the FASB's consensus on EITF Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." This issue addresses how to account for arrangements that may involve the delivery or performance of multiple products, services, and/or rights to use assets. The final consensus of this issue is applicable to agreements entered into in fiscal periods beginning after June 15, 2003. Adoption of this issue had no material impact on the company's consolidated financial position, consolidated results of operations, or liquidity.

(t)

Reclassifications

        Certain reclassifications have been made to the 2001 and 2002 consolidated financial statements to conform to the 2003 presentation.

(4) Recapitalization

(a)

Repurchase of Shares and Distribution

        As part of a transaction (the "Recapitalization") that was completed on December 15, 2000 (the "Closing Date"), the Company initially repurchased 10,370,760 shares of its then outstanding common stock from the founding stockholder group (the Founding Stockholders) for aggregate consideration of $99,127,665, retired those shares and its existing stock then held in treasury and paid $17,064,918 in net distributions ($19,448,749 less $2,383,831 owed to the Company by certain Founding Stockholders) to the same group, which does not include distributions made prior to the Recapitalization. The Company then issued new shares to other shareholders (the Incoming Investors) for net aggregate consideration of $66,445,134 to complete the initial Recapitalization transaction. The Company funded the Recapitalization with a combination of financing arrangements (see note 9) and cash from the Incoming Investors.

        During 2001, pursuant to the 2000 contingent share payment, the Company released an additional 972,629 shares of common stock, previously escrowed, to the Founding Stockholders based on the resolution of the contingency associated with operating results for 2000 which were agreed to in 2001, resulting in a net repurchase of 9,398,131 shares of common stock in the Recapitalization for the original aggregate consideration of $99,127,655. The Founding Stockholders subsequently sold 897,811 shares of common stock directly to the Incoming Investors, resulting in final adjusted share ownership of 7,941,024 shares by the Incoming Investors and 663,889 shares by the Founding Shareholders, or approximately 92% and 8%, respectively.

F-15

        As described in note 4(f), pursuant to the Escrow Agreement, the Company had retained restricted cash to secure indemnification obligations of the Founding Stockholders. During 2002, these contingent obligations were met, and the restricted cash in the amount of $4,364,238 was remitted to the Founding Stockholders, with a corresponding charge to equity.

(b)

Repurchase of Options

        Pursuant to the Recapitalization, all stock option holders became fully vested. Each such option holder existing at the Closing Date had the option of either: i) rolling over these options into their equivalent in the newly recapitalized company, or ii) cashing out such options at a defined value per option and obtaining options in the recapitalized company equal to a defined value of their pre-existing options. Due to the acceleration of vesting, the entire amount of deferred compensation was charged to expense in 2000.

(c)

Costs of Recapitalization

        In connection with the 2000 Recapitalization, the Company recorded one-time charges to its consolidated statements of income of $5,608,142 primarily related to financing expenses, legal and professional fees that could not be capitalized and certain management compensation costs as defined in the Recapitalization agreement. Furthermore, the Company charged $5,969,429 against additional paid-in capital for certain fees directly attributed to the new equity investment.

(d)

2004 Contingent Additional Cash Payment

        In accordance with the Recapitalization agreement, if certain earnings thresholds, as defined, were met in 2004, the Company would be obligated to pay additional cash consideration up to $10.0 million to the Founding Stockholders.

(e)

Deferred Payment

        In accordance with the Recapitalization agreement a cash payment of $5,000,000 was paid in 2003 to the Founding Stockholders as additional consideration for the repurchase of their shares.

F-16

(f)

Exit Payment

        Upon the earlier of a qualified public offering, a change of control, or December 15, 2010, the Company will pay $10,000,000 as additional consideration to the Founding Stockholders provided that the Company has satisfied its obligations under the Debt Financing (defined as the term loan and revolving loan commitment (see note 9(a)) and the Senior Subordinated Notes. The Company must pay an additional $5.0 million at the same time if the internal rate of return of our equity sponsors exceeds a specified amount. In connection with the Recapitalization, the Company has recorded the present value of its obligation to the Founding Shareholders as a long-term liability as it concluded that the satisfaction of its obligations under the Debt Financing represented a de facto subordination and that the obligation to the Founding Stockholders would ultimately be paid. As such, the Company has recorded the present value of the obligation on the accompanying balance sheets and the accretion in value as non-cash interest expense of approximately $471,509, $395,767 and $332,190 in 2003, 2002 and 2001, respectively. The Company used a discount rate of 17% to determine the present value of the liability, as that rate represented the Company's weighted average cost of capital at that time.

(g)

Non-Competition Agreements

        In accordance with the 2001 Recapitalization agreement, certain of the Founding Stockholders have agreed to a non-competition period of three years.

(5) Prepaid Expenses and Other Current Assets

	December 31,
	2003		2002
Commissions	$	1,556,487	$	1,215,190
Insurance		1,007,095		341,696
Inventory		695,135		506,959
Income taxes		5,004,330		3,684,574
Other		706,702		798,944
	$	8,969,749	$	6,547,363

(6) Property and Equipment

        Property and equipment, net, consists of:

	December 31,
	2003			2002
Construction-in-progress	$	2,626,908		$	1,819,083
Leasehold improvements		121,765,313			98,184,739
Fitness equipment		11,395,189			9,388,340
Furniture and fixtures		4,283,658			4,216,443
Computer equipment		5,339,691			3,342,819
Other equipment		3,927,621			2,781,690
Office equipment		1,101,522			749,047
		150,439,902			120,482,161
Less accumulated depreciation and amortization		(35,812,152	)		(26,179,843	)
	$	114,627,750		$	94,302,318

F-17

        Property and equipment includes amounts acquired under capital leases of $2,721,966 and $3,473,932 net of accumulated depreciation of $4,578,485 and $3,144,582 at December 31, 2003 and 2002, respectively. Depreciation expense was $9.7 million, $6.8 million and $5.8 million in 2003, 2002 and 2001, respectively. Interest costs incurred in the construction of facilities, totaling $561,067, $314,896 and $436,733 for the years ended December 31, 2003, 2002 and 2001, respectively, have been capitalized. Rent incurred during the construction period is capitalized as a leasehold improvement.

(7) Accrued Expenses

        Accrued expenses consist of:

	December 31,
	2003		2002
Interest expense	$	719,387	$	1,689,150
Payroll and related benefits and taxes		924,336		1,941,709
Other		2,604,588		1,682,235
	$	4,248,311	$	5,313,094

(8) Capital Lease Obligations

        The Company leases fitness equipment under capital leases that expire at various dates through 2008. The leases require monthly payments of principal and interest imputed at interest rates ranging from approximately 5% to 9.5% per annum.

        Future minimum lease payments under capital leases as of December 31, 2003, are as follows:

2004		$	1,370,916
2005			661,599
2006			271,635
2007			211,238
2008			41,031
Thereafter			—
			2,556,419
Less amount representing interest			(181,219	)
			2,375,200
Less current installments			(1,251,799	)
	Capital lease obligations, less current installments	$	1,123,401

(9) Long-Term Debt

(a)

Credit Agreement

        Pursuant to the Recapitalization (see note 4(a)), the Company paid off its then-existing debt and entered into a new credit agreement with several financial institutions, with one bank acting as administrative agent for the others (the Credit Agreement). Borrowings under the Credit Agreement,

F-18

which are in the form of a term loan and revolving loan commitment (i) and (ii) in Note 9(c) below) are collateralized by certain tangible and intangible assets of the Company and are guaranteed by each wholly owned subsidiary of the Company. The Credit Agreement allows for maximum borrowings of $37,000,000 for the term loan and $23,000,000 for the revolving loan commitment. The Credit Agreement calls for maintenance of certain covenants. This Credit agreement was repaid pursuant to the December 2003 private offering.

        In December 2003, the Company entered into a new revolving credit facility with several financial institutions with one bank acting as administrative agent for the others (the Credit Agreement). Borrowings under the Credit Agreement, which are in the form of a term loan and revolving loan commitment are collateralized by certain assets of the Company and are guaranteed by each wholly owned subsidiary of the Company. The Credit Agreement allows for maximum borrowings of $25.0 million reduced by up to $3.5 million of outstanding cash collateralized standby letters of credit under this facility or issued by another institution. The Credit Agreement calls for maintenance of certain financial and operating covenants. The Company is in compliance with its financial and operating covenants and has not borrowed any funds from this credit agreement as of December 31, 2003. The new revolving credit facility expires on December 16, 2008

        The amounts borrowed bear interest, at the Company's option, at either the prime rate plus an applicable margin or if a LIBOR loan then at the sum of the LIBOR plus the applicable LIBOR margin.

        Under the bank credit facilities, the Company has agreed to pay commitment fees equal to the difference between the loan commitment and the average daily balance of the loan outstanding multiplied by the applicable unused line rate, as defined in the credit agreement.

        In April 2004, the Company issued a $1.5 million irrevocable standby letter of credit to a landlord in connection with a new fitness club due to open in late 2004.

(b)

Senior Subordinated Note and Warrant Purchase Agreement

        Pursuant to the Recapitalization in 2000 (see note 4(a)), the Company entered into a Senior Subordinated Note and Warrant Purchase Agreement (the Subordinated Note Agreement) with several financial institutions under which borrowings are collateralized by certain tangible and intangible assets of the Company and are guaranteed by each wholly owned subsidiary of the Company. The Subordinated Note Agreement ((iii) below) allowed for maximum borrowings of $50,000,000 (plus additional principal accrued as described in (c) below) and called for maintenance of certain covenants. The Senior Subordinated Note and Warrant Purchase Agreement were repaid pursuant to the 2003 $160.0 million debt.

        In addition, $5,268,473 of direct costs related to these agreements was capitalized as deferred financing costs and had been amortized over the remaining terms of the respective agreements. Amortization charged as non-cash interest expense was approximately $875,000 in 2001 and 2002, respectively, and the balance was expensed during 2003 upon repayment.

        Furthermore, as described in Note 4(f), the Company is obligated to make cash payments of $10,000,000 to $15,000,000 to the Founding Stockholders as additional consideration for the repurchase of their shares as described more fully in Notes 4(e) and 4(f). During 2003, as described in Note 4(e), $5.0 million was paid in 2003.

F-19

        In January 2003 a new lender purchased $25.0 million of Senior Notes, which were to mature in December 2007. The Senior Notes were senior to the Senior Subordinated Notes and subordinated to the Company's other credit facility. Interest on the Senior Notes was payable quarterly in cash at a rate of the greater of prime rate or 10% per annum. In addition, the Senior Notes accrued pay-in-kind interest quarterly at a rate of 3.25% per annum. In addition to amendment fees paid at closing to existing lenders, the Company agreed to increase the interest rate payable under the Credit agreement and to increase the pay-in-kind interest for the Senior Subordinated Notes. The lenders under the Credit Agreement also agreed to modify the repayment terms for the Term Loan, reducing the amount due in 2003 from $9.0 million to $3.25 million and the amount due in 2004 from $10.0 million to $7.0 million, with the remaining principal outstanding due in 2005. The January 2003 Senior Notes were repaid pursuant to the December 2003 private offering (see note 9(c)).

(c)

9% Senior Notes

        In December 2003 the Company completed a private offering of $160,000,000 principal amount of 9% Senior Notes due 2009. The net proceeds from the Senior Notes totaled approximately $152.0 million. The transaction fees of approximately $7.0 million were accounted for as deferred financing costs. Interest is payable semi-annually in June and December at the annual rate of 9% and the notes mature on December 15, 2009. Prior to December 15, 2006 we may redeem up to 35% of the aggregate principal amount of the notes with the net proceeds of one or more public equity offerings at 109% so long as at least 65% of the aggregate principal amount of the notes issued remains outstanding. Upon a change of control, holders may require us to repurchase all, or a portion of their notes at 101% of the principal amount plus accrued interest.

        Beginning in December 2006, the notes are redeemable in whole or in part at the option of the Company, at 104.5% in 2006 with annual reductions to 102.25% in 2007 and 100% in 2008 and thereafter, plus accrued and unpaid interest, subject to certain conditions.

        The Company has agreed to use its reasonable best efforts to consummate, within 211 days after the issue date of the notes, an offer to exchange the 9% Senior Notes for registered notes with substantially identical terms to those notes, except that the registered exchange notes will generally be freely transferable in certain circumstances, and to file and cause to become effective a shelf registration statement with respect to the resale of the registered exchange notes. Under certain circumstances if the Company is not in compliance with these obligations, the Company will be required to pay additional interest for the period it is not in compliance. If (i) the Company fails to file any of the registration statements required by the Registration Rights Agreement on or before the date specified for such filing, (ii) any of such registration statements are not declared effective by the SEC on or prior to the date specified for such effectiveness (the "Effectiveness Target Date"), subject to certain limited exceptions, (iii) we fail to consummate the Exchange Offer within 45 days of the Effectiveness Target Date with respect to the Exchange Offer Registration Statement, or (iv) the Shelf Registration Statement or the Exchange Offer Registration Statement is declared effective but thereafter, subject to certain limited exceptions, ceases to be effective or usable in connection with the Exchange Offer or resale of Transfer Restricted Notes, as the case may be, during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (i) through (iv) above, a "Registration Default"), then we will pay additional interest ("Additional Interest") in cash to each holder of Transfer Restricted Notes, with respect to the first 90-day period (or portion thereof) while a Registration Default is continuing immediately following the occurrence of such Registration Default,

F-20

in an amount equal to 0.25% per annum of the principal amount of the notes. The amount of Additional Interest will increase by an additional 0.25% per annum of the principal amount of the notes for each subsequent 90-day period (or portion thereof) while a Registration Default is continuing until all Registration Defaults have been cured, up to a maximum amount of 1.00% per annum of the principal amount of the notes. Following the cure of a particular Registration Default, the accrual of Additional Interest with respect to such Registration Default will cease and the interest rate will revert to the prior rate.

        The note indenture under which the Senior Notes were issued contains certain covenants that, among other things, limit the Company's ability to incur additional indebtedness, issue or sell preferred stock, make certain other restricted payments, make investments, engage in transactions with affiliates, incur liens, engage in asset sales and certain dividend payments. The Company is in compliance with its financial and operating covenants of its financing arrangements as of December 31, 2003.

        The Senior Notes and the bank credit facility, are unsecured and rank equally with our existing and future subordinated obligations and senior in right of payment to all subordinated obligations.

        The proceeds of the private offering were used to:

•

repay the entire principal amount of approximately $27.6 million under the prior credit agreement and terminated all related commitments;



•

repay the entire outstanding principal amount of $25.3 million under the existing senior notes due 2007, plus accrued and unpaid interest;



•

repay the entire principal amount of $52.5 million under the existing senior subordinated notes due 2008, plus accrued and unpaid interest;



•

redeem approximately $1.3 million of our preferred stock and;



•

pay a contractually required amount of $5.0 million to our founding stockholders.

        Long-term debt consists of the following outstanding amounts:

	December 31,
	2003		2002
Term loan (i)	$	—	30,000,000
Revolving loan commitment (ii)		—	16,845,098
Senior subordinated notes (iii)		—	51,391,279
Notes payable (iv)		1,624,022	1,293,636
9% Senior Notes due 2009 (v)		160,000,000	—
		161,624,022	99,530,013
Less warrant-related discount, net of accretion		—	(6,915,306	)
	$	161,624,022	92,614,707

(i)

As of December 31, 2002, the Company had a term loan with several financial institutions. The Credit Agreement matures on December 15, 2005 and, accordingly, has been classified as long-term in the accompanying consolidated balance sheets, net of its current installments. The Company is charged interest at the Eurodollar Rate plus a margin of 3% (an aggregate of 4.4375% as of December 31, 2002). The term loan was repaid as of December 31, 2003.

F-21

(ii)

As of December 31, 2002, the Company had a revolving credit agreement with the same financial institutions (see (i) above). The Credit Agreement matures on December 15, 2005 and, accordingly, has been classified as long-term in the accompanying consolidated balance sheets. The Company is charged interest at the Eurodollar Rate plus a margin of 3% (an aggregate of 4.5729% as of December 31, 2002). This revolving credit agreement was repaid as of December 31, 2003.



(iii)

The Senior Subordinated Notes (the "Notes") accrue cash interest, payable quarterly, at a rate of 12.5% per annum, commencing on April 15, 2001. In addition, the Notes accrue additional principal at an amount of 1.5% per annum, which is added quarterly to the principal amount of the notes, also commencing on April 15, 2001. The Notes and any unpaid accrued interest thereon mature on December 15, 2008, and, accordingly, have been classified as long-term in the accompanying consolidated balance sheets. These Notes were repaid as of December 31, 2003.



(iv)

Notes payable consist of three notes payable to unrelated parties. They bear interest at imputed rates ranging from 8.5% to 12% per annum and are payable in monthly installments through 2018.



(v)

The 9% Senior Notes due 2009 and any unpaid accrued interest thereon mature on December 15, 2009, and, accordingly, have been classified as long-term in the accompanying consolidated balance sheets.

        Aggregate maturities of long-term debt as of December 31, 2003, are as follows:

Year ending December 31:
	2004			123,375
	2005			136,909
	2006			108,307
	2007			73,417
	2008			80,336
	Thereafter			161,101,678
				161,624,022
	Less:
		Current installments		(123,375	)
			Long-term debt, net of current installments	161,500,647

(10) Common Stock Put Warrants

        Pursuant to the Subordinated Note Agreement, the Company issued, to holders of its senior subordinated notes, warrants to purchase 879,214 shares of its common stock at an exercise price of $0.01 per share. The warrants are, under certain conditions, redeemable in cash at the option of the holder or by surrender of the Company's senior subordinated notes due December 15, 2008 (the "Senior Subordinated Notes"). If the Company does not complete a qualified initial public offering of common stock, as defined, by December 2006, then at such time or any time thereafter, the warrant holders may put 100% of their warrants to the Company, which would have 60 days to redeem the warrants at fair market value. In the event that the Company does not redeem the warrant within 60 days, all of the rights represented by the warrant shall convert automatically into an unsecured junior subordinated obligation. This obligation would be payable at the earlier of (i) the maturity of the Senior Subordinated Notes or (ii) refinancing of senior debt, with interest accruing quarterly at 14%

F-22

per annum, increasing by one percent up to 16% for each quarter that the obligation is not repaid. If the Company does not complete a qualified public offering by December 2007, the Company may call the warrants and repurchase all, but not less than all, of the warrant at fair market value.

        The fair value of these warrants at the date of issuance was $9,029,528, which reduced long-term debt in the accompanying consolidated balance sheet. This amount is being accreted as additional interest expense using the effective interest rate over the term of the Senior Subordinated Notes, which mature on December 15, 2008. Accretion charged as non-cash interest was approximately $1.0 million in fiscal 2001 and 2002 and 2003.

        Based on the net-cash settlement requirement, the Company has recorded the warrants as a liability. The fair market value of these warrants is shown as a long-term liability in the accompanying consolidated balance sheets. Changes in the fair market value of the warrant are marked to market with the adjustment shown as other income (expense) in the consolidated statement of income as follows: $888,007, ($2,848,652) and $1,187,789, for the years ended December 31, 2003 and 2002 and 2001, respectively.

(11) Preferred Stock

        During 2001, the Company sold 100,000 shares of preferred stock to investors for cash of $1,000,000. The preferred stock is cumulative with dividends payable in kind at a rate of 2.5% per quarter, which accordingly have been recognized periodically and added to preferred stock in the accompanying financial statements. The preferred stock has no conversion features and allows for an optional redemption at face value by the Company at any time. The preferred stock must be redeemed at face value upon an exit event (as defined in the Recapitalization agreement), provided that all payments to the founding stockholders have been satisfied and that such redemption is permitted by appropriate debt agreements. The outstanding preferred stock was redeemed by the Company in December 2003 for approximately $1.3 million.

(12) Common Stock

        In January 2003, the Company completed a financing transaction in which the existing shareholders purchased 833,334 shares of common stock for $10.0 million. In addition options to purchase 5,000 shares of common stock was exercised during 2003.

(13) Income Taxes

        The provision for (benefit from) income taxes is comprised of the following:

			Fiscal years ended December 31,
			2003			2002	2001
Current:
	Federal		$	—		1,297,361	—
	State and local			—		426,640	147,601
				—		1,724,001	147,601
Deferred:
	Federal			(3,850,594	)	1,908,281	1,456,823
	State and local			(2,338,014	)	504,976	403,083
				(6,188,608	)	2,413,257	1,859,906
		Total	$	(6,188,608	)	4,137,258	2,007,507

F-23

        The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows:

			December 31,
			2003		2002
Deferred tax assets:
	Accrued compensation		$	142,093	122,217
	Allowance for bad debts			980,585	845,669
	Deferred rent			641,719	1,025,911
	Deferred revenue			1,336,477	1,395,669
	Net operating losses			7,957,243	—
	Other			63,370	41,803
		Total gross deferred tax assets		11,121,487	3,431,269
Deferred tax liabilities:
	Depreciation			4,179,076	2,677,463
	Others			40,736	40,736
		Total gross deferred tax liabilities		4,219,812	2,718,199
Net deferred tax assets			$	6,901,675	713,070

        The Company believes that, based upon its consistent history of profitable operations and existing deferred tax liabilities, it is more likely than not that the deferred tax assets generated through December 31, 2003 will be realized. The Company has net operating loss carryforwards totaling $17,682,763.

        Reconciliation of the statutory Federal income tax rate to the Company's effective tax rate is as follows:

					Fiscal years ended December 31,
					2003		2002		2001
U.S. Federal statutory rate					(34.0	)%	34.0	%	34.0	%
Increase (decrease) in taxes resulting from:
	State and local income taxes, net of federal income tax benefit				(11.5)	%	10.3	%	11.2	%
	Permanent differences:
		Changes in fair market value of common stock put warrants			(2.2	)%	16.2	%	(9.5	)%
		Interest expense related to amount due to founding stockholders			1.7	%	3.9	%	4.1	%
			Other		—		5.0	%	.3	%
				Effective income tax rate	(46.0	)%	69.4	%	40.1	%

(14) Related Party Transactions

        Simultaneous with the Recapitalization (see note 3(a)), the Company entered into a consulting agreement with certain of the Incoming Investors. Under the terms of the consulting agreement, the Company is obligated to pay, in semi-annual installments, an annual fee of $800,000 for consulting services rendered (as defined) and to reimburse certain out-of-pocket expenses incurred by the Incoming Investors. This $800,000 annual fee was paid in 2001, 2002 and 2003. The Company was further obligated to pay a fee of $200,000 when the escrowed shares were distributed in 2001 (see note 3(c)). In addition during 2003, the Company paid approximately $207,000 in other related party fees. The consulting agreement expires on the tenth anniversary of the Closing Date or at the direction

F-24

of the board of directors. The costs of this consulting agreement are included within related party management fees and expenses in the accompanying consolidated financial statements.

        A member of the Board of Directors is a partner in partnerships that lease space to the Company at two locations. For the fiscal years ended December 31, 2001, 2002 and 2003, the partnerships received approximately $1.0 million per annum for each location pursuant to their leases.

(15) Stock Option Plans

        The Company currently maintains two stock option plans: i) the Equinox Holdings Inc. 1998 Stock Option Plan (the 1998 Plan) and ii) the Equinox Holdings, Inc. 2000 Stock Incentive Plan (the 2000 Plan).

(a)    1998 Plan

        Under the terms of the 1998 Plan, options to purchase 1,000,000 shares of authorized, but not issued common stock may be granted. Options may be granted to key employees, directors, and consultants who provide services to the Company. Requirements for vesting are set forth by the board of directors when the award is granted. As part of the Recapitalization (See Note 4(a)), all options outstanding under this plan, with exercise prices ranging from $0.01 to $0.90 per share, were either exercised, vested in full or cancelled, and any deferred compensation at the date of the Recapitalization was recognized. There were no additional grants under this plan subsequent to the Recapitalization. The 1998 Plan is closed, and there are no further options available for grant. No pro forma disclosures have been provided due to the compensatory nature of the options granted. At December 31, 2003 and 2002, 142,614 of the outstanding options had an exercise price of $0.90 per share. As of December 31, 2003 there are 284,919 outstanding options at a weighted average exercise price of $.46. No options have been granted, exercised or forfeited since December 31, 2000. The 1998 plan terminates on the first to occur of (i) the 10th anniversary of board adoption; (ii) the 10th anniversary of stockholder approval, and (iii) the date the board terminates the plan. Any outstanding options on the termination date will remain outstanding until they have been exercised, terminated or expire by their terms.

(b)    2000 Plan

        Under the terms of the 2000 Plan, only nonqualified stock options may be granted. Furthermore, the number of options available for grant may not exceed 10% of the fully diluted shares of common stock outstanding as of the Closing Date including any outstanding warrants of the Company issued to the holders of the subordinated notes (see Note 9(b)). Under the provisions of the Plan, options to purchase 1,085,450 shares of authorized, but not issued common stock may be granted to key employees, directors, and consultants who provide services to the Company. Stock options can be granted with an exercise price less than, equal to or greater than the fair market value of the common stock on the date of the grant. Requirements for vesting are set forth by the board of directors when the award is granted. All options granted under the 2000 Plan have a term of ten years.

        As of December 31, 2003, 2002 and 2001, respectively, there were, 961,104, 975,537 and 812,000 stock options outstanding under the 2000 Plan. As of December 31, 2003, the number of shares available to be granted was 124,346. All of these options were granted at an exercise price equivalent to fair market value of the underlying common stock and are held by senior management and outside consultants. All of these outstanding options vest only upon the occurrence of certain events, as defined in the 2000 Plan, including a qualified initial public offering or a change of control. Accordingly, no

F-25

compensation expense has been recorded for options granted to employees, and no pro forma disclosures have been provided due to the contingent nature of the vesting of these options.

        During the years ended December 31, 2003, 2002 and 2001, the Company has granted approximately 5,000, 55,707 and 158,000 stock options, respectively to certain consultants. No pro-forma disclosures have been provided due to the compensatory nature of the options granted, pursuant to which charges of $35,000, $312,516 and $1,022,260 were recorded as of December 31, 2003, 2002 and 2001, respectively. The following weighted average assumptions were used in the calculation in 2003: stock volatility of 42% (representing the average volatility of comparable publicly traded companies), risk free interest rate of 3.5% and no dividends during the expected term of 10 years. The Company used the Black-Scholes option-pricing model to estimate the grant date fair value of its option grants to the outside consultants. The following weighted average assumptions were used in the calculation in 2002: stock volatility of 37% (representing the average volatility of comparable publicly traded companies), risk-free interest rate of 4% and no dividends during the expected term of 10 years. The following weighted average assumptions were used in the calculation in 2001: stock volatility of 44% (representing the average volatility of comparable publicly traded companies), risk-free interest rate of 5% and no dividends during the expected term of 10 years.

        Stock option activity under the 2000 Plan during the periods indicated is as follows:

		Number of shares		Weighted average exercise price
Balance at December 31, 2000		346,000			10.28
	Granted	466,000			10.28
Balance at December 31, 2001		812,000			10.28
	Granted	243,537			10.96
	Forfeited	(80,000	)		10.28
Balance at December 31, 2002		975,537			10.45
	Granted	183,567			12.00
	Exercised	(5,000	)		10.28
	Forfeited	(193,000	)		10.28
Balance at December 31, 2003		961,104		$	10.78

(16) Commitments and Contingencies

(a)    Leases

        The Company leases space under noncancelable operating leases, which expire at various dates through 2023. The leases contain provisions for scheduled rent increases. The accompanying consolidated balance sheet at December 31, 2003 includes deferred rent obligations of $16,206,119, representing accumulated rent expense charged to operations from the inception of certain leases in

F-26

excess of the required lease payments, through December 31, 2003.Minimum future rental obligations under these non-cancelable operating leases at December 31, 2003, are as follows:

2004	$	14,758,553
2005		16,062,503
2006		15,869,175
2007		16,012,560
2008		16,145,968
Thereafter		176,876,256
	$	255,725,015

        Rent expense charged to operations amounted to $16,685,996, $11,869,691 and $9,793,216 for the years ended December 31, 2003, 2002, and 2001, respectively. Included in these amounts are $2,496,492, $1,087,871, and $974,914, respectively of rent expense in excess of required lease payments in those periods.

(b)    Employment Agreement

        The Company has employment agreements with three of its executive officers for terms of up to three years. The employment agreements call for a base salary and certain bonus arrangements. Financial terms under the employment agreements are not material to the Company's consolidated statements of income.

(c)    Letters of Credit

        As of December 31, 2002, the Company had $2.0 million in standby letters of credit with the same banks described in Note 9 and these were released during 2003. The Company has $3.5 million in continuing letters of credit issued during 2003, in connection with the new $25.0 million letter of credit as described in Note 9.

(d)    Litigation

        In the normal course of business, the Company is a party to various claims and/or litigation. Management believes that, based on the advice of legal counsel, the settlement of all such claims and/or litigation, considered in the aggregate, will not have a material adverse effect on the Company's financial statements.

(e)    Benefit Plans

        The Company maintains a defined contribution 401(k) benefit plan for eligible employees. The Company's discretionary matching contributions to this plan were $121,626, $110,002 and $108,163 for the years ended December 31, 2003, 2002, and 2001, respectively.

(17) Financial Information for Guarantors of the Company's Debt

        The Company and all of its domestic subsidiaries have unconditionally guaranteed the $160.0 million of 9% Senior Notes (See Note 9(c)). The parent Company has no independent assets or operations, the guarantees are full and unconditional and joint and several, there are no subsidiaries of the parent other than subsidiary guarantors.

F-27

EQUINOX HOLDINGS, INC.
Unaudited Consolidated Condensed Balance Sheets

			March 31, 2004			December 31, 2003
Assets
Current assets:
	Cash		$	41,475,921		$	42,709,057
	Marketable securities			—			69,914
	Accounts receivable—members, less allowance for doubtful accounts of $32,793 and $112,420, respectively			1,441,411			1,545,565
	Deferred income taxes			3,100,106			2,526,809
	Due from affiliated entities			337,938			—
	Prepaid expenses and other current assets			9,150,409			8,969,749
		Total current assets		55,505,785			55,821,094
Property and equipment, net				122,408,391			114,627,750
Deferred income taxes				4,374,866			4,374,866
Other assets				4,903,526			5,015,120
Goodwill, net				2,503,054			2,503,054
Deferred financing costs, net				7,249,946			6,961,231
		Total assets	$	196,945,568		$	189,303,115
Liabilities and Stockholders' Deficit
Current liabilities:
	Accounts payable		$	824,933		$	1,086,705
	Accrued expenses			10,152,275			4,248,311
	Due to affiliated entities			—			786,644
	Deferred revenue			27,691,386			24,966,440
	Current installments of long-term debt			126,625			123,375
	Current installments of capital lease obligations			1,253,108			1,251,799
		Total current liabilities		40,048,327			32,463,274
Deferred revenue				600,848			495,160
Long-term debt, excluding current installments				161,516,363			161,500,647
Capital lease obligations, net of current installments				919,007			1,123,401
Deferred rent				17,498,760			16,206,119
Common stock put warrants				8,941,605			9,653,768
Due to founding stockholders				3,066,546			2,935,192
		Total long term liabilities		192,543,129			191,914,287
		Total liabilities		232,591,456			224,377,561
Commitments and contingencies
Stockholders' deficit:
	Common stock, $0.01 par value. Authorized 20,000,000 shares; 9,438,247 and 8,604,913 shares issued and outstanding			94,432			94,432
	Additional paid-in capital			82,920,208			82,920,208
	Accumulated other comprehensive income (loss)			—			14,078
	Accumulated deficit			(118,660,528	)		(118,103,164	)
		Total stockholders' deficit		(35,645,888	)		(35,074,446	)
		Total liabilities and stockholders' deficit	$	196,945,568		$	189,303,115

See accompanying notes to unaudited consolidated condensed financial statements.

F-28

EQUINOX HOLDINGS, INC.
Unaudited Consolidated Condensed Statements of Income

			For the three months ended March 31,
			2004			2003
Revenues:
	Membership fees		$	21,715,365		$	17,004,701
	Personal training			7,273,221			6,010,620
	Other revenue			4,519,952			3,681,582
		Total revenue		33,508,538			26,696,903
Expenses:
	Compensation and related expenses			14,462,700			11,429,453
	Rent and occupancy			4,911,245			4,272,484
	General and administrative			8,783,707			4,931,219
	Related-party management fees and expenses			402,118			433,131
	Depreciation and amortization			2,936,231			2,252,539
		Total operating expenses		31,496,001			23,318,826
		Income from operations		2,012,537			3,378,077
Other income (expense):
	Interest expense			(3,791,265	)		(3,940,691	)
	Interest income			51,309			35,413
	Other income (expense)			714,029			—
		Total other expense		(3,025,927	)		(3,905,278	)
		Income before provision for income taxes		(1,013,390	)		(527,201	)
Benefit (provision) for income taxes				456,026			237,240
		Net income	$	(557,364	)	$	(289,961	)

See accompanying notes to unaudited consolidated condensed financial statements.

F-29

EQUINOX HOLDINGS, INC.
Consolidated Statements of Cash Flow

					For the three months ended March 31,
					2004			2003
Cash flows from operating activities:
	Net loss				$	(557,364	)	$	(289,961	)
	Adjustments to reconcile net income to net cash provided by operating activities:
			Depreciation and amortization			2,936,231			2,252,539
			Allowance for doubtful accounts, net of write-offs			(79,628	)		(23,386	)
			Interest expense			351,904			782,833
			Changes in fair market value of common stock put warrants			(712,163	)		—
			Deferred rent			784,974			634,364
			Accretive interest expense related payable to founding stockholders			131,354			—
			Deferred income taxes			(573,297	)		(3,732,319	)
			Changes in operating assets and liabilities:
			Accounts receivable—members			183,782			119,688
			Due (to) from affiliated entities, net			(1,124,582	)		1,056,234
			Prepaid expenses and other current assets			(180,660	)		363,011
			Other assets			111,597			402,515
			Accounts payable			(261,775	)		(448,629	)
			Accrued expenses			5,903,961			1,608,225
			Deferred revenue			2,830,639			3,153,917
				Net cash provided by operating activities		9,744,973			5,879,031
Cash flows from investing activities:
Redemption of marketable securities						55,836			—
	Purchases of property and equipment					(10,009,348	)		(4,992,676	)
				Net cash used in investing activities		(9,953,512	)		(4,992,676	)
Cash flows from financing activities:
	Proceeds from long-term debt					—			25,000,000
	Payment of deferred financing costs					(621,653	)		(2,432,624	)
	Issuance of common stock to existing shareholders for cash					—			10,000,008
	Payment of restricted cash to founding shareholder group					—			188,500
	Repayment of note payable					—			(17,278,724	)
	Repayment of capital lease obligations					(402,944	)		(404,223	)
				Net cash (used) provided by financing activities		(1,024,597	)		15,072,937
				Net (decrease) increase in cash and cash equivalents		(1,233,136	)		15,959,292
Cash at beginning of period						42,709,057			1,244,913
Cash at end of period					$	41,475,921			17,204,205
Supplemental disclosures of cash flow information:
	Cash paid for:
		Interest			$	97,303		$	2,487,331
		Income taxes			$	5,325		$	1,185,262
Supplemental disclosure of noncash investing and financing activities:
		Capital lease obligations entered into for fitness equipment			$	199,857		$	434,954
		Deferred rent capitalized during build-out			$	145,904		$	461,996

F-30

EQUINOX HOLDINGS, INC.
Notes to Unaudited Consolidated Condensed Financial Statements

(1)   Basis of Presentation

Equinox Holdings, Inc. (the 'Company') is engaged in the operation of full service fitness clubs under the trade name 'Equinox Fitness Club' in New York, California, Illinois and Connecticut.

The accompanying consolidated financial statements are unaudited. In the opinion of the Company's management, these unaudited consolidated financial statements reflect all adjustments necessary, consisting of normal recurring adjustments, for a fair presentation of such data on a basis consisted with that of the audited data presented herein. The Company uses an annual effective tax rate that is based upon the expected annual income, statutory rates and tax planning opportunities to determine its quarterly provision for income taxes. The accompanying unaudited consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All inter-company accounts and transactions have been eliminated in consolidation. The consolidated results of operations and financial position for interim periods are not necessarily indicative of those to be expected for a full year due, in part, to seasonal fluctuations, which are normal for the Company's business. Further, the Company has made a number of estimates and assumptions relating to the assets and liabilities, the disclosure of contingent assets and liabilities and the reporting of revenue and expenses to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.

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EQUINOX HOLDINGS, INC.

Schedule II.—Valuation and Qualifying Accounts

	Balance at beginning of period		Charges to costs and expenses	Deductions		Balance at end of period
Allowance for Doubtful Accounts (deducted from Accounts Receivable)
fiscal year ended:
December 31, 2001	$	323,075	388,863	(611,986	)	$	99,952
December 31, 2002	$	99,952	840,204	(850,757	)	$	89,399
December 31, 2003	$	89,399	866,757	(843,736	)	$	112,420

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Equinox Holdings, Inc.

Offer to exchange
its 9% Senior Notes Due 2009

                        , 2004

Dealer Prospectus Delivery Obligation

Until                        , 2004, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS

Indemnification of Officers and Directors under Delaware General Corporation Law

        Section 145 of the Delaware Corporation Law, as amended, provides with respect to indemnification of directors and officers as follows:

        "145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INSURANCE.—(a) A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

        (b)   A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

        (c)   To the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith.

        (d)   Any indemnification under subsections (a) and (b) of this section (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, employee or agent is proper in the circumstances because the person has met the applicable standard of conduct set forth in

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subsections (a) and (b) of this section. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (3) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (4) by the stockholders.

        (e)   Expenses (including attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized in this section. Such expenses (including attorneys' fees) incurred by former directors and officers and agents may be so paid upon such terms and conditions, if any, as the corporation deems appropriate.

        (f)    The indemnification and advancement of expenses provided by, or granted pursuant to the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office.

        (g)   A corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the corporation would have the power to indemnify such person against such liability under this section.

        (h)   For purposes of this section, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this section with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued.

        (i)    For purposes of this section, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such as director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this section.

        (j)    The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless otherwise provided when authorized or ratified, continue as to a person

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who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person."

        (k)   The Court of Chancery is hereby vested with exclusive jurisdiction to hear and determine all actions for advancement of expenses or indemnification brought under this section or under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. The Court of Chancery may summarily determine a corporation's obligation to advance expenses (including attorneys' fees).

Indemnification of Officers and Directors under New York Corporation Law

        Sections 721to726 of the New York Business Corporation Law, as amended, provides with respect to indemnification of directors and officers as follows:

"721 NONEXCLUSIVITY OF STATUTORY PROVISIONS FOR INDEMNIFICATION OF DIRECTORS AND OFFICERS.

        The indemnification and advancement of expenses granted pursuant to, or provided by, this article shall not be deemed exclusive of any other rights to which a director or officer seeking indemnification or advancement of expenses may be entitled, whether contained in the certificate of incorporation or the by-laws or, when authorized by such certificate of incorporation or by-laws, (i) a resolution of shareholders, (ii) a resolution of directors, or (iii) an agreement providing for such indemnification, provided that no indemnification may be made to or on behalf of any director or officer if a judgment or other final adjudication adverse to the director or officer establishes that his acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, or that he personally gained in fact a financial profit or other advantage to which he was not legally entitled. Nothing contained in this article shall affect any rights to indemnification to which corporate personnel other than directors and officers may be entitled by contract or otherwise under law.

        722 AUTHORIZATION FOR INDEMNIFICATION OF DIRECTORS AND OFFICERS.

        (a)   A corporation may indemnify any person, made, or threatened to be made, a party to an action or proceeding other than one by or in the right of the corporation to procure a judgment in its favor, whether civil or criminal, including an action by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which any director or officer of the corporation served in any capacity at the request of the corporation, by reason of the fact that he, his testator or intestate, was a director or officer of the corporation, or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorney's fees actually and necessarily incurred as a result of such action or proceeding, or any appeal therein, if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the corporation and, in criminal actions or proceedings, in addition, had no reasonable cause to believe that his conduct was unlawful.

        (b)   The termination of any such civil or criminal action or proceeding by judgment, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not in itself create a presumption that any such director or officer did not act, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the corporation or that he had reasonable cause to believe that his conduct was unlawful.

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        (c)   A corporation may indemnify any person made, or threatened to be made, a party to an action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he, his testator or intestate, is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of any other corporation of any type or kind, domestic or foreign, of any partnership, joint venture, trust, employee benefit plan or other enterprise, against amounts paid in settlement and reasonable expenses, including attorneys' fees, actually and necessarily incurred by him in connection with the defense or settlement of such action, or in connection with an appeal therein if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the corporation, except that no indemnification under this paragraph shall be made in respect of (1) a threatened action, or a pending action which is settled or otherwise disposed of, or (2) any claim issue or matter as to which such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the court on which the action was brought, or, if no action was brought, any court of competent jurisdiction, determines upon application that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such portion of the settlement amount and expenses as the court deems proper.

        (d)   For the purpose of this section, a corporation shall be deemed to have requested a person to serve an employee benefit plan where the performance by such person of his duties to the corporation also imposes duties on, or otherwise involves services by, such person to the plan or participants or beneficiaries of the plan; excise taxes assessed on a person with respect to an employee benefit plan pursuant to applicable law shall be considered fines; and action taken or omitted by a person with respect to an employee benefit plan in the performance of such person's duties for a purpose reasonably believed by such person to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the corporation.

        723 PAYMENT OF INDEMNIFICATION OTHER THAN BY COURT AWARD.

        (a)   A person who has been successful, on the merits or otherwise, in the defense of a civil or criminal action or proceeding of the character described in section 722 shall be entitled to indemnification as authorized in such section.

        (b)   Except as provided in paragraph (a), any indemnification under section 722 or otherwise permitted by section 721, unless ordered by a court under section 724 (Indemnification of directors and officers by a court), shall be made by the corporation, only if authorized in the specific case:

        (1)   By the board acting by a quorum consisting of directors who are not parties to such action or proceeding upon a finding that the director or officer has met the standard of conduct set forth in section 722 or established pursuant to section 721, as the case may be, or,

        (2)   If a quorum under subparagraph (1) is not obtainable or, even if obtainable, a quorum of disinterested directors so directs;

        (A)  By the board upon the opinion in writing of independent legal counsel that indemnification is proper in the circumstances because the applicable standard of conduct set forth in such sections has been met by such director or officer, or

        (B)  By the shareholders upon a finding that the director or officer has met the applicable standard of conduct set forth in such sections.

        (c)   Expenses incurred in defending a civil or criminal action or proceeding may be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an

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undertaking by or on behalf of such director or officer to repay such amount as, and to the extent, required by paragraph (a) of section 725.

        724 INDEMNIFICATION OF DIRECTORS AND OFFICERS BY A COURT.

        (a)   Notwithstanding the failure of a corporation to provide indemnification, and despite any contrary resolution of the board or of the shareholders in the specific case under section 723 (Payment of indemnification other than by court award), indemnification shall be awarded by a court to the extent authorized under section 722 (Authorization for indemnification of directors and officers), and paragraph (a) of section 723. Application therefore may be made, in every case, either:

        (1)   In the civil action or proceeding in which the expenses were incurred or other amounts were paid, or

        (2)   To the supreme court in a separate proceeding, in which case the application shall set forth the disposition of any previous application made to any court for the same or similar relief and also reasonable cause for the failure to make application for such relief in the action or proceeding in which the expenses were incurred or other amounts were paid.

        (b)   The application shall be made in such manner and form as may be required by the applicable rules of court or, in the absence thereof, by direction of a court to which it is made. Such application shall be upon notice to the corporation. The court may also direct that notice be given at the expense of the corporation to the shareholders and such other persons as it may designate in such manner as it may require.

        (c)   Where indemnification is sought by judicial action, the court may allow a person such reasonable expenses, including attorneys' fees, during the pendency of the litigation as are necessary in connection with his defense therein, if the court shall find that the defendant has by his pleadings or during the course of the litigation raised genuine issues of fact or law.

        725 OTHER PROVISIONS AFFECTING INDEMNIFICATION OF DIRECTORS AND OFFICERS.

        (a)   All expenses incurred in defending a civil or criminal action or proceeding which are advanced by the corporation under paragraph (c) of section 723 (Payment of indemnification other than by court award) or allowed by a court under paragraph (c) of section 724 (Indemnification of directors and officers by a court) shall be repaid in case the person receiving such advancement or allowance is ultimately found, under the procedure set forth in this article, not to be entitled to indemnification or, where indemnification is granted, to the extent the expenses so advanced by the corporation or allowed by the court exceed the indemnification to which he is entitled.

        (b)   No indemnification, advancement or allowance shall be made under this article in any circumstance where it appears:

        (1)   That the indemnification would be inconsistent with the law of the jurisdiction of incorporation of a foreign corporation which prohibits or otherwise limits such indemnification;

        (2)   That the indemnification would be inconsistent with a provision of the certificate of incorporation, a by-law, a resolution of the board or of the shareholders, an agreement or other proper corporate action, in effect at the time of the accrual of the alleged cause of action asserted in the threatened or pending action or proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or

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        (3)   If there has been a settlement approved by the court, that the indemnification would be inconsistent with any condition with respect to indemnification expressly imposed by the court in approving the settlement.

        (c)   If any expenses or other amounts are paid by way of indemnification, otherwise than by court order or action by the shareholders, the corporation shall, not later than the next annual meeting of shareholders unless such meeting is held within three months from the date of such payment, and in any event, within fifteen months from the date of such payment, mail to its shareholders of record at the time entitled to vote for the election of directors a statement specifying the persons paid, the amounts paid, and the nature and status at the time of such payment of the litigation or threatened litigation.

        (d)   If any action with respect to indemnification of directors and officers is taken by way of amendment of the by-laws, resolution of directors, or by agreement, then the corporation shall, not later than the next annual meeting of shareholders, unless such meeting is held within three months from the date of such action, and, in any event, within fifteen months from the date of such action, mail to its shareholders of record at the time entitled to vote for the election of directors a statement specifying the action taken.

        (e)   Any notification required to be made pursuant to the foregoing paragraph (c) or (d) of this section by any domestic mutual insurer shall be satisfied by compliance with the corresponding provisions of section one thousand two hundred sixteen of the insurance law.

        (f)    The provisions of this article relating to indemnification of directors and officers and insurance therefor shall apply to domestic corporations and foreign corporations doing business in this state, except as provided in section 1320 (Exemption from certain provisions).

        726 INSURANCE FOR INDEMNIFICATION OF DIRECTORS AND OFFICERS.

        (a)   Subject to paragraph (b), a corporation shall have power to purchase and maintain insurance:

        (1)   To indemnify the corporation for any obligation which it incurs as a result of the indemnification of directors and officers under the provisions of this article, and

        (2)   To indemnify directors and officers in instances in which they may be indemnified by the corporation under the provisions of this article, and

        (3)   To indemnify directors and officers in instances in which they may not otherwise be indemnified by the corporation under the provisions of this article provided the contract of insurance covering such directors and officers provides, in a manner acceptable to the superintendent of insurance, for a retention amount and for co-insurance.

        (b)   No insurance under paragraph (a) may provide for any payment, other than cost of defense, to or on behalf of any director or officer:

        (1)   if a judgment or other final adjudication adverse to the insured director or officer establishes that his acts of active and deliberate dishonesty were material to the cause of action so adjudicated, or that he personally gained in fact a financial profit or other advantage to which he was not legally entitled, or

        (2)   in relation to any risk the insurance of which is prohibited under the insurance law of this state.

        (c)   Insurance under any or all subparagraphs of paragraph (a) may be included in a single contract or supplement thereto. Retrospective rated contracts are prohibited.

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        (d)   The corporation shall, within the time and to the persons provided in paragraph (c) of section 725 (Other provisions affecting indemnification of directors or officers), mail a statement in respect of any insurance it has purchased or renewed under this section, specifying the insurance carrier, date of the contract, cost of the insurance, corporate positions insured, and a statement explaining all sums, not previously reported in a statement to shareholders, paid under any indemnification insurance contract.

        (e)   This section is the public policy of this state to spread the risk of corporate management, notwithstanding any other general or special law of this state or of any other jurisdiction including the federal government."

Indemnification of Officers and Directors under California Corporation Law

        Section 317 of the California General Corporation Law, as amended, provides with respect to indemnification of directors and officers as follows:

        "317 INDEMNIFICATION OF CORPORATE AGENTS.

        (a)   For the purposes of this section, "agent" means any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the corporation or of another enterprise at the request of the predecessor corporation; "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative; and "expenses" includes without limitation attorneys' fees and any expenses of establishing a right to indemnification under subdivision (d) or paragraph (4) of subdivision (e).

        (b)   A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor) by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with the proceeding if that person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interests of the corporation or that the person had reasonable cause to believe that the person's conduct was unlawful.

        (c)   A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was an agent of the corporation, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of the action if the person acted in good faith, in a manner the person believed to be in the best interests of the corporation and its shareholders.

        No indemnification shall be made under this subdivision for any of the following:

        (1)   In respect of any claim, issue or matter as to which the person shall have been adjudged to be liable to the corporation in the performance of that person's duty to the corporation and its shareholders, unless and only to the extent that the court in which the proceeding is or was pending shall determine upon application that, in view of all the

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circumstances of the case, the person is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine.

        (2)   Of amounts paid in settling or otherwise disposing of a pending action without court approval.

        (3)   Of expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval.

(d)

To the extent that an agent of a corporation has been successful on the merits in defense of any proceeding referred to in subdivision (b) or (c) or in defense of any claim, issue, or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith.

        (e)   Except as provided in subdivision (d), any indemnification under this section shall be made by the corporation only if authorized in the specific case, upon a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in subdivision (b) or (c), by any of the following:

        (1)   A majority vote of a quorum consisting of directors who are not parties to such proceeding.

        (2)   If such a quorum of directors is not obtainable, by independent legal counsel in a written opinion.

        (3)   Approval of the shareholders (Section 153), with the shares owned by the person to be indemnified not being entitled to vote thereon.

        (4)   The court in which the proceeding is or was pending upon application made by the corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not the application by the agent, attorney or other person is opposed by the corporation.

        (f)    Expenses incurred in defending any proceeding may be advanced by the corporation prior to the final disposition of the proceeding upon receipt of an undertaking by or on behalf of the agent to repay that amount if it shall be determined ultimately that the agent is not entitled to be indemnified as authorized in this section. The provisions of subdivision (a) of Section 315 do not apply to advances made pursuant to this subdivision.

        (g)   The indemnification authorized by this section shall not be deemed exclusive of any additional rights to indemnification for breach of duty to the corporation and its shareholders while acting in the capacity of a director or officer of the corporation to the extent the additional rights to indemnification are authorized in an article provision adopted pursuant to paragraph (11) of subdivision (a) of Section 204. The indemnification provided by this section for acts, omissions, or transactions while acting in the capacity of, or while serving as, a director or officer of the corporation but not involving breach of duty to the corporation and its shareholders shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors, or otherwise, to the extent the additional rights to indemnification are authorized in the articles of the corporation. An article provision authorizing indemnification "in excess of that otherwise permitted by Section 317" or "to the fullest extent permissible under California law" or the substantial equivalent thereof shall be construed to be both a provision for additional indemnification for breach of duty to the corporation and its shareholders as referred to in, and with the limitations required by, paragraph (11) of subdivision (a) of Section 204 and a provision for additional indemnification as referred to in the second sentence of this subdivision. The rights to indemnity hereunder shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall

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inure to the benefit of the heirs, executors, and administrators of the person. Nothing contained in this section shall affect any right to indemnification to which persons other than the directors and officers may be entitled by contract or otherwise.

        (h)   No indemnification or advance shall be made under this section, except as provided in subdivision (d) or paragraph (4) of subdivision (e), in any circumstance where it appears:

        (1)   That it would be inconsistent with a provision of the articles, bylaws, a resolution of the shareholders, or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification.

        (2)   That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.

        (i)    A corporation shall have power to purchase and maintain insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in that capacity or arising out of the agent's status as such whether or not the corporation would have the power to indemnify the agent against that liability under this section. The fact that a corporation owns all or a portion of the shares of the company issuing a policy of insurance shall not render this subdivision inapplicable if either of the following conditions are satisfied: (1) if the articles authorize indemnification in excess of that authorized in this section and the insurance provided by this subdivision is limited as indemnification is required to be limited by paragraph (11) of subdivision (a) of Section 204; or (2)(A) the company issuing the insurance policy is organized, licensed, and operated in a manner that complies with the insurance laws and regulations applicable to its jurisdiction of organization, (B) the company issuing the policy provides procedures for processing claims that do not permit that company to be subject to the direct control of the corporation that purchased that policy, and (C) the policy issued provides for some manner of risk sharing between the issuer and purchaser of the policy, on one hand, and some unaffiliated person or persons, on the other, such as by providing for more than one unaffiliated owner of the company issuing the policy or by providing that a portion of the coverage furnished will be obtained from some unaffiliated insurer or reinsurer.

        (j)    This section does not apply to any proceeding against any trustee, investment manager, or other fiduciary of an employee benefit plan in that person's capacity as such, even though the person may also be an agent as defined in subdivision (a) of the employer corporation. A corporation shall have power to indemnify such a trustee, investment manager, or other fiduciary to the extent permitted by subdivision (f) of Section 207."

Indemnification of Officers and Directors under Connecticut Corporation Law

        Sections 33-770 to 33-779 of the Connecticut Business Corporation Act, as amended, provides with respect to indemnification of directors and officers as follows:

        "33-770 DEFINITIONS.

        As used in sections 33-770 to 33-779, inclusive:

        (1)   "Corporation" includes any domestic or foreign predecessor entity of a corporation in a merger.

        (2)   "Director" or "officer" means an individual who is or was a director or officer, respectively, of a corporation or who, while a director or officer of the corporation, is or was serving at the corporation's request as a director, officer, partner, trustee, employee or agent of another domestic or foreign corporation, partnership, joint venture, trust, employee benefit plan or other entity. A director or officer is considered to be serving an employee benefit plan at the

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corporation's request if his duties to the corporation also impose duties on, or otherwise involve services by, him to the plan or to participants in or beneficiaries of the plan. "Director" or "officer" includes, unless the context requires otherwise, the estate or personal representative of a director or officer.

        (3)   "Disinterested director" means a director who at the time of a vote referred to in subsection (c) of section 33-773, or a vote or selection referred to in subsection (b) or (c) of section 33-775, is not (a) a party to the proceeding or (b) an individual having a familial, financial, professional or employment relationship with the director whose indemnification or advance for expenses is the subject of the decision being made, which relationship would, in the circumstances, reasonably be expected to exert an influence on the director's judgment when voting on the decision being made.

        (4)   "Expenses" include counsel fees.

        (5)   "Liability" means the obligation to pay a judgment, settlement, penalty, fine, including an excise tax assessed with respect to an employee benefit plan, or reasonable expenses incurred with respect to a proceeding.

        (6)   "Official capacity" means: (A) When used with respect to a director, the office of director in a corporation; and (B) when used with respect to an individual other than a director, as contemplated in section 33-776, the office in a corporation held by the officer or the employment or agency relationship undertaken by the employee or agent on behalf of the corporation. "Official capacity" does not include service for any other domestic or foreign corporation or any partnership, joint venture, trust, employee benefit plan or other entity.

        (7)   "Party" means an individual who was, is or is threatened to be made a defendant or respondent in a proceeding.

        (8)   "Proceeding" means any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative and whether formal or informal.

        33-771 AUTHORITY TO INDEMNIFY.

        (a)   Except as otherwise provided in this section, a corporation may indemnify an individual who is a party to a proceeding because he is a director against liability incurred in the proceeding if: (1) (A) He conducted himself in good faith; (B) he reasonably believed (i) in the case of conduct in his official capacity, that his conduct was in the best interests of the corporation; and (ii) in all other cases, that his conduct was at least not opposed to the best interests of the corporation; and (C) in the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful; or (2) he engaged in conduct for which broader indemnification has been made permissible or obligatory under a provision of the certificate of incorporation as authorized by subdivision (5) of subsection (b) of section 33-636.

        (b)   A director's conduct with respect to an employee benefit plan for a purpose he reasonably believed to be in the interests of the participants in and beneficiaries of the plan is conduct that satisfies the requirement of subparagraph (ii) of subdivision (1) of subsection (a) of this section.

        (c)   The termination of a proceeding by judgment, order, settlement or conviction or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that the director did not meet the relevant standard of conduct described in this section.

        (d)   Unless ordered by a court under section 33-774, a corporation may not indemnify a director under this section: (1) In connection with a proceeding by or in the right of the corporation except for reasonable expenses incurred in connection with the proceeding if it is

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determined that the director has met the relevant standard of conduct under subsection (a) of this section; or (2) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that he received a financial benefit to which he was not entitled, whether or not involving action in his official capacity.

        (e)   Notwithstanding any provision of this section to the contrary, a corporation which was incorporated under the laws of this state, whether under chapter 599 of the general statutes, revised to January 1, 1995, or any other general law or special act, prior to January 1, 1997, shall, except to the extent that the certificate of incorporation expressly provides otherwise, indemnity under sections 33-770 to 33-779, inclusive, except subdivision (2) of subsection (a) of this section, a director to the same extent the corporation is permitted to provide the same to a director pursuant to subdivision (1) of subsection (a) and subsections (b), (c) and (d) of this section as limited by the provisions of section 33-775.

        33-772 MANDATORY INDEMNIFICATION.

        A corporation shall indemnify a director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director of the corporation against reasonable expenses incurred by him in connection with the proceeding.

        33-773 ADVANCE FOR EXPENSES.

        (a)   A corporation may, before final disposition of a proceeding, advance funds to pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding because he is a director if he delivers to the corporation: (1) A written affirmation of his good faith belief that he has met the relevant standard of conduct described in section 33-771, or that the proceeding involves conduct for which liability has been limited under a provision of the certificate of incorporation as authorized by subdivision (4) of subsection (b) of section 33-636; and (2) his written undertaking to repay any funds advanced if he is not entitled to mandatory indemnification under section 33-772, and it is ultimately determined under section 33-772 that he has not met the relevant standard of conduct described in section 33-771.

        (b)   The undertaking required by subdivision (2) of subsection (a) of this section must be an unlimited general obligation of the director but need not be secured and may be accepted without reference to the financial ability of the director to make repayment.

        (c)   Authorizations under this section shall be made: (1) By the board of directors: (A) if there are two or more disinterested directors, by a majority vote of all the disinterested directors, a majority of whom shall for such purpose constitute a quorum, or by a majority of the members of a committee of two or more disinterested directors appointed by such a vote; or (B) if there are fewer than two disinterested directors, by the vote necessary for action by the board in accordance with section 33-752, in which authorization directors who do not qualify as disinterested directors may participate; or (2) by the shareholders, provided shares owned by or voted under the control of a director who at the time does not qualify as a disinterested director may not be voted on the authorization.

        33-774 COURT-ORDERED INDEMNIFICATION.

        (a)   A director who is a party to a proceeding because he is a director may apply for indemnification or an advance for expenses to the court conducting the proceeding or to another court of competent jurisdiction. After receipt of an application and after giving any notice it considers necessary, the court shall: (1) Order indemnification if it determines that the director is entitled to mandatory indemnification under section 33-772; (2) order indemnification or advance for expenses if the court determines that the director is entitled to indemnification or advance for expenses pursuant to a provision authorized by subsection (a) of section 33-778; or (3) order

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indemnification or advance for expenses if the court determines, in view of all the relevant circumstances, that it is fair and reasonable (A) to indemnify the director or (B) to advance expenses to the director, even if he has not met the relevant standard of conduct set forth in subsection (a) of section 33-771, failed to comply with section 33-773, or was adjudged liable in a proceeding referred to in subdivision (1) or (2) of subsection (d) of section 33-771, provided if he was adjudged so liable his indemnification shall be limited to reasonable expenses incurred in connection with the proceeding.

        (B)  If the court determines that the director is entitled to indemnification under subdivision (1) of subsection (a) of this section or to indemnification or advance for expenses under subdivision (2) of subsection (a) of this section, it shall also order the corporation to pay the director's reasonable expenses incurred in connection with obtaining court-ordered indemnification or advance for expenses. If the court determines that the director is entitled to indemnification or advance for expenses under subdivision (3) of subsection (a) of this section, it may also order the corporation to pay the director's reasonable expenses to obtain court-ordered indemnification or advance for expenses.

        33-775 DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION.

        (a)   A corporation may not indemnify a director under section 33-771 unless authorized for a specific proceeding after a determination has been made that indemnification of the director is permissible because he has met the relevant standard of conduct set forth in said section.

        (b)   The determination shall be made:

        (1)   If there are two or more disinterested directors, by the board of directors by a majority vote of all the disinterested directors, a majority of whom shall for such purpose constitute a quorum, or by a majority of the members of a committee of two or more disinterested directors appointed by such a vote;

        (2)   By special legal counsel (A) selected in the manner prescribed in subdivision (1) of this subsection, or (B) if there are fewer than two disinterested directors, selected by the board of directors, in which selection directors who do not qualify as disinterested directors may participate; or

        (3)   By the shareholders, but shares owned by or voted under the control of a director who at the time does not qualify as a disinterested director may not be voted on the determination.

        (c)   Authorization of indemnification shall be made in the same manner as the determination that indemnification is permissible, except that if there are fewer than two disinterested directors, or if the determination is made by special legal counsel, authorization of indemnification shall be made by those entitled under subparagraph (B) of subdivision (2) of subsection (b) of this section to select special legal counsel.

        33-776 INDEMNIFICATION OF AND ADVANCE FOR EXPENSES TO OFFICERS, EMPLOYEES AND AGENTS.

        (a)   A corporation may indemnify and advance expenses under sections 33-770 to 33-779, inclusive, to an officer, employee or agent of the corporation who is a party to a proceeding because he is an officer, employee or agent of the corporation (1) to the same extent as a director, and (2) if he is an officer, employee or agent but not a director, to such further extent, consistent with public policy, as may be provided by contract, the certificate of incorporation, the bylaws or a resolution of the board of directors. A corporation may delegate to its general counsel or other specified officer or officers the ability under this subsection to determine that indemnification or advance for expenses to such officer, employee or agent is permissible and the ability to authorize

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payment of such indemnification or advance for expenses. Nothing in this subdivision shall in any way limit either the ability or the obligation of a corporation to indemnify and advance expenses under other applicable law to any officer, employee or agent who is not a director.

        (b)   The provisions of subdivision (2) of subsection (a) of this section shall apply to an officer, employee or agent who is also a director if the basis on which he is made a party to the proceeding is an act or omission solely as an officer, employee or agent.

        (c)   An officer, employee or agent of a corporation who is not a director is entitled to mandatory indemnification under section 33-772, and may apply to a court under section 33-774, for indemnification or advance for expenses, in each case to the same extent to which a director may be entitled to indemnification or advance for expenses under said sections.

        (d)   A corporation which was incorporated under the laws of this state, whether under chapter 599 of the general statutes, revised to January 1, 1995, or any other general law or special act, prior to January 1, 1997, shall, except to the extent that the certificate of incorporation expressly provides otherwise, indemnify under sections 33-770 to 33-779, inclusive, except subdivision (2) of subsection (a) of section 33-771, each officer, employee or agent of the corporation who is not a director to the same extent as the corporation is permitted to provide the same to a director pursuant to subdivision (1) of subsection (a) and subsections (b), (c) and (d) of section 33-771, as limited by section 33-775, and for this purpose the determination required by section 33-775 may in addition be made by the general counsel of the corporation, or such other or additional officer or officers as the board of directors may specify.

        33-777 INSURANCE.

        A corporation may purchase and maintain insurance on behalf of an individual who is¹ a director, officer, employee or agent of the corporation, or who, while a director, officer, employee or agent of the corporation, serves at the corporation's request as a director, officer, partner, trustee, employee or agent of another domestic or foreign corporation, partnership, joint venture, trust, employee benefit plan or other entity, against liability asserted against or incurred by him in that capacity or arising from his status as a director, officer, employee or agent, whether or not the corporation would have power to indemnify or advance expenses to him against the same liability under sections 33-770 to 33-779, inclusive.

        33-778 VALIDITY AND APPLICABILITY OF INDEMNIFICATION PROVISIONS.

        (a)   A corporation may, by a provision in its certificate of incorporation or bylaws or in a resolution adopted or a contract approved by its board of directors or shareholders, obligate itself in advance of the act or omission giving rise to a proceeding to provide indemnification in accordance with section 33-771 or advance funds to pay for or reimburse expenses in accordance with section 33-773. Any such obligatory provision shall be deemed to satisfy the requirements for authorization referred to in subsection (c) of section 33-773 and subsection (c) of section 33-775, as amended by this act. Any such provision that obligates the corporation to provide indemnification to the fullest extent permitted by law shall be deemed to obligate the corporation to advance funds to pay for or reimburse expenses in accordance with section 33-773 to the fullest extent permitted by law, unless the provision specifically provides otherwise.

        (b)   Any provision pursuant to subsection (a) of this section shall not obligate the corporation to indemnify or advance expenses to a director of a predecessor of the corporation, pertaining to conduct with respect to the predecessor, unless otherwise specifically provided. Any provision for indemnification or advance for expenses in the certificate of incorporation, bylaws or resolution of the board of directors or shareholders of a predecessor of the corporation in a merger or in a contract to which the predecessor is a party, existing at the time the merger takes effect, shall be governed by subdivision (3) of subsection (a) of section 33-820.

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        (c)   A corporation may, by a provision in its certificate of incorporation, limit any of the rights to indemnification or advance for expenses created by or pursuant to sections 33-770 to 33-779, inclusive.

        (d)   Sections 33-770 to 33-779, inclusive, do not limit a corporation's power to pay or reimburse expenses incurred by a director in connection with his appearance as a witness in a proceeding at a time when he is not a party.

        33-779 EXCLUSIVITY OF PROVISIONS.

        A corporation may provide indemnification of or advance expenses to a director, officer, employee or agent only as permitted by sections 33-770 to 33-779, inclusive.

Indemnification of Officers and Directors under Illinois Corporation Law

        Section 8.75 of the Illinois Business Corporation Act of 1983, as amended, provides with respect to indemnification of directors and officers as follows:

        "5/8.75 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INSURANCE.

        (a)   A corporation may indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation or, with respect to any criminal action or proceeding, that the person had reasonable cause to believe that his or her conduct was unlawful.

        (b)   A corporation may indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, if such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, provided that no indemnification shall be made with respect to any claim, issue, or matter as to which such person has been adjudged to have been liable to the corporation, unless, and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper.

        (c)   To the extent that a present or former director, officer or employee of a corporation has been successful, on the merits or otherwise, in the defense of any action, suit or proceeding

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referred to in subsections (a) and (b), or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith, if the person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation.

        (d)   Any indemnification under subsections (a) and (b) (unless ordered by a court) shall be made by the corporation only as authorized in the specific case, upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in subsections (a) or (b). Such determination shall be made with respect to a person who is a director or officer at the time of the determination: (1) by the majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, (2) by a committee of the directors designated by a majority vote of the directors, even though less than a quorum, (3) if there are no such directors, or if the directors so direct, by independent legal counsel in a written opinion, or (4) by the shareholders.

        (e)   Expenses (including attorney's fees) incurred by an officer or director in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized in this Section. Such expenses (including attorney's fees) incurred by former directors and officers or other employees and agents may be so paid on such terms and conditions, if any, as the corporation deems appropriate.

        (f)    The indemnification and advancement of expenses provided by or granted under the other subsections of this Section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office.

        (g)   A corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of this Section.

        (h)   If a corporation indemnifies or advances expenses to a director or officer under subsection (b) of this Section, the corporation shall report the indemnification or advance in writing to the shareholders with or before the notice of the next shareholders meeting.

        (i)    For purposes of this Section, references to "the corporation" shall include, in addition to the surviving corporation, any merging corporation (including any corporation having merged with a merging corporation) absorbed in a merger which, if its separate existence had continued, would have had the power and authority to indemnify its directors, officers, and employees or agents, so that any person who was a director, officer, employee or agent of such merging corporation, or was serving at the request of such merging corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Section with respect to the surviving corporation as such person would have with respect to such merging corporation if its separate existence had continued.

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        (j)    For purposes of this Section, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries. A person who acted in good faith and in a manner he or she reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interest of the corporation" as referred to in this Section.

        (k)   The indemnification and advancement of expenses provided by or granted under this Section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of that person.

        (l)    The changes to this Section made by this amendatory Act of the 92nd General Assembly apply only to actions commenced on or after the effective date of this amendatory Act of the 92nd General Assembly.

Director and Officer Indemnification and Insurance Provisions in the By-laws of Equinox Holdings, Inc.

        The by-laws of Equinox Holdings, Inc. (the "Corporation") provide that it shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was or has agreed to become a director or officer of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director or officer, of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, and may indemnify any person who was or is a party or is threatened to be made a party to such an action, suit or proceeding by reason of the fact that he or she is or was or has agreed to become an employee or agent of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her or on his or her behalf in connection with such action, suit or proceeding and any appeal therefrom, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding had no reasonable cause to believe his or her conduct was unlawful; except that in the case of an action or suit by or in the right of the Corporation to procure a judgment in its favor (1) such indemnification shall be limited to expenses (including attorneys' fees) actually and reasonably incurred by such person in the defense or settlement of such action or suit, and (2) no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper.

        The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.

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        Section 6.07 of the by-laws of Equinox Holdings, Inc. provides that it may purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her or on his or her behalf in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of article 6 of the by-laws, provided that such insurance is available on acceptable terms, which determination shall be made by a vote of a majority of the entire Board of Directors.

Director and Officer Indemnification and Insurance Provisions in the by-laws of other registrants

        The by-laws of all of the registrant subsidiaries of Equinox Holdings, Inc. provide that the respective subsidiary will indemnify its directors and officers to the fullest extent allowed by law.

Indemnification Provisions in the employment agreements of officers of the registrants

        The employment agreement of certain officers of registrants with Equinox Holdings, Inc. provides that Equinox Holdings, Inc. shall indemnify and hold harmless the officer to the fullest extent permitted by law from and against any and all liabilities, costs, claims and expenses, including all costs and expenses incurred in defense of litigation (including attorneys' fees), arising out of the employment of the officer under the employment agreement, except to the extent that any such liabilities, costs, claims and expenses is found in a final judgment by a court of competent jurisdiction to have resulted from, arising out of or based upon the gross negligence or willful misconduct of the officer. Costs and expenses incurred by the officer in defense of such litigation (including attorneys' fees) shall be paid by Equinox Holdings, Inc. in advance of the final disposition of such litigation upon receipt by Equinox Holdings, Inc. of (a) a written request for payment, (b) appropriate documentation evidencing the incurrence, amount and nature of the costs and expenses for which payment is being sought, and (c) an undertaking adequate under applicable law made by or on behalf of the officer to repay the amounts so paid if it shall ultimately be determined that executive is not entitled to be indemnified by the Equinox Holdings, Inc. under the employment agreement, including but not limited to as a result of such exception. Equinox Holdings, Inc. and officer will consult in good faith with respect to the conduct of any such litigation, and officer's counsel shall be selected with the consent of Equinox Holdings, Inc. Equinox Holdings, Inc. shall maintain an appropriate level of director's and officer's liability insurance during the employment period and during the restrictive period.

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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)

List of Exhibits.

Exhibit Number	Description of Document
*2.1	Amended and Restated Stock Purchase Agreement and Plan of Merger, dated as of October 16, 2000, as amended as of December 14, 2000, by and among the holders of shares of Common Stock listed on Annex I to the agreement, Equinox Holdings, Inc., NCP-EH Recapitalization Corp., and NCP-EH, L.P.
*3.1.1	Certificate of Incorporation of Equinox Holdings, Inc., amended.
*3.1.2	Certificate of Incorporation of Equinox-92nd Street Inc.
*3.1.3	Certificate of Incorporation of Equinox-85th Street Inc. (See Schedule I to Exhibit 3.1.2 hereto)
*3.1.4	Certificate of Incorporation of Equinox—76th Street Inc.
*3.1.5	Certificate of Incorporation of Equinox 63rd Street Inc. (See Schedule I to Exhibit 3.1.2 hereto)
*3.1.6	Certificate of Incorporation of Equinox-54th Street, Inc.
*3.1.7	Certificate of Incorporation of Equinox-50th Street, Inc. (See Schedule I to Exhibit 3.1.2 hereto)
*3.1.8	Certificate of Incorporation of Equinox 44th Street Inc. (See Schedule I to Exhibit 3.1.2 hereto)
*3.1.9	Certificate of Incorporation of Equinox-43rd Street Inc. (See Schedule I to Exhibit 3.1.2 hereto)
*3.1.10	Certificate of Incorporation of Equinox Columbus Centre, Inc.
*3.1.11	Certificate of Incorporation of Equinox Greenwich Avenue, Inc. (See Schedule I to Exhibit 3.1.2 hereto)
*3.1.12	Certificate of Incorporation of Broadway Equinox Inc., amended.
*3.1.13	Certificate of Incorporation of Equinox Tribeca, Inc.
*3.1.14	Certificate of Incorporation of Equinox Tribeca Office, Inc.
*3.1.15	Certificate of Incorporation of Equinox Wall Street Inc. (See Schedule I to Exhibit 3.1.2 hereto)
*3.1.16	Certificate of Incorporation of Equinox White Plains Road, Inc.
*3.1.17	Certificate of Incorporation of Equinox Woodbury, Inc.
*3.1.18	Certificate of Incorporation of Equinox Greenvale, Inc.
*3.1.19	Certificate of Incorporation of The Equinox Group, Inc. (See Schedule I to Exhibit 3.1.2 hereto)
*3.1.20	Certificate of Incorporation of Energy Wear Inc.
*3.1.21	Certificate of Incorporation of Equinox Darien, Inc.
*3.1.22	Articles of Incorporation of Equinox Lincoln Park, Inc.
*3.1.23	Articles of Incorporation of Equinox Highland Park, Inc. (See Schedule I to Exhibit 3.1.22 hereto)
*3.1.24	Articles of Incorporation of Equinox Gold Coast, Inc. (See Schedule I to Exhibit 3.1.22 hereto)
*3.1.25	Articles of Incorporation of Equinox West Hollywood, Inc.
*3.1.26	Articles of Incorporation of Equinox Fitness Pasadena, Inc.

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*3.1.27	Articles of Incorporation of Equinox Pine Street, Inc.
*3.1.28	Certificate of Incorporation of Equinox Mamaroneck, Inc.
*3.1.29	Articles of Incorporation of Equinox Fitness Santa Monica, Inc.
*3.2.1	Amended and Restated By-laws of Equinox Holdings, Inc.
*3.2.2	By-laws of Equinox-92nd Street Inc.
*3.2.3	By-laws of Equinox-85th Street Inc. (See Schedule I to Exhibit 3.2.2 hereto)
*3.2.4	By-laws of Equinox Fitness Club Inc. (See Schedule I to Exhibit 3.2.2 hereto)
*3.2.5	By-laws of Equinox 63rd Street Inc. (See Schedule I to Exhibit 3.2.2 hereto)
*3.2.6	By-laws of Equinox-54th Street, Inc. (See Schedule I to Exhibit 3.2.2 hereto)
*3.2.7	By-laws of Equinox-50th Street, Inc. (See Schedule I to Exhibit 3.2.2 hereto)
*3.2.8	By-laws of Equinox 44th Street Inc. (See Schedule I to Exhibit 3.2.2 hereto)
*3.2.9	By-laws of Equinox-43rd Street Inc. (See Schedule I to Exhibit 3.2.2 hereto)
*3.2.10	By-laws of Equinox Columbus Centre, Inc.
*3.2.11	By-laws of Equinox Greenwich Avenue, Inc.
*3.2.12	By-laws of Broadway Equinox Inc.
*3.2.13	By-laws of Equinox Tribeca, Inc.
*3.2.14	By-laws of Equinox Tribeca Office, Inc.
*3.2.15	By-laws of Equinox Wall Street Inc. (See Schedule I to Exhibit 3.2.2 hereto)
*3.2.16	By-laws of Equinox White Plains Road, Inc. (See Schedule I to Exhibit 3.2.2 hereto)
*3.2.17	By-laws of Equinox Woodbury, Inc.
*3.2.18	By-laws of Equinox Greenvale, Inc.
*3.2.19	By-laws of The Equinox Group, Inc. (See Schedule I to Exhibit 3.2.2 hereto)
*3.2.20	By-laws of Energy Wear Inc. (See Schedule I to Exhibit 3.2.12 hereto)
*3.2.21	By-laws of Equinox Darien, Inc.
*3.2.22	By-laws of Equinox Lincoln Park, Inc.
*3.2.23	By-laws of Equinox Highland Park, Inc.
*3.2.24	By-laws of Equinox Gold Coast, Inc.
*3.2.25	By-laws of Equinox West Hollywood, Inc.
*3.2.26	By-laws of Equinox Fitness Pasadena, Inc.
*3.2.27	By-laws of Equinox Pine Street, Inc.
*3.2.28	By-laws of Equinox Mamaroneck, Inc.
*3.2.29	By-laws of Equinox Fitness Santa Monica, Inc.
*4.1	Indenture, dated as of December 16, 2003 among Equinox Holdings, Inc., the Guarantors named therein and U.S. Bank National Association with respect to Equinox Holdings, Inc.'s 9% Senior Notes due 2009.
*4.2	Registration Rights Agreement, dated as of December 16, 2003, among Equinox Holdings, Inc., the Guarantors named therein, Merrill Lynch & Co., UBS Securities LLC. and Wachovia Capital Markets, LLC.
*4.3	Form of Exchange Note (Included in Exhibit 4.1 hereto)
*4.5	Form of Common Stock Purchase Warrant.

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5.1	Opinion of Rosen Weinhaus, LLP.
*10.1	Master Services Agreement, dated February 22, 2001, among Equinox Holdings, Inc., Eclipse Development Corporation, and Paul Boardman.
*10.3	Registration Rights Agreement, dated December 15, 2000, among Equinox Holdings, Inc., Equinox Holdings, L.P., NCP Co-Investment Fund, L.P. and certain holders of common stock put warrants, certain members of management and other Equinox shareholders.
*10.4	Consulting Agreement, dated as of December 15, 2000, among Equinox Holdings, Inc., North Castle Partners, L.L.C., J.W. Childs Associates, L.P. and J.W. Childs Advisors II, L.P.
*10.5	Stockholders Agreement, dated as of December 15, 2000, as amended as of February 21, 2003, among Equinox Holdings, Inc., NCP-EH, L.P., NCP Co-Investment Fund, L.P., each of the stockholders listed on Schedule I to the agreement, each of the rollover optionholders listed on Schedule II to the agreement, Albion Alliance Mezzanine Fund, L.P., Albion Alliance Mezzanine Fund II, L.P., Deutsche Bank Securities Inc., Exeter Capital Partners IV, L.P., Exeter Equity Partners, L.P., Bill and Melinda Gates Foundation, Arrow Investment Partners, and each other person who is, or becomes, a party to the Agreement pursuant to Section 4.14 of the Agreement, North Castle Partners II, L.P. and Friends of North Castle Fund, L.P.
*10.6	Employment Agreement by and between Equinox Holdings, Inc. and Harvey Spevak.
10.7	Employment Agreement by and between Equinox Holdings, Inc., Scott Rosen and the Company.
10.8	Termination Agreement by and between Equinox Holdings, Inc. and Kenneth P. Fleischer.
10.9	Employment Agreement by and between Equinox Holdings, Inc. and Chris Peluso.
10.10	Employment Agreement by and between Equinox Holdings, Inc. and Jeff Grayson.
10.11	Credit Agreement by and among Equinox Holdings, Inc., Merrill Lynch Capital, UBS Securities, Inc., and Wachovia Securities, Inc.
12.1	Computation of Ratio of Earnings to Fixed Charges.
*21.1	List of Subsidiaries.
23.1	Consent of KPMG LLP.
23.2	Consent of Rosen Weinhaus, LLP (contained in Exhibit 5.1).
*23.3	Consent of Bouchez Kent
*24.1	Powers of Attorney (contained on signature pages).
25.1	Statement of Eligibility of U.S. Bank National Association on Form T-1
99.1	Form of Letter of Transmittal.
*99.2	Form of Notice of Guaranteed Delivery.
*99.3	Form of Instruction to Registered Holder and/or Book Entry Transfer Participant from Beneficial Owner for Tender of 9% Senior Notes due 2009 for registered 9% Senior Notes due 2009.

*

Previously filed.

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ITEM 22. UNDERTAKINGS

        The undersigned registrant hereby undertakes:

        (1)   To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

        (a)   To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

        (b)   To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement;

        (c)   To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

        (2)   That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offering therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

        (3)   To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

        (4)   Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

        (5)   The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

        (6)   The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.

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SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Amendment No. 1 to Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized in the New York, State of New York, on August 9, 2004.

EQUINOX HOLDINGS, INC.
By:	/s/  HARVEY SPEVAK
Name:	Harvey Spevak
Title:	Director, President and Chief Executive Officer

        Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/  HARVEY SPEVAK Harvey Spevak	Director, President and Chief Executive Officer	August 9, 2004
* Charles F. Baird	Director, Chairman	August 9, 2004
* Scott Rosen	Executive Vice President and Chief Financial Officer (and principal accounting officer)	August 9, 2004
* Glenn Hopkins	Director	August 9, 2004
* Benjamin B. James	Director	August 9, 2004
* John Richards	Director	August 9, 2004
* Adam Saltzman	Director	August 9, 2004

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* Mark Tricolli	Director, Vice President and Secretary	August 9, 2004
* William E. Watts	Director	August 9, 2004
* Edward D. Yun	Director	August 9, 2004

*By:
/s/  HARVEY SPEVAK Name: Harvey Spevak
Attorney-In-Fact

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SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, as amended, each Registrant other than Equinox Holdings, Inc. has duly caused this Amendment No. 1 to Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized in the New York, State of New York, on August 9, 2004.

By:	/s/  HARVEY SPEVAK
Name:	Harvey Spevak
Title:	Director, President and Chief Executive Officer

        Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/  HARVEY SPEVAK Harvey Spevak	Director, President and Chief Executive Officer	August 9, 2004
* Scott Rosen	Treasurer and Chief Financial Officer (and principal accounting officer)	August 9, 2004
* Mark Tricolli	Secretary	August 9, 2004
* Adam Saltzman	Director	August 9, 2004
* Edward D. Yun	Director	August 9, 2004

*By:
/s/  HARVEY SPEVAK Harvey Spevak
Attorney-In-Fact

II-24

QuickLinks

OTHER REGISTRANTS
TABLE OF CONTENTS
SUMMARY
Equinox
Summary of the Terms of the Exchange Offer
Summary of the Terms of the New Notes
Risk Factors
Summary Consolidated Financial and Other Data
RISK FACTORS
FORWARD-LOOKING STATEMENTS
THE EXCHANGE OFFER
USE OF PROCEEDS
CAPITALIZATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS
MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
RELATED PARTY TRANSACTIONS
DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF CERTAIN INDEBTEDNESS
DESCRIPTION OF NOTES
MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS
PLAN OF DISTRIBUTION
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
Trademarks and Trade Names
Market and Industry Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2003, 2002 (restated) and 2001 (restated)
Report of Independent Registered Public Accounting Firm
EQUINOX HOLDINGS, INC. Consolidated Balance Sheets
EQUINOX HOLDINGS, INC. Consolidated Statements of Income
EQUINOX HOLDINGS, INC. Consolidated Statements of Cash Flows
EQUINOX HOLDINGS, INC. Notes to Consolidated Financial Statements
EQUINOX HOLDINGS, INC. Unaudited Consolidated Condensed Balance Sheets
EQUINOX HOLDINGS, INC. Unaudited Consolidated Condensed Statements of Income
EQUINOX HOLDINGS, INC. Consolidated Statements of Cash Flow
EQUINOX HOLDINGS, INC. Notes to Unaudited Consolidated Condensed Financial Statements
EQUINOX HOLDINGS, INC.
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
SIGNATURES
SIGNATURES

EX-5.1

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Exhibit 5.1

August 9, 2004

Equinox Holdings, Inc.
895 Broadway
3^rd Floor
New York, New York 10003

Registration Statement on Form S-4 of
Equinox Holdings, Inc. and the Note Guarantors Referred to Therein
(Registration No. 333-112531)

Ladies and Gentlemen:

        We have acted as special counsel to Equinox Holdings, Inc., a Delaware corporation (the "Company") and the Note Guarantors (as defined herein) in connection with the preparation and filing with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), of a Registration Statement on Form S-4 (as amended to the date hereof, the "Registration Statement"), which includes a form of Prospectus (the "Prospectus") relating to the proposed exchange by the Company of $160,000,000 aggregate principal amount of the Company's 9% Senior Notes Due 2009 (the "New Notes"), which are to be registered under the Act pursuant to the Registration Statement, in exchange for an equal principal amount of its outstanding 9% Senior Notes Due 2009 (the "Existing Notes"). The New Notes are to be issued pursuant to the Indenture dated as of December 16, 2003 (the "Indenture"), among the Company, U.S. Bank National Association (the "Trustee") and the guarantors listed on Schedule I hereto (collectively, the "Note Guarantors"). The obligations of the Company pursuant to the New Notes are to be guaranteed by the Note Guarantors pursuant to and as set forth in the Indenture (such guarantees, collectively, the "Guarantees").

        In so acting, we have examined and relied upon the originals, or copies certified or otherwise identified to our satisfaction, of such corporate and limited liability company records, documents, certificates and other instruments as in our judgment are necessary or appropriate to enable us to render the opinion expressed below. In all such examinations, we have assumed the legal capacity of all natural persons executing documents, the genuineness of all signatures on original or certified copies, the authenticity of all original or certified copies and the conformity to original or certified documents of all copies submitted to us as conformed or reproduction copies. We have relied as to factual matters upon, and have assumed the accuracy of, representations, statements and certificates of or from public officials and of or from officers and representatives of the Company, the Note Guarantors and others. With your permission, for purposes of the opinion expressed herein, we have assumed (i) that the Trustee is and has been duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (ii) that the Trustee had and has the power and authority to enter into and perform, and has duly authorized, executed and delivered, the Indenture, (iii) that the Indenture is valid, binding and enforceable with respect to the Trustee and (iv) the New Notes will be duly authenticated by the Trustee in the manner provided in each Indenture.

        Based on the foregoing, and subject to the further qualifications set forth below, we are of the opinion that:

        Upon the execution and issuance of the New Notes by the Company and authentication of the New Notes by the Trustee in accordance with the Indenture and delivery of the New Notes against exchange therefor of the Existing Notes pursuant to the exchange offer described in the Registration Statement, (1) the New Notes will be valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, and (2) the Guarantee of each Note Guarantor will constitute the valid and binding obligation of such Note Guarantor, enforceable against such Note Guarantor in accordance with its terms as set forth in the Indenture.

        The foregoing opinion is limited by and subject to the effects of (i) bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer, reorganization or moratorium laws or other similar laws relating to or affecting enforcement of creditors' rights or remedies generally and (ii) general principles of equity (whether such principles are considered in a proceeding at law or equity), including the discretion of the court before which any proceeding may be brought, concepts of good faith, reasonableness and fair dealing, and standards of materiality.

        We express no opinion as to the effect of any Federal or state laws regarding fraudulent transfers or conveyances.

        We consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name under the heading "Legal Matters" in the Prospectus.

Very truly yours,

/s/ Rosen Weinhaus, LLP

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SCHEDULE I

Guarantors

Broadway Equinox Inc.

Equinox 92nd Street Inc.

Equinox-85^th Street Inc.

Equinox-63^rd Street, Inc.

Equinox-54^th Street, Inc.

Equinox White Plains Road, Inc.

The Equinox Group, Inc.

Equinox Wall Street, Inc.

Equinox-50^th Street Inc.

Equinox-43^rd Street Inc.

Equinox-76^th Street, Inc.

Equinox 44^th Street, Inc.

Equinox Greenwich Avenue, Inc.

Energy Wear, Inc.

Equinox Tribeca, Inc.

Equinox Fitness Pasadena, Inc.

Equinox Lincoln Park, Inc.

Equinox Columbus Centre, Inc.

Equinox West Hollywood, Inc.

Equinox Darien, Inc.

Equinox Woodbury, Inc.

Equinox Gold Coast, Inc.

Equinox Tribeca Office, Inc.

Equinox Highland Park, Inc.

Equinox Greenvale, Inc.

Equinox Pine Street, Inc.

EQX Holdings, LLC

Equinox Mamaroneck, Inc.

Equinox Fitness Santa Monica, Inc.

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Exhibit 5.1
SCHEDULE I

EX-10.7

Exhibit 10.7

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT is entered into as of this        day of September, 2003, by and between Equinox Holdings, Inc., a Delaware corporation (the “Company”), and Scott Rosen (“Executive”).

W I T N E S S E T H:

WHEREAS, the Company desires to employ Executive as its Executive Vice President and Chief Financial Officer, and Executive desires to accept such employment, in each case, on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises contained herein and for other good and valuable consideration, the Company and Executive hereby agree as follows:

Section 1.Agreement to Employ; No Conflicts

Upon the terms and subject to the conditions of this Agreement, the Company hereby agrees to employ Executive, and Executive hereby accepts employment with the Company.  Executive represents and warrants that (a) he is entering into this Agreement voluntarily and that his employment hereunder and compliance with the terms and conditions hereof will not conflict with or result in the breach by him of any agreement to which he is a party or by which he may be bound, (b) he has not violated, and in connection with his employment with the Company will not violate, any non-competition, non-solicitation or other similar covenant or agreement by which he is or may be bound, and (c) in connection with his employment by the Company he will not use any confidential or proprietary information he may have obtained in connection with employment with any prior employer.

Section 2.Term; Position and Responsibilities

(a)  Term of Employment.  Unless Executive’s employment shall sooner terminate pursuant to Section 7 hereof, the Company shall employ Executive for a term commencing on the date hereof (the “Commencement Date”) and ending on the third anniversary thereof (the “Initial Term”).  Effective upon the expiration of the Initial Term and of each Additional Term (as defined below), Executive’s employment hereunder shall be deemed to be automatically extended, upon the same terms and conditions, for an additional period of one year (each, an “Additional Term”), in each such case, commencing upon the expiration of the Initial Term or the then current Additional Term, as the case may be, unless, at least sixty (60) days prior to the

expiration of the Initial Term or such Additional Term, either party hereto shall have notified the other party hereto in writing that such extension shall not take effect.  The period during which Executive is employed pursuant to this Agreement, including any extension thereof in accordance with the preceding sentence, shall be referred to as the “Employment Period.”

(b)  Position and Responsibilities.  During the Employment Period, Executive shall serve as Executive Vice President and Chief Financial Officer of the Company.  Executive shall have such duties and responsibilities as are customarily assigned to individuals serving in such positions and such other duties consistent with Executive’s titles and positions as the Board of Directors of the Company (the “Board”) shall specify from time to time.  Executive shall devote all of his skill, knowledge and business time to the conscientious performance of the duties and responsibilities of such positions, except for vacation time as set forth in Section 6(c), absence for sickness or similar disability, and performing services for any charitable, religious or community organizations, so long as such services do not materially interfere with the performance of Executive’s duties hereunder.

Section 3.Base Salary

As compensation for the services to be performed by Executive during the Employment Period, the Company shall pay Executive a base salary at an annualized rate of $300,000, payable in periodic installments on the Company’s regular payroll dates (but no less frequently than monthly).  Commencing with the 2005 calendar year, the Board shall review Executive’s base salary annually during the Employment Period and, in its sole discretion, may increase (but not decrease) such base salary from time to time.  The annual base salary payable to Executive under this Section 3, as the same may be increased from time to time, shall hereinafter be referred to as the “Base Salary.”

Section 4.Incentive Compensation

(a)  Performance Bonus.

(i)  In General.  Subject to Sections 4(a)(ii) and 7 hereof, Executive shall have an annual cash incentive bonus opportunity for each of the Company’s fiscal years during the Employment Period (the “Incentive Bonus”), which shall become payable if the Company achieves the performance objectives (based on earnings before interest, taxes, depreciation and amortization (“EBITDA”) established from time to time by the Board or a committee thereof for the applicable fiscal year (the “Bonus Targets”) as follows:

Company Performance	Incentive Bonus
If Company performance for the applicable fiscal year is less than 90% of the Bonus Targets	Executive shall not be entitled to receive any Incentive Bonus for such fiscal year.

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If Company performance for the applicable fiscal year equals or exceeds 90% of the Bonus Targets but is less than 95% of the Bonus Targets	Executive shall be entitled to receive an Incentive Bonus equal to $42,000.
If Company performance for the applicable fiscal year equals or exceeds 95% of the Bonus Targets but is less than or equal to 100% of the Bonus Targets	Executive shall be entitled to receive an Incentive Bonus equal to $63,000, plus $8,400 for each one percent (1%) of the Bonus Targets achieved in excess of 95%, subject to a maximum Incentive Bonus payable of $105,000 for performance equal to 100% of the Bonus Targets.
If Company performance for the applicable fiscal year exceeds 100% of the Bonus Targets	Executive shall be entitled to receive an Incentive Bonus equal to $105,000, plus $10,500 for each one percent (1%) of the Bonus Targets achieved in excess of 100%, subject to a maximum Incentive Bonus payable of $210,000 for performance equal to 110% of the Bonus Targets.

For each fiscal year during the Employment Period, the Company’s actual EBITDA shall be reviewed and confirmed by the Company’s outside auditors and, following such review and confirmation, the Board or a committee thereof shall determine whether and to what extent the Bonus Targets have been achieved for such fiscal year.  Any determinations made by the Board or applicable committee thereof pursuant to this Agreement shall be final, binding and conclusive upon all parties and for all purposes.  The Incentive Bonus calculated pursuant to this Section 4(a) shall be paid to Executive as soon as reasonably practicable following the end of the applicable fiscal year but in no event later than April 10^th following the end of such fiscal year.  This Section 4 supercedes all other Company plans, programs, policies or practices that would otherwise provide incentive compensation to Executive during the Employment Period.

(ii)  2003 Pro-Rata Incentive Bonus.  Subject to Section 7 hereof, Executive shall have a cash incentive bonus opportunity for 2003 equal to the product of (A) the Incentive Bonus that Executive would have been entitled to receive if Executive had been employed for the Company’s entire 2003 fiscal year, multiplied by (B) a fraction, the numerator of which is equal to the number of days Executive was employed by the Company during the Company’s 2003 fiscal year and the denominator of which is equal to 365.

(b)  Signing Bonus.  Subject to the continuous employment of Executive through the payment date, Executive shall be entitled to receive a signing bonus (the “Signing Bonus”) equal to $55,000, which will be payable in cash in lump sum during January 2004.

(c)  Options.  Pursuant to and in accordance with the Equinox Holdings, Inc. 2000 Stock Incentive Plan (the “Plan”), Executive shall be granted options (the “Options”) to

3

purchase up to 100,000 shares of common stock, par value, $.01 per share, of the Company (“Common Stock”).  The Options shall be evidenced by an option agreement to be entered into by Executive and the Company, which shall be substantially similar to the form option agreement most recently approved by the Board.

Section 5.Employee Benefits

During the Employment Period, Executive shall be entitled to participate in the Company’s 401(k) plan, all insurance programs, and all medical, dental and other welfare benefit plans, in each case, maintained by the Company for its senior executive officers on terms and conditions set forth in such plans, programs, policies or practices (as amended from time to time).  Subject to the terms and conditions of the Company’s 401(k) plan and applicable law, for each calendar year during the Employment Period, the Company shall contribute to the Company’s 401(k) plan up to 25% of Executive’s contributions to such plan for such calendar year.

Section 6.Perquisites and Expenses

(a)  General.  During the Employment Period, Executive shall be entitled to participate in all perquisite programs maintained by the Company for its senior executive officers, on a basis that is commensurate with Executive’s position and duties with Company hereunder, in accordance with the terms thereof, as the same may be amended and in effect from time to time.

(b)  Business Travel, Lodging, etc.  The Company shall reimburse Executive for reasonable travel, lodging, meal and other reasonable expenses incurred by him in connection with his performance of services hereunder upon submission of evidence, satisfactory to the Company, of the incurrence and purpose of each such expense and otherwise in accordance with the Company’s expense substantiation policy applicable to its senior executives as in effect from time to time.

(c)  Vacation.  During the Employment Period, Executive shall be entitled to three weeks of paid vacation per calendar year, without carryover accumulation, which shall accrue in equal installments on a monthly basis.

(d)  Company Products and Services.  During the Employment Period, Executive shall be entitled to receive, at no cost, an “All Access” membership to use Company facilities, and shall be entitled to receive any applicable employee discounts for the purchase of all other Company services and products.

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Section 7.Termination of Employment

(a)  Termination Due to Death or Disability.  In the event that Executive’s employment hereunder terminates due to his death or is terminated by the Company due to Executive’s Disability (as defined below), Executive shall not be entitled to receive any payments or benefits pursuant to this Agreement except as provided in Section 7(f)(iii).  For purposes of this Agreement, “Disability” shall mean a physical or mental disability that prevents or is reasonably expected to prevent the performance by Executive of his duties hereunder for a continuous period of 90 days or longer or for 180 days or more in any 12-month period.  The determination of Executive’s Disability shall (i) be made by an independent physician who is reasonably acceptable to the Company and Executive (or his representative), (ii) be final and binding on the parties hereto and (iii) be made taking into account such competent medical evidence as shall be presented to such independent physician by Executive and/or the Company or by any physician or group of physicians or other competent medical experts employed by Executive and/or the Company to advise such independent physician.

(b)  Termination by the Company for Cause.  Executive may be terminated by the Company for Cause (as defined below), provided that if the basis for the Company’s so terminating Executive is described by clauses (i) or (iv) of the definition of Cause, Executive shall have been given prior written notice of any proposed termination of his employment for Cause, which notice specifies in reasonable detail the circumstances claimed to provide the basis for such termination, and Executive shall not have corrected such circumstances, in a manner reasonably satisfactory to the Board, within 20 days of receipt of such written notice.  For purposes of this Agreement, “Cause” shall mean (i) the willful failure of Executive substantially to perform the duties specified in Section 2(b) hereof (other than any such failure due to Executive’s physical or mental illness), (ii) Executive’s engaging in willful and serious misconduct that has caused or is reasonably expected to result in material injury to the Company or any of its Affiliates, (iii) Executive’s conviction of, or entering a plea of guilty or nolo contendere to, a crime that constitutes a felony, or (iv) the willful and material breach by Executive of any of his obligations hereunder or under any other written agreement or written covenant with the Company or any of its Affiliates.  A termination for Cause shall include a determination by the Board following the termination of the Employment Period that circumstances existed during the Employment Period that would have justified a termination by the Company for Cause.

(c)  Termination by Company Without Cause.  Executive’s employment hereunder may be terminated by the Company Without Cause.  A termination “Without Cause” shall mean a termination of Executive’s employment by the Company other than due to Disability as described in Section 7(a) or for Cause as described in Section 7(b).

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(d)  Termination by Executive.  Except in the case of a termination for Good Reason (as defined below), Executive may terminate his employment for any other reason upon 60 days prior written notice delivered to the Company.  For purposes of this Agreement, “Good Reason” shall mean Executive’s termination of his employment with the Company by providing a Notice of Termination (as defined below) to the Company within 60 days following the occurrence of any of the following events and the failure of the Company to correct the circumstances set forth in Executive’s notice within 20 days of receipt of such notice: (i) the assignment to Executive of duties and responsibilities which are in the aggregate significantly different from, and that result in a substantial diminution of, the duties and responsibilities that he has or is to assume on the Commencement Date pursuant to Section 2(b) hereof, (ii) a reduction in the rate of Executive’s Base Salary or Incentive Bonus, (iii) a material breach of this Agreement by the Company; or (iv) the Company requiring Executive to be based anywhere other than the New York metropolitan area, except for travel reasonably required by the Company.  Executive agrees that a corporate reorganization by the Company and/or its Affiliates pursuant to which the Company ceases to exist shall not constitute Good Reason hereunder so long as there is no substantial diminution or significant change in the nature of Executive’s duties or responsibilities as described in Section 2(b) hereof.

(e)  Notice of Termination.  Any termination of Executive’s employment by Company pursuant to Section 7(a), 7(b) or 7(c), or by Executive pursuant to Section 7(d), shall be communicated by a written Notice of Termination addressed to the other parties to this Agreement.  A ”Notice of Termination” shall mean a notice stating that Executive’s employment with Company has been or will be terminated, the effective date of such termination, the specific provisions of this Section 7 under which such termination is being effected, and which provides in reasonable detail the circumstances claimed to provide the basis for such termination.

(f)  Payments Upon Certain Terminations.

(i)  Payments Upon Qualifying Terminations.  In the event of a termination of Executive’s employment by Company Without Cause or a termination by Executive of his employment for Good Reason in either such case during the Employment Period (any such termination, a “Qualifying Termination”), the Company shall pay to Executive (or, following his death, to Executive’s beneficiaries):

(w) any accrued and unpaid Base Salary through the Date of Termination, within 10 business days after the Date of Termination;

(x) the Incentive Bonus for the Company’s fiscal year ending prior to the Date of Termination if, on or prior to the Date of Termination, Executive has not been paid such Incentive Bonus for such prior fiscal year, plus a pro rata Incentive Bonus calculated in

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accordance with clause (z) of Section 7(f)(iii) hereof, payable in accordance with the provisions of such clause, provided that the conditions of such clause have been satisfied;

(y) the Signing Bonus within 10 business days after the Date of Termination if, on or prior to the Date of Termination, Executive has not been paid the Signing Bonus and the Date of Termination occurs after January 1, 2004; and

(z) as liquidated damages in respect of claims based on provisions of this Agreement, and provided Executive executes and delivers a general release of claims in form and substance reasonably satisfactory to the Company and Executive, (I) continue his Base Salary for six months, plus (II) continue his Base Salary for one additional month for each twelve month period that Executive has been employed with the Company as of such Date of Termination, subject to a maximum of nine such additional months (or 15 months in the aggregate) (the “Severance Period”), which shall be payable in installments on Company’s regular payroll dates.

(ii)  Continued Benefits Upon Qualifying Terminations.  If Executive’s employment shall terminate and he is entitled to receive continued payments of his Base Salary under clause (z) of Section 7(f)(i) hereof, the Company shall continue to provide to Executive during the Severance Period the welfare benefits referred to in Section 5 hereof (the “Continued Benefits”).

(iii)  Payments Upon Other Terminations.  If Executive’s employment shall terminate due to his death or Disability or if the Company shall terminate Executive’s employment for Cause or Executive shall terminate his employment without Good Reason in any such case during the Employment Period, the Company shall pay Executive (or, in the event of his death, his beneficiaries):

(x) any accrued and unpaid Base Salary through the Date of Termination, within 10 business days after the Date of Termination;

(y) if Executive’s employment shall terminate due to his death or Disability, or Executive shall terminate his employment without Good Reason in any such case during the Employment Period, the Incentive Bonus for the Company’s fiscal year ending prior to the Date of Termination if, on or prior to the Date of Termination, Executive has not been paid such Incentive Bonus for such prior fiscal year; and

(z) if Executive’s employment shall terminate due to his death or Disability in either case during the Employment Period, the Signing Bonus within 10 business days after the Date of Termination if, on or prior to the Date of Termination, Executive has not been paid the Signing Bonus and the Date of Termination occurs after January 1, 2004, plus if the Company has achieved the Bonus Targets (pro rated on the basis of the

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fraction described in clause (II) of this Section 7(f)(iii)(z)), an amount, payable in one lump sum as soon as reasonably practicable following the end of the applicable fiscal year but in no event later than April 10^th following the end of such fiscal year, equal to the product of (I) the Incentive Bonus that would have been payable to Executive for such fiscal year multiplied by (II) a fraction, the numerator of which is equal to the number of days in such fiscal year that precede the Date of Termination and the denominator of which is equal to 365.

(iv)  Other Payments.  Executive shall be entitled to receive all amounts payable and benefits accrued under any otherwise applicable plan, policy, program or practice of the Company (including, but not limited to, its vacation policies) in which Executive was a participant during his employment with Company in accordance with the terms thereof; provided that Executive shall not be entitled to receive any payments or benefits under any such plan, policy, program or practice providing any severance, bonus or incentive compensation (excluding any payments or benefits in respect of the Incentive Bonus, the Signing Bonus, or the Options) and the provisions of this Section 7(f) shall supersede the provisions of any such plan, policy, program or practice.  In addition, notwithstanding anything to the contrary contained in this Agreement and except as set forth in Sections 7(f)(i)(x) or 7(f)(iii)(z) hereof, Executive shall be entitled to receive an Incentive Bonus for any given fiscal year under this Agreement only if he is employed on the last day of such fiscal year.

(g)  Date of Termination.  As used in this Agreement, the term “Date of Termination” shall mean (i) if Executive’s employment is terminated by his death, the date of his death, (ii) under any other circumstances, the later of (A) the date of termination specified in the Notice of Termination, (B) the date any applicable correction period ends and (C) the expiration of any required notice period; provided that in the case of Executive’s termination of employment by the Company Without Cause or by Executive without Good Reason, such date is at least 30 days after the date on which Notice of Termination is given as contemplated by Section 7(e).

(h)  Resignation upon Termination.  Effective as of any Date of Termination under this Section 7 or otherwise as of the date of Executive’s termination of employment with Company, Executive shall resign, in writing, from all positions then held by him with the Company and its Affiliates.

(i)  Cessation of Professional Activity.  Upon delivery of a Notice of Termination by any party, the Company may relieve Executive of his responsibilities described in Section 2(b) and require Executive to immediately cease all professional activity on behalf of the Company.

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(j)  No Duty to Mitigate.  Executive shall not be required to mitigate the amounts payable by the Company pursuant to Section 7(f) hereof by seeking other employment or otherwise, and such payments shall not be subject offset.

(k)  Limitation on Benefits.  Notwithstanding anything contained in this Agreement, the Plan or any option agreement to the contrary, to the extent that any of the payments and benefits provided for under this Agreement, the Plan, or any other agreement or arrangement between the Company and Executive (collectively, the “Payments”) would constitute a “parachute payment” within the meaning of section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), the amount of such Payments shall be reduced to the amount that would result in no portion of the Payments being subject to the excise tax imposed pursuant to section 4999 of the Code.  If Payments that would otherwise be reduced or eliminated, as the case may be, pursuant to the immediately preceding sentence would not be so reduced or eliminated, as the case may be, if the shareholder approval requirements of section 280G(b)(5) of the Internal Revenue Code are capable of being satisfied, the Company shall use its reasonable best efforts to cause such payments to be submitted for such approval prior to the change in control giving rise to such Payments.

Section 8.Restrictive Covenants

(a)  Unauthorized Disclosure.  From the date hereof, and during any period of employment with the Company or its Affiliates and the five-year period following any termination thereof, without the prior written consent of the Board or its authorized representative, except to the extent required by an order of a court having jurisdiction or under subpoena from an appropriate government agency, in which event, Executive shall use his reasonable best efforts to consult with the Board prior to responding to any such order or subpoena, and except as required in the performance of his duties hereunder, Executive shall not disclose any confidential or proprietary trade secrets, customer lists, drawings, designs, information regarding product development, marketing plans, sales plans, manufacturing plans, management organization information (including but not limited to data and other information relating to members of the Board, the Company or any of its Affiliates or to management, the Company or any of its Affiliates), operating policies or manuals, business plans, financial records, packaging design or other financial, commercial, business or technical information (i) relating to the Company or any of its Affiliates or (b) that the Company or any of its Affiliates may receive belonging to suppliers, customers or others who do business with the Company or any of its Affiliates (collectively, “Confidential Information”) to any third person unless such Confidential Information has been previously disclosed to the public or is in the public domain (in each case, other than by reason of Executive’s breach of this Section 8(a)).

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(b)  Non-Disparagement.  During the period commencing on the date hereof and ending nine months after the termination of Executive’s employment with the Company or, if longer, the period during which Executive is receiving continued payments of Base Salary pursuant to Section 7(f)(i) hereof (the “Restriction Period”), Executive will not directly or indirectly (i) engage in any conduct or make any statement, whether in commercial or noncommercial speech, disparaging or criticizing in any way the Company, any Subsidiary, North Castle Partners, L.L.C. (“North Castle”), J.W. Childs & Associates, L.P. (“Childs”), any Affiliate of any of these, or any products or services offered by any of these, or (ii) engage in any other conduct or make any other statement, in each case, which could be reasonably expected to impair the goodwill of the Company, any Subsidiary, North Castle, Childs, or any Affiliate of any of these, the reputation of Company products or the marketing of Company products except to the extent required by law and then only after consultation with North Castle and Childs to the extent possible, or in connection with any dispute between Executive and any of the foregoing entities.  During the Restriction Period, the Company, any Subsidiary, North Castle, Childs and any Affiliate of any of these will not directly or indirectly (i) engage in any conduct or make any statement, whether in commercial or non-commercial speech, disparaging or criticizing Executive in any way, or (ii) engage in any other conduct or make any other statement, in each case, which could reasonably be expected to impair the business reputation of Executive except to the extent provided by law and then only after consultation with Executive to the extent possible, in connection with any dispute between the Company, any Subsidiary, North Castle, Childs or any Affiliate of these, and Executive, or in connection with any conduct or statement which is reasonably required to manage the Company and is internal to or amongst the Company, any Subsidiary, North Castle, Childs, any Affiliate of any of these, or any other Person which holds an ownership interest in any of the foregoing.

(c)  Non-Competition.  Executive covenants and agrees that during the Restriction Period, the Executive shall not, directly or indirectly, own any interest in, operate, join, control or participate as a manager, member, stockholder, partner, director, principal, officer, or agent of, enter into the employment of, act as a consultant to, or perform any services for any entity which has material operations which compete with any health or fitness club or spa business in any jurisdiction in which the Company or its Immediate Affiliates is engaged, or in which any of the foregoing has documented plans to become engaged of which Executive has knowledge at the time of Executive’s termination of employment.  Notwithstanding anything herein to the contrary, this Section 8(c) shall not prevent the Executive from acquiring as an investment securities representing not more than five percent (5%) of the outstanding voting securities of any publicly-held corporation.

(d)  Non–Solicitation of Employees.  During the Restriction Period, Executive shall not, directly or indirectly, for his own account or for the account of any other Person

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in any jurisdiction in which the Company or any of its Affiliates has commenced or has made plans to commence operations at the time of Executive’s employment, (i) solicit for employment, employ or otherwise interfere with the relationship of the Company or any of its Affiliates with any natural person throughout the world who, during the six-month period prior to such solicitation, employment, or interference, is or was employed by or otherwise engaged to perform services for the Company or any of its Immediate Affiliates, or any Affiliate of the Company to whom Executive was introduced to by virtue of his relationship with the Company or any of its Immediate Affiliates, other than any such solicitation or employment on behalf of the Company or any of its Affiliates during Executive’s employment with the Company, or (ii) induce any employee of the Company or any of its Affiliates who is a member of management to engage in any activity which Executive is prohibited from engaging in under any of paragraphs of this Section 8 or to terminate his or her employment with the Company.

(e)  Non–Solicitation of Customers.  During the Restriction Period, Executive shall not, directly or indirectly, for his own account or for the account of any other Person, in any jurisdiction in which the Company or any of its Affiliates has commenced or made plans to commence operations, solicit or otherwise attempt to establish any business relationship of a nature that is competitive with the business or relationship of the Company or any of its Affiliates with any Person throughout the world which, during the six-month period prior to any such solicitation is or was a customer, client, distributor, supplier or vendor of the Company or any of its Immediate Affiliates, or an Affiliate of the Company to whom Executive was introduced to by virtue of his relationship with the Company or any of its Immediate Affiliates, other than any such solicitation on behalf of the Company or any of its Affiliates during Executive’s employment with the Company.

(f)  Return of Documents.  In the event of the termination of Executive’s employment for any reason, Executive shall deliver to the Company all of (i) the property of each of the Company and its Affiliates then in Executive’s possession, and (ii) the documents and data of any nature and in whatever medium of each of the Company and its Affiliates, and he shall not take with him any such property, documents or data or any reproduction thereof, or any documents containing or pertaining to any Confidential Information.

Section 9.Certain Acknowledgments; Injunctive Relief with Respect to Covenants.

(a)  Certain Acknowledgments.  Executive acknowledges and agrees that Executive will have a prominent role in the management of the business, and the development of the goodwill, of the Company and its Affiliates and will establish and develop relations and contacts with the principal customers and suppliers of the Company

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and its Affiliates in the United States of America and the rest of the world, all of which constitute valuable goodwill of, and could be used by Executive to compete unfairly with, the Company and its Affiliates and that (i) in the course of his employment with the Company, Executive will obtain confidential and proprietary information and trade secrets concerning the business and operations of the Company and its Affiliates in the United States of America and the rest of the world that could be used to compete unfairly with the Company and its Affiliates; (ii) the covenants and restrictions contained in Section 8 are intended to protect the legitimate interests of the Company and its Affiliates in their respective goodwill, trade secrets and other confidential and proprietary information; and (iii) Executive desires to be bound by such covenants and restrictions.

(b)  Injunctive Relief.  Executive acknowledges and agrees that the covenants, obligations and agreements of Executive contained in Section 8 relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants, obligations or agreements will cause the Company irreparable injury for which adequate remedies are not available at law.  Therefore, Executive agrees that the Company shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) as a court of competent jurisdiction may deem necessary or appropriate to restrain Executive from committing any violation of such covenants, obligations or agreements.  These injunctive remedies are cumulative and in addition to any other rights and remedies the Company may have.

Section 10.Entire Agreement

This Agreement and the option agreement referenced to in Section 4(c) hereof constitute the entire agreement among the parties hereto with respect to the subject matter hereof.  All prior correspondence and proposals (including but not limited to summaries of proposed terms) and all prior promises, representations, understandings, practices and agreements relating to such subject matter (including but not limited to those made to or with Executive by any other Person) are merged herein and superseded hereby.

Section 11.Indemnification

The Company hereby agrees that it shall indemnify and hold harmless Executive to the fullest extent permitted by law from and against any and all liabilities, costs, claims and expenses, including all costs and expenses incurred in defense of litigation (including attorneys’ fees), arising out of the employment of Executive hereunder, except to the extent that any such liabilities, costs, claims and expenses is found in a final judgment by a court of competent jurisdiction to have resulted from, arising out of or based upon the gross negligence or willful misconduct of Executive.  Costs and expenses incurred by Executive in defense of such litigation (including attorneys’ fees) shall be paid by Company in advance of the final disposition of such litigation upon receipt by Company

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of (a) a written request for payment, (b) appropriate documentation evidencing the incurrence, amount and nature of the costs and expenses for which payment is being sought, and (c) an undertaking adequate under applicable law made by or on behalf of Executive to repay the amounts so paid if it shall ultimately be determined that Executive is not entitled to be indemnified by the Company under this Agreement, including but not limited to as a result of such exception.  The Company and Executive will consult in good faith with respect to the conduct of any such litigation, and Executive’s counsel shall be selected with the consent of the Company.  The Company shall maintain an appropriate level of director’s and officer’s liability insurance during the Employment Period and during the Restriction Period.

Section 12.Miscellaneous

(a)  Binding Effect; Assignment.  This Agreement shall be binding on and inure to the benefit of the Company, and its respective Successors and permitted assigns.  This Agreement shall also be binding on and inure to the benefit of Executive and his heirs, executors, administrators and legal representatives.  This Agreement shall not be assignable by any party hereto without the prior written consent of the other parties hereto, except that the Company may effect such an assignment without prior written approval of Executive upon the transfer of all or substantially all of its business and/or assets (by whatever means).

(b)  Governing Law, etc.

(i)  Governing Law.  This agreement shall be governed in all respects, including as to validity, interpretation and effect, by the internal laws of the State of New York without giving effect to the conflict of laws rules thereof to the extent that the application of the law of another jurisdiction would be required thereby.

(ii)  Consent to Jurisdiction.  Each party hereby irrevocably submits to the jurisdiction of the courts of the State of New York and the federal courts of the United States of America located in the County of New York solely in respect of the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in this Agreement, and in respect of the transactions contemplated hereby and thereby.  Each party hereby waives and agrees not to assert, as a defense in any action, suit or proceeding for the interpretation and enforcement hereof, or any such document or in respect of any such transaction, that such action, suit or proceeding may not be brought or is not maintainable in such courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts.  Each party hereby consents to and grants any such court jurisdiction over the person of

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such parties and over the subject matter of any such dispute and agree that the mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 13(g) or in such other manner as may be permitted by law, shall be valid and sufficient service thereof.

(iii)  Waiver of Right to Trial by Jury.  Each party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues, and therefore each party hereby irrevocably and unconditionally waives any right such party may have to a trial by jury in respect or any litigation directly or indirectly arising out of or relating to this Agreement, or the breach, termination or validity of this Agreement, or the transactions contemplated by this Agreement.  Each party certifies and acknowledges that (A) no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver, (B) each such party understands and has considered the implications of this waiver, (C) each such party makes this waiver voluntarily, and (D) each such party has been induced to enter into this agreement by, among other things, the mutual waivers and certifications in this Section 13(b).

(c)  Taxes.  The Company shall have the power to withhold, or require Executive to remit to the Company promptly upon notification of the amount due, an amount sufficient to satisfy the statutory minimum amount of all Federal, state, local and foreign withholding tax requirements with respect to any payment of cash, or issuance or delivery of any other property hereunder, and the Company may defer any such payment of cash or issuance or delivery of such other property  until such requirements are satisfied.

(d)  Amendments.  No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is approved by the Board or a Person authorized thereby and is agreed to in writing by Executive.  No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.  No waiver of any provision of this Agreement shall be implied from any course of dealing between or among the parties hereto or from any failure by any party hereto to assert its rights hereunder on any occasion or series of occasions.

(e)  Severability.  In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.

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(f)  Blue Pencil.  If any court of competent jurisdiction shall at any time deem the Restriction Period too lengthy, the other provisions of Section 8 shall nevertheless stand and the Restriction Period herein shall be deemed to be the longest period permissible by law under the circumstances.  The court shall reduce the time period to permissible duration or size.

(g)  Notices.  Any notice or other communication required or permitted to be delivered under this Agreement shall be (i) in writing, (ii) delivered personally, by courier service or by certified or registered mail, first–class postage prepaid and return receipt requested, (iii) deemed to have been received on the date of delivery or, if so mailed, on the third business day after the mailing thereof, and (iv) addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof):

(A)	If to the Company, to it at:
	Equinox Holdings, Inc.
	895 Broadway
	New York, New York 10003
	Tel:  (212) 677-0180
	Fax:  (212) 777-9510
	Attention:  Harvey Spevak
(B)	if to Executive, to him at his residential address as currently on file with the Company.

Copies of any notices or other communications given under this Agreement shall also be given to:

	North Castle Partners, L.L.C.
	183 East Putnam Avenue
	Greenwich, CT 06830
	Tel:  (203) 862-3000
	Fax:  (203) 862-3273
	Attention:  Adam Saltzman
and to:
	Debevoise & Plimpton
	919 Third Avenue
	New York, New York 10022
	Tel: (212) 909-6000

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	Fax: (212) 909-6836
	Attention:  Franci J. Blassberg, Esq.
and to:
	J.W. Childs Equity Partners II, L.P.
	c/o J.W. Childs Associates L.P.
	One Federal Street
	Boston, Massachusetts  02110
	Attention:  Glenn A. Hopkins
and to:
	Kaye, Scholer, Fierman, Hays and Handler LLP
	425 Park Avenue
	New York, New York  10022
	Attention:  Stephen C. Koval, Esq.

(h)  Further Assurances.  Each party hereto agrees with the other party hereto that it will cooperate with such other party and will execute and deliver, or cause to be executed and delivered, all such other instruments and documents, and will take such other actions, as such other parties may reasonably request from time to time to effectuate the provisions and purposes of this Agreement.

(i)  Legal Review.  Executive hereby represents that he has had the opportunity to review this Agreement carefully and to consult with counsel prior to the execution of this Agreement and that he does fully understand all the terms of this Agreement.

(j)  Counterparts.  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.

(k)  Headings.  The section and other headings contained in this Agreement are for the convenience of the parties only and are not intended to be a part hereof or to affect the meaning or interpretation hereof.

(l)  Certain Definitions.

“Affiliate”:  with respect to any Person, means any other Person that, directly or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with the first Person, including but not limited to a Subsidiary of the first Person, a Person of which the first Person is a Subsidiary, or another Subsidiary of a Person of which the first Person is also a Subsidiary.

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“Control”:  with respect to any Person, means the possession, directly or indirectly, severally or jointly, of the power to direct or cause the direction of the management policies of such Person, whether through the ownership of voting securities, by contract or credit arrangement, as trustee or executor, or otherwise.

“Immediate Affiliate”:  NCP-EH and any Person which NCP-EH, directly or indirectly, Controls.

“Person”:  any natural person, firm, partnership, limited liability company, association, corporation, company, trust, business trust, governmental authority or other entity.

“Subsidiary”:  with respect to any Person, each corporation or other Person in which the first Person owns or Controls, directly or indirectly, capital stock or other ownership interests representing 50% or more of the combined voting power of the outstanding voting stock or other ownership interests of such corporation or other Person.

“Successor”:  of a Person means a Person that succeeds to the first Person’s assets and liabilities by merger, liquidation, dissolution or otherwise by operation of law, or a Person to which all or substantially all the assets and/or business of the first Person are transferred.

— Signature page follows —

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IN WITNESS WHEREOF, the Company has duly executed this Agreement by its authorized representative, and Executive has hereunto set his hand, in each case effective as of the date first above written.

EQUINOX HOLDINGS, INC.
By:	/s/  Harvey Spevak
	Name: Harvey Spevak
	Title: Chief Executive Officer
EXECUTIVE:
/s/  Scott Rosen
Scott Rosen

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EX-10.8

Exhibit 10.8

March 17, 2003

Mr. Kenneth P. Fleischer

557 General Knox Road

King of Prussia, PA 19406

Separation Agreement

Dear Ken:

This letter agreement sets forth the terms and conditions of our agreement regarding your termination of employment with Equinox Holdings, Inc. (the “Company”) on the last day of your employment with the Company as determined in accordance with the second sentence of Section 4(a) hereof (the “Termination Date”).

1.             Termination of Employment.   Effective as of the Termination Date, you hereby resign from employment with, and as an officer of, the Company and each of its subsidiaries and affiliates.

2.             Payments and Benefits.   As partial consideration for entering into this Agreement and subject to paragraph 9(b) hereof, the Company shall pay you (i) $75,000, payable in substantially equal installments on the Company’s regular payroll dates beginning after the Termination Date and ending nine months thereafter, and (ii) $168,299, in respect of your options granted pursuant to the Equinox Holdings, Inc. 2000 Stock Incentive Plan (the “2000 Plan”), payable in substantially equal installments on the Company’s regular payroll dates beginning after the Termination Date and ending nine months thereafter.  Subject to paragraph 9(b) hereof, as soon as practicable, but in no event later than ten (10) business days following the Termination Date, the Company shall pay you any unpaid base salary for the period prior to and including the Termination Date.  You will also be eligible to receive a pro-rata Incentive Bonus (as defined in the Employment Agreement (as defined below)) in respect of the Company’s 2002 fiscal year, based on the number of days you are employed by the Company during such fiscal year.  In addition to the other amounts you are entitled to receive under this Agreement, if the Termination Date occurs at any time after September 1, 2003 (i.e., Labor Day), you shall be entitled to receive a supplemental payment of $25,000 from the Company, which shall be payable in substantially equal installments on the Company’s regular payroll dates.

895 broadway | new york, new york 10003

www.equinoxfitness.com

3.             Option Cancellation.

(a)           You acknowledge and agree that, on the Termination Date, all of your options to purchase shares of the Company’s common stock that were granted to you under the 2000 Plan shall be automatically canceled and terminated, and your rights in respect of such options shall automatically be forfeited without any liability or obligation on the part of the Company in respect thereof (except as provided herein).

(b)           Effective as of the Termination Date, the Company and you hereby acknowledge and agree that your 25,000 options (the “Rollover Options”) to purchase shares of the Company’s common stock that were granted to you under the Equinox Holdings, Inc. 1998 Stock Incentive Plan (the “1998 Plan”) will remain outstanding following the Termination Date, subject to the terms and conditions of the 1998 Plan and any option agreement(s) evidencing the grant of such Rollover Options (except for Section 7(b)(ii) of the 1998 Plan).

4.             Termination of Agreements.

(a)           Effective as of the Termination Date, the Company and you hereby agree that your Employment Agreement, dated January 8, 2001, with the Company, pursuant to which the Company employed you as its Chief Financial Officer (the “Employment Agreement”) are terminated in all respects, and that you and the Company are fully, completely and irrevocably and forever discharged from any and all obligations set forth therein, pursuant thereto or arising therefrom.  Notwithstanding the foregoing, you hereby agree to continue to discharge the duties and responsibilities specified in Section 2 of your Employment Agreement for the period commencing on the date hereof and ending on the date upon which the Chief Executive Officer of the Company determines in his sole discretion, that the training and transitioning program established for the new Chief Financial Officer hired by the Company has been completed.

(b)           Notwithstanding anything to the contrary contained in paragraph 4(a), at all times hereafter.  Sections 8 and 9 of the Employment Agreement are incorporated by reference herein and made a part hereof, and as so incorporated, shall remain in full force and effect in accordance with their respective terms.

(c)           Notwithstanding anything to the contrary contained in this letter agreement, during the period you receive payments pursuant to this letter agreement, you agree to make yourself available to, and cooperate with, the Company, on a reasonable basis, for any post-Termination Date assistance that the Company reasonably requires.

5.             General Release of Claims by You.

(a)           Release of Claims.  Except for the benefits provided in Section 2 hereof, any accrued vested benefits available to you under the express terms and conditions of

2

any employee benefit plan maintained by the Company, and your right to continue medical coverage at your own expense after the Termination Date pursuant to Section 4980B of the Internal Revenue Code of 1986, as amended, you, on behalf of yourself and your family, agents, representatives, heirs, executors, trustees, administrators, successors and assigns (the “Releasors”), hereby irrevocably and unconditionally releases, settles, cancels, acquits, discharges and acknowledges to be fully satisfied, and covenants not to sue the Company and NCP-EH, L.P. and each of their respective subsidiaries, affiliates, successors and assigns, and each of their respective stockholders, partners, members, directors, managers, officers, employees, agents or other representatives, and employee benefit plans of the Company (include current and former trustees and administrators of these plans) (collectively, the “Releasees”) from any and all claims, contractual or otherwise, demands, costs, rights, causes of action, charges, debts, liens, promises, obligations, complaints, losses, damages and all liability of whatever kind and nature, whether known or unknown, and hereby waives any and all rights that he, she or it may have at the time of signing this Agreement, at any time prior thereto or in the future (except with respect to ADEA (as defined below) claims), or that otherwise may exist or may arise (except with respect to ADEA claims) in respect of your employment or separation from employment with the Company, or is in any way connected with or related to the Employment Agreement, the 2000 Plan, the Options or any option agreement evidencing the grant of Options pursuant to the 2000 Plan.

(b)           Covenant Not to Sue; Certain Proceedings.  The Releasors agree not to bring any action, suit or proceeding whatsoever (including the initiation of governmental proceedings or investigations of any type) against any of the Releasees hereto for any matter or circumstance concerning which the Releasors have released the Releasees under this Agreement.  Further, the Releasors agree not to encourage any other person or suggest to any other person that he, she or it institute any legal action against the Releasees.  Notwithstanding the foregoing, this release is not intended to interfere with your right to file a charge with the Equal Employment Opportunity Commission in connection with any claim you believe you may have against the Company.  The Releasors hereby agree to waive the right to any relief (monetary or otherwise) in any action, suit or proceeding you may bring in violation of this agreement, including any proceeding before the Equal Employment Opportunity Commission or any other similar body or in any proceeding brought by the Equal Employment Opportunity Commission or any other similar body on your behalf.

(c)           Extent of Release.  This release is valid whether any claim arises under any federal, state or local statute (including, without limitation, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967 (“ADEA”), the Equal Pay Act, the Americans with Disabilities Act of 1990, the Employee Retirement Income Security Act of 1974 and all other statutes regulating the terms and conditions of your employment), regulation or ordinance, under the common law or in equity (including any claims for wrongful discharge or otherwise), or under any

3

policy, agreement, understanding or promise, written or oral, formal or informal, between the Company and yourself.

(d)           Penalties.   If you initiate or participate in any legal actions or if you fail to abide by any of the terms of this Agreement, the Company may reclaim any amounts paid hereunder, without waiving the release granted herein, and terminate any remaining payments or benefits that are due hereunder, in addition to any other remedies.

6.             General Release of Claims by the Company.

(a)           The Releasees hereby irrevocably and unconditionally release, settle, cancel, acquit, discharge and acknowledge to be fully satisfied, and covenants not to sue the Releasors from any and all claims, contractual or otherwise, demands, costs, rights, causes of action, charges, debts, liens, promises, obligations, complaints, losses, damages and all liability of whatever kind and nature, whether known or unknown, and hereby waives any and all rights that he, she or it may have at the time of signing this Agreement, at any time prior thereto or in the future, or that otherwise may exist or may arise in respect of your employment or separation from employment with the Company, or is in any way connected with or related to the Employment Agreement, the 2000 Plan, the Options or any option agreement evidencing the grant of Options pursuant to the 2000 Plan.

(b)           Covenant Not to Sue.   The Releasees agree not to bring any action, suit or proceeding whatsoever (including the initiation of governmental proceedings or investigations of any type) against any of the Releasors for any matter or circumstance concerning which the Releasees have released the Releasors under this Agreement.  Further, the Releasees agree not to encourage any other person or suggest to any other person that he, she or it institute any legal actions against the Releasees.  The Company represents and acknowledges that it has not heretofore assigned or transferred or purportd to assign or transfer, to any person or entity, any of the claims described in paragraph 6, any portion thereof, or any interest therein.

7.             Consideration.   The consideration provided hereunder is not required under the Company’s standard policies, and you know of no other circumstances other than your agreeing to the terms of this agreement that would require the Company to provide such consideration.

8.             Legal Advice; Reliance.  You represent and acknowledge that (i) you have been given adequate time (at least twenty-one (21) days) to consider this Agreement and have been advised to discuss all aspects of this Agreement with your private attorney, (ii) you have carefully read and fully understands all the provisions of this Agreement (iii) you have voluntarily entered into this Agreement, without duress or coercion, and (iv) you have not heretofore assigned or transferred or purported to assign or transfer, to any

4

person or entity, any of the claims described in paragraph 5 hereof, any portion thereof, or any interest therein.  You understand that if you request additional time to review the terms of this agreement, a reasonable extension of time will be granted.

9.             Confidentiality.   The parties to this Agreement agree not to disclose its terms to any person, other than their attorneys, accountants, financial advisors or in your case, members of your immediate family; provided that this paragraph 9 shall not be construed to prohibit any disclosure required by law or in any proceeding to enforce the terms and conditions of this Agreement.

10.           Miscellaneous.

(a)           Third Party Beneficiaries.   All Releasees under this Agreement who are not signatories to this Agreement shall be deemed to be third party beneficiaries of this Agreement to the same extent as if they were signatories hereto.

(b)           Withholding.   The Company may withhold from any payments made under this Agreement all federal, state, local or other applicable taxes as shall be required by law.

(c)           Entire Agreement.   This Agreement constitutes the sole and complete understanding of you and the Company with respect to the subject matter hereof.  You and the Company represent to each other that in executing this Agreement, you and the Company do not rely and have not relied upon any representation or statement not set forth herein made by any other person, with regard to the subject matter, basis or effect of this Agreement.

(d)           Amendment; Waiver; Successors.   No amendment, modification or alteration of the terms and provisions of this Agreement shall be binding unless the same shall be in writing and duly executed by you and the Company.  No waiver of any of the provisions of this Agreement shall be deemed to or shall constitute a waiver of any other provision hereof.  No delay on the part of any party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof.  This Agreement shall be binding upon the parties hereto and their respective successors, transferees and assigns.

(e)           Governing Law; Severability; Blue Pencil.   This Agreement will be governed by the laws of the State of New York, without regard to its conflict of laws rules.  In the event that any one or more of the provisions of this Agreement is held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby.  The parties hereto agree that the covenants incorporated into this Agreement by paragraph 4 hereof are reasonable covenants under the circumstances, and further agree that if, in the opinion of any court of competent jurisdiction such covenants are not reasonable in any respect, such court

5

shall have the right, power and authority to exercise or modify such provision or provisions of these covenants as to the court shall appear not reasonable and to enforce the remainder of these covenants as so amended.

(f)            Revocation.   You may revoke this agreement within seven (7) days after the date on which you sign this agreement.  You understand that this agreement is not binding or enforceable until such seven (7) day period has expired.  Any such revocation must be made in a signed letter executed by you and received by the Company at the following address no later than 5:00 p.m., New York time, on the seventh day after you have executed this agreement; Equinox Holdings, Inc., 895 Broadway, New York, New York 10003, Attention: Harvey J. Spevak.  You understand that if your revoke this agreement, you will not be entitled to any benefits hereunder.

(g)           Further Assurances.   Each party hereto agrees with the other party hereto that it will cooperate with such other party and will execute and deliver, or cause to be executed and delivered, all such other instruments and documents, and will take such other actions, as such other parties may reasonably request from time to time to effectuate the provisions and purposes of this Agreement.

(h)           Counterparts.   This Agreement may be executed in counterparts, each of which shall for all purposes be deemed to be in original and all of which shall constitute the same instrument.

	Very truly yours,
	EQUINOX HOLDINGS, INC,
	By:	/s/ Harvey Spevak
			Name:
			Title:
ACCEPTED AND AGREED
as of the date first written above:
/s/ Kenneth P. Fleischer
Kenneth P. Fleischer

6

EX-10.9

Exhibit 10.9

November 25, 2002

Mr. Christopher J. Peluso

150 Columbus Avenue, Apt 7F

New York, NY 10023

Dear Chris:

It is my pleasure to extend to you an offer for the position of Chief Operating Officer for Equinox Holdings, Inc. (the “Company”).  As Chief Operating Officer, you will report directly to Chief Executive Officer and will have duties consistent with the job description. The position offered is full-time employment to be performed at our corporate headquarters in New York City, starting on or about December 3, 2002.

Your employment is subject to your execution of Equinox’s Non-Disclosure and Non-Competition Agreement for senior executives, a copy of which is attached. Your annual base salary will be $230,000, payable in biweekly installments. As additional compensation, you are eligible to receive an annual performance incentive as described more fully in Attachment 1 to this letter. As an inducement to accept this offer of employment, the Company will grant you options to purchase up to 85,000 shares of the common stock of the Company at an exercise price equal to the current Fair Market Value (such Fair Market Value not to exceed $15.00 per share), as described more fully in a separate option agreement.  Your compensation will be reviewed annually beginning on January 1, 2004 by the Compensation Committee of the Board of Directors and may be increased but not decreased.

After 90 days of employment, you are eligible for single health insurance and group term life insurance (in an amount equal to your base salary) coverage under our executive benefits program offered by Health Net/Guardian. After 180 days of employment, you are entitled to three weeks’ paid vacation and you may participate in the Company’s 401(k) plan with a 25% match by the Company.  In addition to your own employee membership, you are entitled to three complimentary memberships.

895 broadway new york, new york 10003 tel 212.677.0180 fax 212.777.9510

www.equinoxfitness.com

If the terms of this offer letter are acceptable to you, please indicate your agreement by countersigning both originals of this letter and the Non-Disclosure and Non-Competition Agreement, returning one copy of each to me. On behalf of the Board of Directors and the employees of Equinox, I wish to express my excitement at the prospect of your joining us.

	Sincerely yours,
	/s/ Harvey Spevak
	Harvey Spevak
	Chief Executive Officer
Agreed and Accepted:
/s/ Christopher J. Peluso
Christopher J. Peluso

2003 Performance Bonus Plan

Chief Operating Officer

1.This performance bonus plan replaces all previous incentive plans.

2.The incentive compensation will be based upon an objective evaluation of the Company’s profitability.

3.Corporate EBITDA On an annual basis, the actual earnings before interest expense, income taxes and depreciation and amortization (“EBITDA”) during the given fiscal year (as confirmed by the Company’s outside auditors) will be compared with the amount of EBITDA forecast to be generated during such period as outlined in the approved operating budget.

a.If the actual EBITDA is less than 90% of goal, no performance bonus will be awarded.

b.If the actual EBITDA is equal to or greater than 90% of goal but less than 95% of goal, a performance bonus in the amount of $36,800 will be awarded.

c.If the actual EBITDA is equal to or greater than 95% of goal but less than 100% of goal, a performance bonus incentive in the amount of $55,200 plus $7,360 for each one percent (1%) in excess of 95% of goal, subject to a maximum performance bonus of $92,000 will be awarded.

d.If the actual EBITDA is greater than 100% of goal, a performance bonus in the amount of $92,000 plus $9,200 for each one percent (1%) in excess of 100% of goal will be awarded.

4.Incentive compensation will be paid no later than April 10, 2004.

November 25, 2002

Mr. Christopher J. Peluso

150 Columbus Avenue, Apt 7F

New York, NY 10023

Re:Non-Disclosure and Non-Competition Agreement

Dear Chris:

This will confirm the terms of the agreement between Equinox Holdings, Inc. with offices at 895 Broadway, New York, New York (“Equinox”) and Mr. Christopher J. Peluso (“You”) regarding the protection of Confidential Information and certain restrictions on Your competing with Equinox.

1.GENERAL

Equinox agrees to employ You, and You agree to be employed by Equinox as Chief Operating Officer for Equinox’s consolidated businesses pursuant to the terms and provisions of the offer letter dated November 25, 2002 (the “Offer Letter”). Your employment relationship with Equinox will be on an “at will” basis, and either Equinox or You may terminate the employment for any reason and at any time, without notice.

2.WORKS FOR HIRE

You agree that all work products including, but not limited to, patents, copyrights, product developments, service developments, ideas and concepts created by You during Your employment and which relate to the business of Equinox shall remain the exclusive property of Equinox.

3.CONFIDENTIALITY AGREEMENT AND RESTRICTIVE COVENANTS

(a)You recognize and acknowledge that the lists and files relating to Equinox’s members, prospects, employees, independent contractors and suppliers as well as its business plans, policies, operating procedures and financial information (including operating budgets) concerning Equinox or its shareholders and affiliates (collectively, “Confidential Information”), as same may exist from time to time, are valuable, special and unique assets of Equinox’s business. You agree that, except as required by law, You will not disclose Confidential Information to any person, firm, corporation, association or other entity for any reason or any purpose at all and that

895 broadway new york, new york 10003 tel 212.677.0180 fax 212.777.9510

www.equinoxfitness.com

You will not use such Confidential Information for Your own benefit or the benefit of any third party(s). You also agree that all equipment, records, files, memoranda, computer printouts and data, reports, correspondence and the like, relating to the business of Equinox, that You might use or prepare or with which You might come into contact, shall remain the sole property of Equinox. You further agree to turn over immediately to Equinox any such material in Your possession at such time as Your employment is terminated.

(b)You agree that, during Your employment and for a period of twelve (12) months immediately following termination of Your employment, You will not, without Equinox’s prior written consent, directly or indirectly, own, manage, be employed by, operate, consult for or participate in, or be connected as an officer, employee, partner, or otherwise with any fitness club within a twelve (12) block radius of Equinox or any of its affiliates’ facilities; provided however that, in the event that Your employment is terminated by Equinox without cause, the period of time of your non-compete will be the same as the equivalent number of months during which You receive severance pay as described more fully in paragraph 3(c). Notwithstanding the foregoing, the parties agree that You will be released from the terms of the preceding non-compete provision in the event that Equinox fails to fulfill any of its financial obligations under the Offer Letter or this letter agreement. You also agree that, during Your employment and for a period of eighteen (18) months immediately following termination of Your employment, You will not in any manner, directly or indirectly, disparage Equinox or its employees and operations in any way. You further agree that, during Your employment and for a period of eighteen (18) months immediately following termination of Your employment, You will not in any manner, directly or indirectly, encourage, induce or attempt to induce any person who is then or was (within six (6) months before the date of such inducement) an employee or consultant of Equinox to alter or terminate his or her employment or consultation with Equinox or otherwise solicit, attempt to hire or hire any such employee or consultant. If the period of time or area herein specified should be adjudged unreasonable in any court proceeding, then the period of time shall be reduced by such number of months or the area shall be reduced geographically, or both, so that this covenant may be enforced during such period of time and in such areas as are adjudged to be reasonable.

(c)Equinox agrees that, in the event that Your employment is terminated by Equinox during the first six months of employment, You will be entitled to receive severance pay equal to the equivalent of three months’ base salary. Equinox further agrees that, in the event that Your employment is terminated by Equinox after six months of employment but prior to the first anniversary of Your employment date, You will be entitled to receive severance pay equal to the equivalent of four months’ base salary. At each anniversary of Your employment date, such severance pay will increase by one month’s base salary; provided however, that the amount of such severance pay shall be limited to one-half of Your effective base salary at the time of termination, less any applicable deductions as required by law. All severance payments are payable at the option of Equinox, either in one lump sum or in biweekly installments of no less the equivalent biweekly installment of Your effective base salary at the time of termination, less any applicable deductions as required by law. In the event that You are terminated for cause, Equinox is not obligated to make any severance payment.  For the purposes of this Agreement, “cause” shall be deemed to exist if:

(i)You are terminated for embezzlement of corporate funds;

(ii)You enter a business or employment that Equinox reasonably determines to be detrimentally competitive with the business of Equinox and substantially injurious to the financial interests of Equinox;

(iii)You willfully refuse to perform services consistent with Your position;

(iv)You engage in acts of dishonesty or fraud in connection with Your employment; or

(v)You engage in acts of misconduct of such nature that Your continued employment could reasonably be expected to adversely affect the business or properties of Equinox.

For the purposes of determining “cause” in subparagraph 3(c)(iii) and 3(c)(v) above, You will have thirty (30) days, after written notice from Equinox’s Board of Directors, to remedy the reason(s) given by the Board in such notice for the assertion of a “cause” event. If You fail to remedy the reason(s) within such thirty (30) day period, Equinox may terminate You for cause.

(d)You agree that, upon a breach, threatened breach or violation by You of any of the foregoing provisions of this paragraph 3, Equinox, in addition to all other remedies, shall be entitled as a matter of right to injunctive relief in any court of competent jurisdiction without being required to post bond or other security and without having to prove the inadequacy of the available remedies at law, to enjoin and restrain You and each and every other person, partnership, association, corporation or organization concerned therein, from the continuance of any action constituting such breach.

4.NOTICES

Any and all notices or other communications given under this Agreement shall be in writing and shall be deemed to have been duly given on the date of delivery, if delivered in person, or four (4) days after mailing, if mailed within the continental United States, postage prepaid by certified or registered mail, return receipt requested, to the party entitled to receive the same at his or its address first set forth above. We may designate by notice to each other any new address for the purposes of this Agreement as provided in this paragraph 4.

5.MISCELLANEOUS PROVISIONS

(a)This instrument, in conjunction with the Offer Letter, represents the entire Agreement between us and supersedes any prior agreement or understanding with respect to the subject matter hereof. In the event that a conflict arises between this Agreement and the Offer Letter, the Offer Letter will govern. No provision hereof may be amended, modified, terminated or revoked except by a writing signed by both of us.

(b)This Agreement will be governed by, and construed and enforced according to, the laws of the State of New York without regard to its conflicts of law rules.

(c)No waiver of any breach or default hereunder shall be considered valid unless in writing, and no such waiver shall be deemed the waiver of subsequent breach or default of the same or similar nature.

(d)If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall affect only such provision and shall not in any manner affect or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein.

(e)We agree that we will each take such action and execute and deliver such documents as may be reasonably necessary to fulfill the terms of this Agreement.

(f)The agreements and covenants set forth in Paragraph 3 above shall survive termination and expiration of this Agreement for the various time periods specified therein.

If this letter accurately sets forth the terms of our agreement, please countersign the enclosed copy and return it to us.

	Very truly yours,
	EQUINOX HOLDINGS, INC.
	/s/ Harvey Spevak
	Harvey Spevak
Accepted and Agreed to this
30th day of November 2002
/s/ Christopher J. Peluso
Christopher J. Peluso

EX-10.10

Exhibit 10.10

April 19, 2002

Mr. Jeffrey L. Grayson

220 West 98th, Apt 9L

New York, NY 10025

Dear Jeff:

It is my pleasure to extend to you an offer for the position of Chief Technology Officer for Equinox Holdings, Inc., the consolidated business of Equinox Fitness Clubs comprising all of the businesses that carry the “Equinox” brand name including the fitness clubs, management company and related products or businesses (the “Company”). As Chief Technology Officer, you will report directly to the Chief Financial Officer of the Company and will have duties consistent with the job description. The position offered is full-time employment at our corporate headquarters inNew York City, beginning May 8, 2002.

Your employment is subject to your execution of Equinox’s Non-Disclosure and Non-Competition Agreement for senior executives, a copy of which is attached. Initially, your annual base salary will be $150,000, payable in biweekly installments.  Effective January 1, 2003, your annual base salary will increase to $160,000. As additional compensation, you are eligible to receive an annual performance incentive as described more fully in Attachment 1 to this letter.  As an inducement to accept this offer of employment, the Company will pay you a special $5,000 bonus on November 1, 2002 and grant you options to purchase up to 10,000 shares of the common stock of the Company at an exercise price equal to the Fair Market Value at December 31, 2001, as described more fully in a separate option agreement. Your compensation will be reviewed annually by the Compensation Committee of the Board of Directors and may be increased but not decreased.

Single health insurance and group term life insurance (in an amount equal to your base salary) coverage under our executive benefits program through PHS/The Guardian will be effective after ninety days of full-time employment. After you have completed six months of employment, you are entitled to two weeks’ paid vacation and you are eligible to participate in the Company’s 40l(k) plan with a 25% match by the Company. You are also entitled to one complimentary membership during your first year of employment and three memberships thereafter.

895 broadway new york, new york 10003 tel 212.677.0180 fax 212.777.9510

www.equinoxfitness.com

If the terms of this offer letter are acceptable to you, please indicate your agreement by countersigning both originals of this letter and the Non-Disclosure and Non-Competition Agreement, returning one copy of each to me. On behalf of the Board of Directors and the employees of Equinox, I wish to express my excitement at the prospect of your joining us.

	Sincerely yours,
	/s/ Harvey Spevak
	Harvey Spevak
Agreed and Accepted:
/s/ Jeffrey L. Grayson
Jeffrey L. Grayson

Attachment 1

Performance Bonus Plan

Chief Technology Officer

1.The performance bonus will be based upon (i) certain individual deliverables tobe mutually agreed within the first ninety (90) days of your employment, and (ii) the Company’s earnings before interest expense, income taxes and depreciation and amortization (“EBITDA”) during any fiscal year.

2.Individual Deliverables Upon your achievement of certain mutually agreed deliverables in 2002, you will be eligible to receive a performance incentive up to $10,000.  For 2003, the bonus opportunity will increase to $20,000. This individual performance incentive is contingent upon the Company achieving 90% of its profitability goal (see paragraph 4).

3.Corporate EBITDA On an annual basis, the actual EBITDA during the given fiscal year (as confirmed by the Company’s outside auditors) will be compared with the amount of EBITDA forecast to be generated during such period as outlined in the approved operating budget.

a.If the actual EBITDA is less than, 90% of goal, no performance bonus will be awarded.

b.If the actual 2002 EBITDA is equal to or greater than 90% of goal but less than 95% of goal, a performance bonus in the amount of $4,000 will be awarded. For 2003, the bonus opportunity will increase to $8,000.

c.If the 2002 actual EBITDA is equal to or greater than 95% of goal but less than 100% of goal, a performance bonus incentive in the amount of $6,000 plus $800 for each one percent (1%) in excess of 95% of goal, subject to a maximum performance bonus of $10,000 will be awarded. For 2003, the 95% and incremental bonus opportunities increase to $12,000 and $1,600, respectively.

d.If the actual EBITDA is  greater than 100% of goal, a performance bonus in the amount of $10,000 plus $2,000 for each one percent (1%) in excess of 100% of goal be awarded. For 2003, the 100% and incremental bonus opportunities will increase to $20,000 and $4,000, respectively.

4.If actual Corporate EBITDA is less than 90% of goal, no individual performance bonus will be awarded.

5.Performance incentive bonuses will be paid no later than April 10^th of the following year.

May 8, 2002

Mr. Jeffrey L. Grayson

220 West 98th, Apt 9L

New York, NY 10025

Re:    Non-Disclosure and Non-Competition Agreement

Dear Jeff:

This will confirm the terms of the agreement between Equinox Holdings, Inc. with offices at 895 Broadway, New York, New York (“Equinox”) and Mr. Jeffrey L.Grayson (“You”) regarding the protection of Confidential Information and certain restrictions on Your competing with Equinox.

1.GENERAL

Equinox agrees to employ You, and You agree to be employed by Equinox as Chief Technology Officer for Equinox’s consolidated businesses pursuant to the terms and provisions of the offer letter dated April 19, 2002 (the “Offer Letter”).  Your employment relationship with Equinox will be on an “at will” basis, and either Equinox or You mayterminate the employment for any reason and at any time, without notice.

2.WORKS FOR HIRE

You agree that all work products including, but not limited to, patents, copyrights, product developments, service developments, ideas and concepts created by You during Your employment and which relate to the business of Equinox shall remain the exclusive property of Equinox.

3.CONFIDENTIALITY AGREEMENT AND RESTRICTIVE CONVENANTS

(a)           You recognize and acknowledge that the lists and files relating to Equinox’s members, prospects, employees, independent contractors and suppliers as well as its business plans, policies, operating procedures and financial information (including operating budgets) concerning Equinox or its shareholders and affiliates (collectively, “Confidential Information”), as same may exist from time to time, are valuable, special and unique assets of Equinox’s business.  You agree that, except as required by law, You will not disclose Confidential Information to any person, firm, corporation, association or other entity for any reason or any

895 broadway new york, new york 10003 tel 212.677.0180 fax 212.777.9510

www.equinoxfitness.com

purpose at all and that You will not use such Confidential Information for Your own benefit or the benefit of any third party(s). You also agree that all equipment, records, files, memoranda, computer printouts and data, reports, correspondence and the like, relating to the business of Equinox, that You might use or prepare or with which You might come into contact, shall remain the sole property of Equinox. You further agree to turn over immediately to Equinox any such material in Your possession at such time as Your employment is terminated.

(b)           You agree that, during Your employment and for a period of twelve (12) months immediately following termination of Your employment, You will not, without Equinox’s prior written consent, directly or indirectly, own, manage, be employed by, operate, consult for or participate in, or be connected as an officer, employee, partner, or otherwise with anyfitness club within a twelve (12) block radius of Equinox or any of its affiliates’ facilities; provided however that, in the event that Your employment is terminated by Equinox without cause, the period of time of your non-compete will be the same as the equivalent number of months during which You receive severance pay as described more fully in paragraph 3(c). Notwithstanding the foregoing, the parties agree that You will be released from the terms of the preceding non-compete provision in the event that Equinox fails to fulfill any of its financial obligations under the Offer Letter or this letter agreement. You also agree that, during Your employment and for a period of eighteen (18) months immediately following termination of Your employment. You will not in anymanner, directly or indirectly, disparage Equinox or its employees and operations in any way. You further agree that, during Your employment and for a period of eighteen (18) months immediately following termination of Your employment, You will not in anymanner, directly or indirectly, encourage, Induce or attempt to induce any person who is then or was (within six (6) months before the date of such Inducement) an employee or consultant of Equinox to alter or terminate his or her employment or consultation with Equinox or otherwise solicit, attempt to hire or hire any such employee or consultant. If the period of time or area herein specified should be adjudged unreasonable in any court proceeding, then the period of time shall be reduced by such number of months or the area shall be reduced geographically, of both, so that this covenant may be enforced during such period of time and in such areas as are adjudged to be reasonable.

(c)           Equinox agrees that, in the event that Your employment is terminated by Equinox, You will be entitled to receive severance pay equal to the equivalent of one week’s salary for each six months of service to Equinox at the time of termination, payable at the option of Equinox, either in one lump sum or in biweekly installments of no less the equivalent biweekly installment of Your effective base salary at the time of termination. The amount of such severance pay shall be no more than one-half of Your effective base salary at the time of termination, less any applicable deductions as required by law. In the event that You are terminated for cause, Equinox is not obligated to make any severance payment. For the purposes of this Agreement, “cause” shall be deemed to exist if:

(i)You are terminated for embezzlement of corporate funds;

(ii)You enter a business or employment that Equinox reasonably determines to be detrimentally competitive with the business of Equinox and substantially injurious to the financial interests of Equinox;

(iii)You willfully refuse to perform services consistent with Your position;

(iv)You engage in acts of dishonesty or fraudin connection with Your employment; or

(v)You engage in acts of misconduct of such nature that Your continued employment could reasonably be expected to adversely affect the business or properties of Equinox.

For the purposes of determining “cause” in subparagraph 3(c)(iii) and 3(c)(v) above, You will have thirty (30) days, after written notice from Equinox’s Board of Directors, to remedy the reason(s) given by the Board in such notice for the assertion of a “cause” event. If You fail to remedy the reason(s) within such thirty (30) day period, Equinox may terminate You for cause.

(d)           You agree that, upon a breach, threatened breach or violation by You of any of the foregoing provisions of this paragraph 3, Equinox, in addition to all other remedies, shall be entitled as a matter of right to injunctive relief in any court of competent jurisdiction without being required to post bond or other security and without having to prove the inadequacy of the available remedies at law, to enjoin and restrain You and each and every other person, partnership, association, corporation or organization concerned therein, from the continuance of any action constituting such breach.

4.             NOTICES

Any and all notices or other communications given under this Agreement shall be in writing and shall be deemed to have been duly given on the date of delivery, if delivered in person, or four (4) days after mailing, if mailed within the continental United States, postage prepaid, by certified or registered mail, return receipt requested, to the party entitled to receive the same at his or its address first set forth above. We may designate by notice to each other any new address for the purposes of this Agreement as provided in this paragraph 4.

5.             MISCELLANEOUS PROVISIONS

(a)           This instrument, in conjunction with the Offer Letter, represents the entire Agreement between us and supersedes any prior agreement or understanding with respect to the subject matter hereof. In the event that a conflict arises between this Agreement and the Offer Letter, the Offer Letter will govern. No provision hereof may be amended, modified, terminated or revoked except by a writing signed by both of us.

(b)           This Agreement will be governed by, and construed and enforced according to, the laws of the State of New York without regard to its conflicts of  law rules.

(c)           No waiver of any breach or default hereunder shall be considered valid unless in writing, and no such waiver shall be deemed the waiver of subsequent breach or default of the same or similar nature.

(d)           If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall affect only such provision and shall not in any manner affect

or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein.

(e)           We agree that we will each take such action and execute and deliver such documents as may be reasonably necessary to fulfill the terms of this Agreement.

(f)            The agreements and covenants set forth in Paragraph 3 above shall survive termination and expiration of this Agreement for the various time periods specified therein.

If this letter accurately setsforth the terms of our agreement, please countersign the enclosed copy and return it to us.

	Very truly yours,
	EQUINOX HOLDINGS, INC.
	/s/ Harvey Spevak
	Harvey Spevak
Accepted and Agreed to this
8 day of May, 2002
/s/ Jeffrey L. Grayson
Jeffrey L. Grayson

EX-10.11

Exhibit 10.11

CREDIT AGREEMENT

DATED AS OF DECEMBER 16, 2003

BY AND AMONG

EQUINOX HOLDINGS, INC., a Delaware corporation,

MERRILL LYNCH CAPITAL,
a Division of Merrill Lynch Business Financial Services Inc.,
as Agent, Administrative Agent, Lead Arranger and as a Lender,

UBS SECURITIES LLC, as Syndication Agent,

WACHOVIA BANK, NATIONAL ASSOCIATION, as Documentation Agent and as a Lender,

UBS LOAN FINANCE LLC, as a Lender,

AND

THE ADDITIONAL LENDERS
FROM TIME TO TIME PARTY HERETO

TABLE OF CONTENTS

ARTICLE I DEFINITIONS
Section 1.1	Certain Defined Terms
Section 1.2	Accounting Terms and Determinations
Section 1.3	Other Definitional Provisions
ARTICLE II LOANS AND LETTERS OF CREDIT
Section 2.1	Loans.
Section 2.2	Interest, Interest Calculations and Certain Fees.
Section 2.3	Notes
Section 2.4	Letters of Credit and Letter of Credit Fees.
Section 2.5	General Provisions Regarding Payment; Loan Account.
Section 2.6	Maximum Interest.
Section 2.7	Taxes.
Section 2.8	Ancillary Services
Section 2.9	Change of Lending Office
Section 2.10	Replacement of Lenders under Certain Circumstances
ARTICLE III REPRESENTATION AND WARRANTIES
Section 3.1	Existence and Power
Section 3.2	Organization and Governmental Authorization; No Contravention
Section 3.3	Binding Effect
Section 3.4	Capitalization
Section 3.5	Financial Information.
Section 3.6	Litigation
Section 3.7	Ownership of Property
Section 3.8	No Default
Section 3.9	Labor Matters
Section 3.10	Regulated Entities
Section 3.11	Margin Regulations
Section 3.12	Compliance With Laws
Section 3.13	Taxes
Section 3.14	Compliance with ERISA.
Section 3.15	Broker Fees and Other Payments
Section 3.16	Related Transactions
Section 3.17	Employment, Equityholders and Subscription Agreements
Section 3.18	Compliance with Environmental Requirements; No Hazardous Materials
Section 3.19	Intellectual Property
Section 3.20	Real Property Interests
Section 3.21	Solvency
Section 3.22	Full Disclosure
ARTICLE IV AFFIRMATIVE COVENANTS
Section 4.1	Financial Statements and Other Reports

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Section 4.2	Payment and Performance of Obligations
Section 4.3	Maintenance of Existence
Section 4.4	Maintenance of Property; Insurance.
Section 4.5	Compliance with Laws
Section 4.6	Reserved.
Section 4.7	Use of Proceeds
Section 4.8	Lenders’ Meetings
Section 4.9	Reserved.
Section 4.10	Reserved.
Section 4.11	Bank, Investment and Other, Similar Accounts
Section 4.12	Further Assurances
Section 4.13	New Leases; Certain New Subsidiaries.
ARTICLE V NEGATIVE COVENANTS
Section 5.1	Debt
Section 5.2	Liens
Section 5.3	Restricted Distributions
Section 5.4	Restrictive Agreements
Section 5.5	Payments and Modifications of Unsecured Notes Debt; Warrant Documents.
Section 5.6	Consolidations, Mergers and Sales of Assets
Section 5.7	Permitted Acquisitions, Investments
Section 5.8	Transactions with Affiliates
Section 5.9	Modification of Organizational Documents
Section 5.10	Fiscal Year
Section 5.11	Conduct of Business
Section 5.12	Investor Fees
Section 5.13	Bank Accounts
ARTICLE VI FINANCIAL COVENANTS
Section 6.1	Capital Expenditures
Section 6.2	Interest Coverage Ratio
Section 6.3	Total Debt to EBITDA Ratio
Section 6.4	Senior Debt to EBITDA Ratio
ARTICLE VII CONDITIONS
Section 7.1	Conditions to Closing; Conditions to Initial Loans.
Section 7.2	Conditions to Each Loan and Support Agreement
ARTICLE VIII EVENTS OF DEFAULT
Section 8.1	Events of Default
Section 8.2	Acceleration and Suspension or Termination of Loan Commitment
Section 8.3	Cash Collateral
Section 8.4	Default Rate of Interest and Suspension of LIBOR Rate Options
Section 8.5	Setoff Rights
Section 8.6	Application of Proceeds

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ARTICLE IX EXPENSES, INDEMNITY, TAXES AND RIGHT TO PERFORM
Section 9.1	Expenses
Section 9.2	Indemnity
Section 9.3	Taxes
Section 9.4	Right to Perform
ARTICLE X AGENT
Section 10.1	Appointment and Authorization
Section 10.2	Agent and Affiliates
Section 10.3	Action by Agent
Section 10.4	Consultation with Experts
Section 10.5	Liability of Agent
Section 10.6	Indemnification
Section 10.7	Right to Request and Act on Instructions
Section 10.8	Credit Decision
Section 10.9	Collateral Matters
Section 10.10	Agency for Perfection
Section 10.11	Notice of Default
Section 10.12	Successor Agent
Section 10.13	Disbursements of Loans; Payment.
ARTICLE XI MISCELLANEOUS
Section 11.1	Survival
Section 11.2	No Waivers
Section 11.3	Notices
Section 11.4	Severability
Section 11.5	Amendments and Waivers
Section 11.6	Assignments; Participations.
Section 11.7	Headings
Section 11.8	Confidentiality
Section 11.9	GOVERNING LAW; SUBMISSION TO JURISDICTION
Section 11.10	WAIVER OF JURY TRIAL
Section 11.11	Publication; Advertisement.
Section 11.12	Counterparts; Integration

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ANNEXES AND EXHIBITS

ANNEXES
Annex A	Commitment Annex
Annex B	JW Childs Coinvestors
Annex C	Conditions and Factors for Permitted Acquisitions
Annex D	Selected Unrestricted Lease Provisions
EXHIBITS
Exhibit A	Form of Assignment Agreement
Exhibit B	Form of Compliance Certificate
Exhibit C	Form of Borrowing Base Certificate
Exhibit D	Form of Notice of Borrowing

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CREDIT AGREEMENT

CREDIT AGREEMENT dated as of December 16, 2003 by and among EQUINOX HOLDINGS, INC., a Delaware corporation (“Borrower”), as Borrower, the financial institutions from time to time parties hereto, each as a Lender, MERRILL LYNCH CAPITAL, a division of Merrill Lynch Business Financial Services Inc., individually as a Lender and as Agent, Administrative Agent and Lead Arranger, UBS SECURITIES LLC, as Syndication Agent, WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association, individually as a Lender and as Documentation Agent, and UBS LOAN FINANCE LLC, as a Lender.

RECITALS:

WHEREAS, Borrower desires that Lenders extend certain working capital facilities to Borrower to provide funds necessary to provide working capital financing for Borrower and to provide funds for other general business purposes of Borrower; and

WHEREAS, Borrower desires to secure all of its Obligations under the Financing Documents by granting to Agent, for the benefit of Agent and Lenders, a security interest in and lien upon substantially all of its personal property and certain of its real property, including without limitation substantially all of the outstanding capital stock or other equity securities, as applicable, of each Subsidiary, all as set forth in the Security Documents; and

WHEREAS, each Domestic Subsidiary is willing to guaranty all of the Obligations of Borrower to Lenders under the Financing Documents, and certain Domestic Subsidiaries are willing to grant to Agent, for the benefit of Agent and Lenders, a security interest in and lien upon substantially all of their personal property and certain of their real property, including without limitation substantially all of the outstanding capital stock or other equity securities, as applicable, of their respective Subsidiaries, all as set forth in the Security Documents;

NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, Borrower, Lenders and Agent agree as follows:

ARTICLE I
DEFINITIONS

Section 1.1Certain Defined Terms.  The following terms have the following meanings:

“Accounts” means “accounts” (as defined in Article 9 of the UCC) of Borrower, the Domestic Subsidiaries, including without limitation any and all rights to payment for the sale or lease of goods or rendition of services, whether or not they have been earned by performance.

“Adjustment Date” means the first Business Day of each February, May, August and November of each year, commencing with the first Business Day of February, 2004.

“Administrative Agent”means Merrill Lynch, in its capacity as administrative agent for the Lenders hereunder, subject to the provisions of Section 10.14, and the successors of Merrill Lynch in such capacity.

“Affiliate” means with respect to any Person: (i) any Person that directly or indirectly controls such Person, (ii) any Person which is controlled by or is under common control with such controlling Person and (iii) in the case of an individual, the parents, descendants, siblings and spouse of such individual.  As used in this definition, the term “control” of a Person means the possession, directly or indirectly, of the power to vote five percent (5%) or more of any class of voting securities of such Person or to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise; provided, however: (x) neither the Agent nor any Lender (nor any Affiliate thereof) shall be considered an Affiliate of the Borrower or any Subsidiary thereof and (y) so long as any Unsecured Notes are outstanding, no holder of the Unsecured Notes shall be considered an Affiliate of the Borrower or any Subsidiary thereof solely by reason of such holder’s holding such Senior Subordinated Notes.

“Agent” means Merrill Lynch in its capacity as agent for the Lenders hereunder, as such capacity is established and subject to the provisions of Article X, and the successors of Merrill Lynch in such capacity.

“Agent Advances” has the meaning set forth in subsection 2.1(a)(ii).

“Agreement” means this Credit Agreement, as the same may be amended, supplemented, restated or otherwise modified from time to time.

“Ancillary Services” means any service or facility (other than any Debt and/or Letter of Credit facility) extended to the Borrower or any Subsidiary by any Designated Lender Affiliate under any Interest Rate Protection Agreement otherwise permitted hereunder in reliance on the agreement of a Lender to indemnify such Designated Lender Affiliate in respect of such service or facility.

“Applicable Unused Line Rate” means, at the time of calculation: (i) if the Loan Outstandings divided by the Loan Commitment is less than .33, a rate per annum equal to 875/1000 percent (0.875%), (ii) if the Loan Outstandings divided by the Loan Commitment is .33 or more but less than ..50, a rate per annum equal to 750/1000 percent (0.750%), and (iii) if the Loan Outstandings divided by the Loan Commitment is .50 or more, a rate per annum equal to 500/1000 percent (0.500%).

“Asset Disposition” means any sale, lease, exclusive license or other consensual disposition by any Credit Party of any asset, but excluding sales, leases, exclusive licenses or transfers or other dispositions expressly permitted under Section 5.6.

“Assignee” has the meaning set forth in subsection 11.6(a).

“Assignment Agreement” means an agreement substantially in the form of Exhibit A hereto.

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“Borrower” has the meaning set forth in the Preamble to this Agreement.

“Borrower’s Account” means the account specified on the signature pages hereof below Borrower’s name.

“Borrowing” means a borrowing of a Loan.

“Borrowing Base” means, as of any date of calculation, the dollar amount calculated to be the “Borrowing Base” under and pursuant to the Borrowing Base Certificate most recently delivered to Agent in accordance with the terms hereof.

“Borrowing Base Certificate” means a certificate, duly executed by a Responsible Officer, appropriately completed and substantially in the form of Exhibit C hereto.

“Business Day” means any day except a Saturday, Sunday or other day on which either the New York Stock Exchange is closed, or on which commercial banks in Chicago are authorized by law to close and, in the case of a Business Day which relates to a LIBOR Loan, a day on which dealings are carried on in the London interbank eurodollar market.

“Capital Expenditures” has the meaning provided in the Compliance Certificate.

“Capital Lease” of any Person means any lease of any property by such Person as lessee which would, in accordance with GAAP, be required to be accounted for as a capital lease on the balance sheet of such Person.

“Cash-Collateralized Letter of Credit” means a Letter of Credit with respect to which Borrower has deposited with Agent for the benefit of all Lenders which have committed to make Loans hereunder cash in an amount equal to: (i) one hundred percent (100%) of the aggregate outstanding Letter of Credit Liabilities with respect to such Letter of Credit to be available to Agent to reimburse payments of drafts drawn under such Letter of Credit and pay any fees and expenses related thereto plus (ii) an amount equal to the aggregate amount of fees payable under subsection 2.4(b) with respect to such Letter of Credit for the full remaining term of such Letter of Credit which are not otherwise prepaid by Borrower

“Cash Equivalents” means any Investment in: (i) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) commercial paper rated at least A-1 by Standard & Poor’s Ratings Service and P-1 by Moody’s Investors Services, Inc., (iii) time deposits with, including certificates of deposit issued by, any Lender or any office located in the United States of any bank or trust company which is organized under the laws of the United States or any State thereof and has capital, surplus and undivided profits aggregating at least $500,000,000 and which issues (or the parent of which issues) certificates of deposit or commercial paper with a rating described in clause (ii) above, (iv) repurchase agreements with respect to securities described in clause (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iii) above, provided in each case that such Investment matures within one year from the date of acquisition thereof by any Credit Party, or (v) any money market or mutual fund which invests only in the foregoing types of investments and the liquidity of which is satisfactory to Agent.

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“Closing Checklist” means that certain Closing Checklist describing certain conditions precedent to the effectiveness of this Agreement, which has been agreed upon by and between Agent and Borrower.

“Closing Date” means the date of this Agreement.

“Club Contribution” means, with respect to any Domestic Subsidiary for any defined period, an amount equal to revenues of such Domestic Subsidiary on a stand-alone basis for such period less operating expenses of such Domestic Subsidiary for such period (i.e.,operating income before allocation of corporate expenses).

“Code” means the Internal Revenue Code of 1986.

“Collateral” means all property, now owned or existing or hereafter acquired or arising, mortgaged or pledged to, or purported to be subjected to a Lien in favor of, Agent, for the benefit of Agent and Lenders, pursuant to the Security Documents.

“Commitment Annex” means Annex A to this Agreement.

“Commitment Expiry Date” means December 16, 2008.

“Compliance Certificate” means a certificate, duly executed by a Responsible Officer, appropriately completed and substantially in the form of Exhibit B hereto.

“Consolidated Subsidiary” means at any date any Subsidiary or other Person the accounts of which would be consolidated with those of Borrower in its consolidated financial statements if such statements were prepared as of such date.

“Control Agreement”means an agreement by and among Agent, any Credit Party and a deposit bank or other financial institution, pursuant to which such deposit bank or other financial institution acknowledges the security interest of Agent in all bank, investment or other, similar accounts of such Credit Party held by such deposit bank or other financial institution, and agrees to comply with instructions originated by Agent directing disposition of the funds in the bank, investment or other, similar accounts upon the occurrence and during the continuance of an Event of Default without further consent from any Credit Party, and agrees to subordinate and limit any security interest the deposit bank may have in the bank accounts on terms reasonably satisfactory to Agent, and which are otherwise in form and substance reasonably satisfactory to Agent.

“Controlled Group” means all members of a controlled group of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with Borrower, are treated as a single employer under Section 414 of the Code or Section 4001 of ERISA.

“Credit Exposure” means the Loan Commitment is outstanding or any Loan, Reimbursement Obligation or other Obligation remains unpaid or any Letter of Credit or Support Agreement remains outstanding; provided, no Credit Exposure shall be deemed to exist solely

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due to the existence of: (i) contingent indemnification liability or (ii) any outstanding Cash-Collateralized Letter of Credit.

“Credit Party” means Borrower and each Subsidiary.

“Debt” of a Person means at any date, without duplication: (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising and paid in the ordinary course of business, (iv) all Capital Leases of such Person, (v) all non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (vi) all equity securities of such Person subject to repurchase or redemption otherwise than at the sole option of such Person (other than the Warrants and, to the extent no mandatory right of redemption has arisen thereunder, any Preferred Stock), (vii) Debt of the types described in clauses (i), (ii), (iii), (iv), (v) and (vii) of this definition that is secured by a Lien on any asset of such Person, whether or not such obligation is otherwise an obligation of such Person, (viii) “earnouts” which are due and owing and similar payment obligations and (ix) all Debt of others Guaranteed by such Person; provided, in no event shall “Debt” include Cash-Collateralized Letters of Credit or letters of credit issued by Persons other than Agent or any Lender which are fully cash collateralized in a manner reasonably satisfactory to Agent.

“Default” means any condition or event which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default.

“Defaulted Lender” means, so long as such failure shall remain in existence and uncured, any Lender which shall have failed to make any Loan or other credit accommodation, disbursement or reimbursement required pursuant to the terms of any Financing Documents.

“Designated Lender Affiliates” means any Affiliate of Agent or any Lender that: (i) from time to time makes Ancillary Services available to Borrower or any Subsidiary and (ii) in the case of an Affiliate of a Lender other than Merrill Lynch, is expressly identified in writing by Agent, in its sole discretion, as a Designated Lender Affiliate.

“Documentation Agent” means Wachovia, in its capacity as documentation agent for the Lenders hereunder, subject to the provisions of Section 10.14, and the successors of Wachovia in such capacity.

“Domestic Subsidiary” means a Subsidiary which is formed under the laws of one (1) of the fifty (50) states of the United States of America.

“EBITDA” has the meaning provided in the Compliance Certificate.

“Eligible Assignee” means: (i) any commercial bank organized under the laws of the United States or any state thereof; (ii) a commercial bank organized under the laws of any other country; or (iii) a finance company, insurance company or other financial institution or fund which is engaged in making, purchasing or otherwise investing in commercial loans for its own account in the ordinary course of business.

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“Environmental Laws” means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, codes, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and governmental restrictions, whether now or hereafter in effect, relating to the environment or the effect of the environment on human health or to emissions, discharges or releases of pollutants, contaminants, Hazardous Materials or wastes into the environment, including ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Materials or wastes or the clean-up or other remediation thereof.

“Equity Documents” means, collectively: (i) that certain Stockholders Agreement dated as of December 15, 2000 by and among Borrower, each of the “Stockholders” party thereto, North Castle Partners and Friends of North Castle Fund, L.P., a Delaware limited partnership, (ii) that certain Registration Rights Agreement dated as of December 15, 2000 by and among Borrower, NCP Co. Investment Fund, L.P. and each other Holder party thereto, (iii) that certain Senior Subordinated Note and Warrant Purchase Agreement dated as of December 15, 2000 by and among Borrower and each of the “Noteholders” party thereto, as amended by that certain Amendment No. 1 to Common Stock Purchase Warrant, Amendment No.2 to Senior Subordinated Note and Warrant Purchase Agreement and Consent dated as of November 8, 2003, (iv) that certain Amendment No. 1 to Common Stock Purchase Warrant, Amendment No.2 to Senior Subordinated Note and Warrant Purchase Agreement and Consent dated as of November 8, 2003, and (iv) each of the Warrants, together with any Redeemable Preferred Stock of the Borrower issued pursuant thereto, as amended by that certain Amendment No. 1 to Common Stock Purchase Warrant, Amendment No.2 to Senior Subordinated Note and Warrant Purchase Agreement and Consent dated as of November 8, 2003.

“ERISA” means the Employee Retirement Income Security Act of 1974.

“Event of Default” has the meaning set forth in Section 8.1.

“Excluded Collateral” means, collectively, “Excluded Collateral,” as such term is defined in: (i) that certain Security Agreement dated as of even date herewith by and between Agent and Borrower and (ii) that certain Security Agreement dated as of even date herewith by and among Agent and certain Subsidiaries of Borrower, in each case as such document may be amended, restated, supplemented or otherwise modified from time to time in accordance with its terms.

“Federal Funds Rate” means, for any day, the rate of interest per annum (rounded upwards, if necessary, to the nearest whole multiple of 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided, if: (i) such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day and (ii) no such rate is so published on such next preceding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Agent on such day on such transactions as determined by Agent.

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“Financing Documents” means this Agreement, the Notes, the Security Documents, the Information Certificate, each Guarantee issued by any Credit Party to Agent or any Lender in respect of the Obligations, any fee letter between Merrill Lynch and Borrower relating to the transactions contemplated hereby and all other documents, instruments and agreements contemplated herein or thereby and executed concurrently herewith or at any time and from time to time hereafter, as any or all of the same may be amended, supplemented, restated or otherwise modified from time to time.

“Fiscal Year” means a fiscal year of Borrower, ending on December 31 of each calendar year.

“Foreign Subsidiary”means a Subsidiary which is not formed under the laws of one (1) of the fifty (50) states of the United States of States of America.

“Foreign Subsidiary Advance Amount”means, at any time of determination, an amount equal to: (i) the aggregate amount of intercompany Debt outstanding which has arisen from loans made by Borrower or any of its Domestic Subsidiaries to any Foreign Subsidiary plus (ii) the aggregate amount of all Investments in and other advances or other transfers of any kind or type to any Foreign Subsidiary by Borrower or any of its Domestic Subsidiaries less (iii) the aggregate amount of cash received by Borrower or any of its Domestic Subsidiaries in whatever formas a result of dispositions of Foreign Subsidiaries or directly or indirectly from such Foreign Subsidiaries as a result of their operations or otherwise (including, without limitation, by payment of interest, principal, dividends, stock repurchases or otherwise).

“GAAP” means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination.

“Guarantee” by any Person means: (i) any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and (ii) without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person: (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (b) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.  The term “Guarantee” used as a verb has a corresponding meaning.

“Hazardous Materials” means: (i) any “hazardous substance” as defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, (ii) asbestos, (iii) polychlorinated biphenyls, (iv) petroleum, its derivatives, by-products and other

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hydrocarbons, and (v) any other toxic, radioactive, caustic or otherwise hazardous substance regulated under Environmental Laws.

“Hazardous Materials Contamination” means contamination (whether now existing or hereafter occurring) of the improvements, buildings, facilities, personalty, soil, groundwater, air or other elements on or of the relevant property by Hazardous Materials, or any derivatives thereof, or on or of any other property as a result of Hazardous Materials, or any derivatives thereof, generated on, emanating from or disposed of in connection with the relevant property.

“Holders” means Holdings and each other holder of issued and outstanding capital stock of Borrower.

“Holdings” means Equinox Holdings, L.P., a Delaware limited partnership.

“Indemnitees” has the meaning set forth in Section 9.2.

“Information Certificate” means that certain Information Certificate of even date herewith executed by Borrower and delivered to Agent and the Lenders.

“Intellectual Property” means all patents, trademarks, trade names, copyrights, technology, know-how and processes, and all applications and registrations therefor, used in or necessary for the conduct of business by a Person.

“Interest Coverage Ratio” has the meaning provided in the Compliance Certificate.

“Interest Period” means, as to any LIBOR Loan, the period commencing on the date such Loan is borrowed or continued as, or converted into, a LIBOR Loan and ending on the date one (1), two (2), three (3) or six (6) months thereafter, as selected by Borrower pursuant to subsection 2.2(d); provided:  (a) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (b) any Interest Period that begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall end on the last Business Day of the calendar month at the end of such Interest Period; and (c) Borrower may not select any Interest Period for a Loan which would extend beyond the Commitment Expiry Date.

“Interest Rate Protection Agreement” means any interest rate swap agreement, interest rate cap agreement, interest collar agreement, interest rate hedging agreement or other similar agreement or arrangement.

“Intermediate Holdco” means EQX Holdings, LLC, a Delaware limited liability company.

“Intermediate Holdco Entities” means each of the direct, wholly-owned Domestic Subsidiaries of Intermediate Holdco which own fitness clubs which are parties to Unrestricted Leases and are not party to any real property leases which do not constitute Unrestricted Leases.

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“Inventory” means “inventory” (as defined in Article 9 of the UCC) of Borrower and the Domestic Subsidiaries.

“Investment” has the meaning set forth in Section 5.7.

“Investor Subordinated Debt” means unsecured junior subordinated bridge Debt securities issued by Borrower to any Investor, so long as the terms of any such junior subordinated Debt securities: (i) do not provide for any security, (ii) do not provide any guaranty or other support by any Subsidiary of Borrower, (iii) do not contain any covenants, (iv) provide that Borrower’s obligations thereunder may be satisfied through the issuance of additional common stock of Borrower, (v) do not require the payment of any cash interest or the payment of any principal before principal incurred, interest and other Obligations then due and owing hereunder have been indefeasibly paid in full, the Lenders have no further commitments to lend under this Agreement and the Letter of Credit Liabilities have been reduced to zero ($0), and (vi) provide that Borrower’s obligations thereunder are fully subordinated to the Obligations on a basis reasonably satisfactory to Agent in its discretion.

“Investors” meansthe North Castle Group and the JW Childs Group.

“JW Childs” means J.W. Childs Associates, L.P., a Delaware limited partnership.

“JW Childs Coinvestors” means those individuals listed on Annex B, but only so long as the respective investments of such individuals in Borrower is (and continues to be) controlled by JW Childs.

“JW Childs Equity Partners” means J.W. Childs Equity Partners II, L.P., a Delaware limited partnership.

“JW Childs Group” means JW Childs, JW Childs Equity Partners, the JW Childs Coinvestors and their respective Affiliates and any other investment fund or vehicle controlled by JW Childs.

“LC Issuer” means Merrill Lynch or a bank or trust company reasonably acceptable to Merrill Lynch, as issuer of one (1) or more Letters of Credit outstanding at any time.

“Lead Arranger” means Merrill Lynch, in its capacity as lead arranger for the Lenders hereunder, subject to the provisions of Section 10.14, and the successors of Merrill Lynch in such capacity.

“Lender” means each of: (i) Merrill Lynch, (ii) each other financial institution party hereto, (iii) each other Person that becomes a holder of a Note pursuant to and in compliance with subsection 11.6(a)(i) (and excluding any Person which becomes a holder of a Note pursuant to subsection 11.6(a)(iv)), (iv) Agent, to the extent of any Agent Advances and other Loans made by Agent which have not been settled among the Lenders pursuant to Section 10.13, and (v) the respective successors of all of the foregoing, and “Lenders” means all of the foregoing.  In addition to the foregoing, for the purpose of identifying the Persons entitled to share in the Collateral and the proceeds thereof under, and in accordance with the provisions of, this

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Agreement and the Security Documents, the term “Lender” shall include Designated Lender Affiliates.

“Letter of Credit” means a standby letter of credit issued for the account of Borrower by an LC Issuer which expires by its terms within one year after the date of issuance and in any event at least thirty (30) days prior to the Commitment Expiry Date.  Notwithstanding the foregoing, a Letter of Credit may provide for automatic extensions of its expiry date for one (1) or more successive one (1) year periods; provided, the LC Issuer that issued such Letter of Credit has the right to terminate such Letter of Credit on each such annual expiration date; provided, further, no renewal term may extend the term of the Letter of Credit to a date that is later than the thirtieth (30th) day prior to the Commitment Expiry Date.

“Letter of Credit Liabilities” means, at any time of calculation, the sum of: (i) the amount then available for drawing under all outstanding Letters of Credit (not including any Cash-Collateralized Letter of Credit and without regard to whether any conditions to drawing thereunder can then be met), to the extent subject to a Support Agreement plus (ii) the aggregate unpaid amount of all reimbursement obligations in respect of previous drawings made under such Letters of Credit (not including any Cash-Collateralized Letters of Credit), to the extent subject to a Support Agreement.

“LIBOR” means, with respect to any LIBOR Loan for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) equal to: (i) the rate of interest which is identified and normally published by Bloomberg Professional Service Page BBAM 1 as the offered rate for loans in U.S. dollars for the applicable Interest Period under the caption British Bankers Association LIBOR Rates as of 11:00 a.m. (London time), on the second full Business Day next preceding the first day of such Interest Period (unless such date is not a Business Day, in which event the next succeeding Business Day will be used); divided by (ii) the sum of one (1) minus the daily average during such Interest Period of the aggregate maximum reserve requirement (expressed as a decimal) then imposed under Regulation D of the Board of Governors of the Federal Reserve System (or any successor thereto) for “Eurocurrency Liabilities” (as defined therein).  If Bloomberg Professional Service no longer reports the LIBOR or Agent determines in good faith that the rate so reported no longer accurately reflects the rate available to Agent in the London Interbank Market or if such index no longer exists or if Page BBAM 1 no longer exists or accurately reflects the rate available to Agent in the London Interbank Market, Agent may select a replacement index or replacement page, as the case may be.

“LIBOR Loans” means any Loans which accrue interest by reference to the LIBOR in accordance with the terms of this Agreement.

“LIBOR Margin” means: (i) as of the Closing Date, three and one quarter percent (3.25%) per annum and (ii) thereafter, as of each Adjustment Date, the LIBOR Margin shall be adjusted, if necessary, to the applicable percent per annum set forth in the Pricing Table corresponding to the ratio of: (x) Total Debt on the last day of the most recently completed calendar quarter prior to the applicable Adjustment Date to (y) EBITDA for the twelve (12) month period ending on such date; provided, if an Event of Default has occurred and is

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continuing on an Adjustment Date, no reduction in the LIBOR Margin shall occur on such Adjustment Date.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset.  For the purposes of this Agreement and the other Financing Documents, Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement relating to such asset.

“Loan Account” has the meaning set forth in subsection 2.5(b).

“Loan Commitment” means the sum of all Lenders’ Loan Commitment Amounts.

“Loan Commitment Amount” means, as to any Lender, the dollar amount set forth opposite such Lender’s name on the Annex A under the column “Loan Commitment Amount,” or, if different, in the most recent Assignment Agreement to which such Lender is a party.

“Loan Commitment Percentage” means, as to any Lender, the percentage set forth opposite such Lender’s name on Annex A under the column “Loan Commitment Percentage,” or, if different, in the most recent Assignment Agreement to which such Lender is a party.

“Loan Limit” means, at any time, the lesser of: (i) the Borrowing Base, plus any Agent Advances and (ii) the Loan Commitment.

“Loan Outstandings” means at any time of calculation the sum of the then existing aggregate outstanding principal amount of Loans and the then existing Letter of Credit Liabilities.

“Loans” has the meaning set forth in subsection 2.1(a), and includes all Agent Advances.

“Major Casualty Proceeds” means, if the amount of such aggregate insurance proceeds or award or other compensation exceeds $100,000: (i) the aggregate insurance proceeds received in connection with one (1) or more related events under any Property Insurance Policy or (ii) any award or other compensation with respect to any condemnation of property (or any transfer or disposition of property in lieu of condemnation).

“Management Agreement” means the Consulting Agreement dated as of December 15, 2000 by and among Borrower, JW Childs and North Castle.

“Margin Stock” has the meaning assigned thereto in Regulation U of the Federal Reserve Board.

“Material Adverse Effect” means, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not

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related, a material adverse change in, or a material adverse effect upon, any of: (i) the financial condition, operations, business or properties of the Credit Parties taken as a whole, (ii) the rights and remedies of Agent or Lenders under any Financing Document, or the ability of any Credit Party to perform any of its obligations under any Financing Document to which it is a party, (iii) the legality, validity or enforceability of any Financing Document, or (iv) the existence, perfection or priority of any security interest granted with respect to any material Collateral in any Financing Document or the value of any material Collateral.

“Maximum Lawful Rate” has the meaning set forth in subsection 2.6(b).

“Merrill Lynch” means Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., and its successors.

“Multiemployer Pension Plan” means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which Borrower or any member of the Controlled Group may have any liability.

“Net Cash Proceeds” means, with respect to any transaction or event, an amount equal to the cash proceeds received by the Credit Party from or in respect of such transaction or event (including cash proceeds of any non-cash proceeds of such transaction), less: (i) any out-of-pocket costs, expenses or taxes reasonably incurred by such Person in connection therewith, (ii) any underwriting discounts or commissions and (iii) in the case of an Asset Disposition, the amount of any Debt secured by a Lien on the related asset and discharged from the proceeds of such Asset Disposition and any taxes paid or payable by such Person in respect of such Asset Disposition.

“North Castle” means North Castle Partners, L.L.C., a Delaware limited liability company.

“North Castle Group” means North Castle, North Castle Partners and their respective Affiliates and any other investment fund or vehicle controlled by North Castle.

“North Castle Partners” means North Castle Partners II, L.P., a Delaware limited partnership, and North Castle Partners III, L.P., a Delaware limited partnership, or either of them.

“Notes” has the meaning set forth in Section 2.3.

“Notice of Borrowing” means a written notice of a Responsible Officer, appropriately completed and substantially in the form of Exhibit D hereto.

“Notice of LC Credit Event” means a written notice from a Responsible Officer to Agent with respect to any issuance, increase or extension of a Letter of Credit specifying: (i) the date of issuance or increase of a Letter of Credit; (ii) the expiry date of such Letter of Credit; (iii) the proposed terms of such Letter of Credit, including the face amount; and (iv) the transactions or additional transaction or transactions that are to be supported or financed with such Letter of Credit or increase thereof.

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“Obligations” means all obligations, liabilities and indebtedness (monetary (including post-petition interest, whether or not allowed) or otherwise) of each Credit Party under this Agreement or any other Financing Document, in each case howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due.  The Obligations shall include, without limitation, all obligations, liabilities and indebtedness arising from or in connection with all Support Agreements and all Ancillary Services.

“Operative Documents” means the Financing Documents and the Unsecured Notes Debt Documents.

“Organizational Documents” means, with respect to any Person other than a natural person, the documents by which such Person was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of such Person (such as by-laws, a partnership agreement or an operating, limited liability or members agreement).

“Participant” has the meaning set forth in subsection 11.6(b).

“Payment Account” means the account specified on the signature pages hereof into which all payments by or on behalf of Borrower to Agent under the Financing Documents shall be made, or such other account as Agent shall from time to time specify by notice to Borrower.

“PBGC” means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA.

“Pension Plan” means any “employee pension benefit plan” or “pension plan,” as such terms are defined in Section 3(2) of ERISA, (other than a Multiemployer Pension Plan) that is subject to Title IV of ERISA, and to which Borrower or any member of the Controlled Group may have any liability, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA at any time during the preceding five (5) years, or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA.

“Permitted Acquisition” means an acquisition by Borrower, Intermediate Holdco or any of their wholly-owned Domestic Subsidiaries of another Person which satisfies all of the conditions set forth on Annex C.

“Permitted Contest” means a contest maintained in good faith by appropriate proceedings promptly instituted and diligently conducted and with respect to which such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; provided that compliance with the obligation that is the subject of such contest is effectively stayed during such challenge.

“Permitted Liens” means Liens permitted pursuant to Section 5.2.

“Person” means any natural person, corporation, limited liability company, professional association, limited partnership, general partnership, joint stock company, joint venture,

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association, company, trust, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, and any government or agency or political subdivision thereof.

“Preferred Stock” means the Senior Redeemable Preferred Stock of Borrower, par value $0.01 per share, with an initial liquidation preference of $1000.00 per share.

“Pricing Table” means the following table:

Total Debt to EBITDA Ratio	Prime Rate		LIBOR
Greater than or equal to 5.0 to 1.0	2.75	%	3.75	%
Greater than 4.5 to 1.0, but less than 5.0 to 1.0	2.50	%	3.50	%
Greater than 4.0 to 1.0, but less than or equal to 4.5 to 1.0	2.25	%	3.25	%
Less than 4.0 to 1.0	2.00	%	3.00	%

For purposes of the Pricing Table, if Borrower shall at any time fail to timely deliver a Compliance Certificate, then effective as of the tenth (10th) Business Day following the date on which such Compliance Certificate was due, each applicable Prime Rate Margin and each applicable LIBOR Margin shall be conclusively presumed to equal the highest applicable Prime Rate Margin and the highest applicable LIBOR Margin specified in the Pricing Table until the date of delivery of such Compliance Certificate.

“Prime Rate” means a variable per annum rate, as of any date of determination, equal to the greater of: (i) the Federal Funds Rate plus one half of one percent (0.50%) per annum and (ii) the rate from time to time published in the “Money Rates” section of The Wall Street Journal as being the “Prime Rate” (or, if more than one (1) rate is published as the Prime Rate, then the highest of such rates).  The Prime Rate will change as of the date of publication in The Wall Street Journal of a Prime Rate that is different from that published on the preceding Business Day.  In the event that The Wall Street Journal shall, for any reason, fail or cease to publish the Prime Rate, Agent shall choose a reasonably comparable index or source to use as the basis for the Prime Rate.

“Prime Rate Loans” means Loans which accrue interest by reference to the Prime Rate, in accordance with the terms of this Agreement.

“Prime Rate Margin” means: (i) as of the Closing Date, two and one quarter percent (2.25%) per annum, and (ii) thereafter, as of each Adjustment Date, the Prime Rate Margin shall be adjusted, if necessary, to the applicable percent per annum set forth in the Pricing Table corresponding to the ratio of: (x) Total Debt on the last day of the most recently completed calendar quarter prior to the applicable Adjustment Date to (y) EBITDA for the twelve (12) month period ending on such date; provided, if an Event of Default has occurred and is continuing on an Adjustment Date, no reduction in the Prime Rate Margin shall occur on such Adjustment Date.

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“Property Insurance Policy” means any insurance policy maintained by any Credit Party covering losses with respect to tangible real or personal property or improvements.

“Pro Rata Share” means: (i) with respect to a Lender’s obligation to make Loans, such Lender’s right to receive payments of principal and interest with respect thereto, such Lender’s right to receive the unused line fee described in subsection 2.2(b), and such Lender’s obligation to share in Letter of Credit Liabilities (including, notwithstanding anything contained herein to the contrary, liabilities and obligations arising with respect to Cash-Collateralized Letters of Credit) and to receive the related Letter of Credit fee described in subsection 2.4(b), the Loan Commitment Percentage of such Lender and (ii) for all other purposes (including without limitation the indemnification obligations arising under Section 10.6) with respect to any Lender, the percentage obtained by dividing: (x) the sum of the Loan Commitment Amount of such Lender (or, in the event the Loan Commitment shall have been terminated, such Lender’s then existing Loan Outstandings), by (y) the sum of the Loan Commitment (or, in the event the Loan Commitment shall have been terminated, the then existing Loan Outstandings of all Lenders).

“Reimbursement Obligations” means, at any date, the obligations of Borrower then outstanding to reimburse Agent for payments made by Agent under a Support Agreement.

“Required Lenders” means at any time Lenders holding: (i) more than fifty percent (50%) of the Loan Commitment or (ii) if the Loan Commitment has been terminated, more than fifty percent (50%) of the sum of: (x) the aggregate outstanding principal balance of the Loans plus (y) the aggregate amount of Reimbursement Obligations; provided, however, in the event one (1) Lender holds more than fifty percent (50%) of the sum of the Loan Commitment (or, if the Loan Commitment has been terminated, more than fifty percent (50%) of the aggregate outstanding principal balance of the Loans plus the aggregate amount of Reimbursement Obligations), the term “Required Lenders” shall mean at least two (2) Lenders who, together or collectively, meet the qualifications set forth in clauses (i) or (ii), as applicable.

“Responsible Officer” means either the Chief Executive Officer or the Chief Financial Officer.

“Restricted Distribution” means as to any Person: (i) any dividend or other distribution on any equity interest in such Person (except those payable solely in its equity interests) or (ii) any payment on account of: (a) the purchase, redemption, retirement, defeasance, surrender or acquisition of any equity interests in such Person or any claim respecting the purchase or sale of any equity interest in such Person, or (b) any option, warrant or other right to acquire any equity interests in such Person.

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

“Security Documents” means any agreement, document or instrument executed concurrently herewith or at any time hereafter pursuant to which one or more Credit Parties or any other Person either: (i) Guarantees payment or performance of all or any portion of the Obligations and/or (ii) provides, as security for all or any portion of the Obligations, a Lien on any of its assets in favor of Agent for its own benefit and the benefit of the Lenders, as any or all of the same may be amended, supplemented, restated or otherwise modified from time to time.

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“Seller Subordinated Debt” means unsecured junior subordinated Debt securities issued by Borrower as consideration to any seller in a Permitted Acquisition consummated in accordance with the terms of this Agreement, so long as the terms of any such junior subordinated Debt securities: (i) do not provide for any security, (ii) do not provide any guaranty or other support by any Subsidiary of Borrower, (iii) do not contain any covenants and (iv) do not require the payment of any principal before principal incurred, interest and other Obligations then due and owing hereunder have been indefeasibly paid in full, the Lenders have no further commitments to lend under this Agreement and the Letter of Credit Liabilities have been reduced to zero ($0), and (v) provide that Borrower’s obligations thereunder are fully subordinated to the Obligations on a basis reasonably satisfactory to Agent in its discretion, which terms of subordination may, but need not necessarily, include the delay of any cash interest payments thereof until indefeasible payment in full of the Obligations.

“Senior Debt” has the meaning provided in the Compliance Certificate.

“Settlement Date” has the meaning set forth in subsection 10.13(a).

“Stated Rate” has the meaning set forth in subsection 2.6(b).

“Subsidiary” means, with respect to any Person, any corporation, limited liability company, limited partnership or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person.  Unless otherwise specified, the term Subsidiary shall refer to a Subsidiary of Borrower.

“Support Agreement” has the meaning set forth in subsection 2.4(a).

“Syndication Agent” means UBS Securities LLC, in its capacity as syndication agent for the Lenders hereunder, subject to the provisions of Section 10.14, and the successors of UBS Securities LLC in such capacity.

“Taxes” has the meaning set forth in Section 2.7.

“Taxpayer” means any Person described in Section 7701(a)(1) of the Code.

“Termination Date” has the meaning set forth in subsection 2.1(c).

“Total Debt” has the meaning provided in the Compliance Certificate.

“Transaction” means all of the factual elements relevant to the expected Tax treatment of any investment, entity, plan or arrangement contemplated pursuant to this Agreement, and includes any series of steps carried out as part of a plan.

“UCC” means the Uniform Commercial Code of the State of New York or of any other state the laws of which are required to be applied in connection with the perfection of security interests in any Collateral.

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“Unrestricted Lease”means a real property lease for a fitness club which: (i) does not prohibit the pledge of the stock of Intermediate Holdco and (ii) contains language which either: (A) is in form and substance substantially similar to and has substantially the same effect as the language contained attached hereto as Annex D, or (B) does not otherwise contain any change of control restriction, anti-assignment provision or other provision of similar import which would be breached in connection with a foreclosure upon the stock of Intermediate Holdco.

“Unsecured Notes” means the 9% Senior Notes due December 16, 2009 in an aggregate principal amount of $160,000,000 issued by Borrower, as the same may be or have been exchanged for substantially similar unsecured senior notes that have been registered under the Securities Act, and as the same or such substantially similar notes may be amended, supplemented, waived or otherwise modified from time to time in accordance with Section 5.5.

“Unsecured Notes Debt” means Debt of Borrower incurred pursuant to the terms of the Unsecured Notes Debt Documents in an original aggregate principal amount of $160,000,000 (together with capitalized interest, fees, costs and other amounts).

“Unsecured Notes Debt Documents” means, collectively: (i) the Unsecured Notes, (ii) the “Guarantees” and the “Registration Rights Agreement,” all as defined in the Unsecured Notes Purchase Agreement, (iii) the Unsecured Notes Purchase Agreement and (iv) the Unsecured Notes Indenture, together with all other documents, instruments and agreements contemplated therein or thereby and executed concurrently therewith or at any time and from time to time hereafter; individually, each an “Unsecured Notes Debt Document.”

“Unsecured Notes Indenture” means the indenture dated as of even date herewith by and between the Borrower and U.S. Bank, National Association, a national banking association, as trustee, as the same may be amended, supplemented, waived or otherwise modified from time to time in accordance with Section 5.5.

“Unsecured Notes Purchase Agreement” means that certain Purchase Agreement dated as of even date herewith by and among the Borrower, each of the Subsidiaries party thereto, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC and Wachovia Capital Markets, LLC.

“Wachovia” means Wachovia Bank, National Association, a national banking association, and its successors.

“Warrants” means each of those certain Warrants issued by Borrower on December 15, 2000 (and replacements for lost, stolen or partially-exercised warrants) for the purchase of common stock of Borrower, or any of them.

Section 1.2Accounting Terms and Determinations.  Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder (including without limitation determinations made pursuant to the exhibits hereto) shall be made, and all financial statements required to be delivered hereunder shall be prepared on a consolidated basis in accordance with GAAP applied on a basis consistent (except for changes concurred with by Borrower’s independent public accountants) with the most recent audited consolidated financial statements of Borrower and its Consolidated Subsidiaries

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delivered to Agent and each of the Lenders; provided, if: (a) Borrower shall object to determining compliance with the provisions of this Agreement on such basis by written notice delivered to Agent and the Lenders at the time of delivery of required financial statements due to any change in GAAP or the rules promulgated with respect thereto or (b) Agent or the Required Lenders shall so object in writing by written notice delivered to Borrower within thirty (30) days after delivery of such financial statements, then such calculations shall be made on a basis consistent with the most recent financial statements delivered by Borrower to the Lenders as to which no such objection shall have been made.  In the event of any change in GAAP that occurs after the date of this Agreement and that is material to Borrower, either: (i) Agent, Lenders and Borrower shall mutually agree that Borrower will make conforming adjustments to any financial covenants set forth in this Agreement, or the components thereof, that are affected by such change or (ii) at Borrower’s option, Borrower may, in its reasonable discretion, report its covenant compliance based on GAAP as in effect immediately prior to the occurrence of such change with a reconciliation to GAAP as in effect after the occurrence of such change.  All amounts used for purposes of financial calculations required to be made herein shall be without duplication.

Section 1.3Other Definitional Provisions.  References in this Agreement to “Articles,” “Sections,” “subsections,” “Annexes” or “Exhibits” shall be to Articles, Sections, subsections, Annexes or Exhibits of or to this Agreement unless otherwise specifically provided.  Any term defined herein may be used in the singular or plural.  “Include,” “includes” and “including” shall be deemed to be followed by “without limitation.”  Except as otherwise specified herein, references to any Person include the successors and assigns of such Person.  References “from” or “through” any date mean, unless otherwise specified, “from and including” or “through and including,” respectively.  References to any statute or act shall include all related current regulations and all amendments and any successor statutes, acts and regulations.

ARTICLE II
LOANS AND LETTERS OF CREDIT

Section 2.1Loans.

(a)Loans and Borrowings.

(i)On the terms and subject to the conditions set forth herein, each Lender severally agrees to make loans to Borrower from time to time as set forth herein equal to such Lender’s Loan Commitment Percentage of revolving loans (“Loans”) requested by Borrower hereunder; provided, after giving effect thereto, the Loan Outstandings shall not exceed the Loan Limit; provided, further, no Loans shall be made on the Closing Date.  Loans (other than Agent Advances, which shall be disbursed by Agent in a manner permitted by subsection 2.1(a)(ii)) shall, absent other written instructions, be made to the Borrower’s Account, or such other account as Borrower may specify by written notice to Agent.  Within the foregoing limits, Borrower may borrow under this subsection 2.1(a)(i), prepay or repay Loans as required or permitted under this Section 2.1 and reborrow Loans pursuant to this subsection 2.1(a)(i).

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(ii)Agent Advances.  Subject to the limitations set forth in this subsection 2.1(a)(ii), Agent is hereby authorized by Lenders (and, with respect to clauses (B)(3) and (B)(4) below, is hereby authorized by both Borrower and the Lenders), from time to time in Agent’s sole discretion: (A) after the occurrence of a Default or an Event of Default, or (B) at any time that any of the other applicable conditions precedent set forth in Section 7.2 have not been satisfied (including without limitation the condition precedent that the Loan Outstandings not exceed the Borrowing Base plus any other then outstanding Agent Advances), to make Loans to Borrower on behalf of the Lenders which Agent, in its reasonable business judgment, deems necessary or desirable: (1) to preserve or protect the business conducted by Borrower, the Collateral, or any portion thereof, (2) to enhance the likelihood of, or maximize the amount of, repayment of the Loans and other Obligations, (3) to pay any amount chargeable to the Borrower pursuant to the terms of this Agreement, including interest costs, fees and expenses as described in and chargeable to the Borrower under Section 9.1 and/or Section 9.4 or (4) to satisfy payment obligations under Support Agreements (any of the advances described in this subsection 2.1(a)(ii) being hereafter referred to as “Agent Advances”); provided: (i) except with respect to Agent Advances which are applied in the manner described in the preceding clauses (3) and (4), Required Lenders (or, with respect to its authorization, the Borrower) may at any time revoke Agent’s authorization to make Agent Advances, any such revocation to be in writing and to become effective prospectively upon the Agent’s receipt thereof, (ii) Agent Advances shall be made solely as Prime Rate Loans, (iii) the aggregate amount of Agent Advances outstanding at any time, exclusive of those made pursuant to the preceding clauses (3) and (4), shall not exceed$1,500,000 and (iv) Agent shall be prohibited from making Agent Advances to the extent the making thereof would cause the Loan Outstandings (inclusive of Agent Advances) to exceed the Loan Commitment.  Notwithstanding anything contained herein or elsewhere in this Credit Agreement to the contrary, Agent Advances may be made in the event the “Conditions to Initial Loans” set forth in subsection 7.1(b) or other conditions to Loans set forth in Section 7.2 have not been satisfied.

(b)Advancing Loans.

(i)Borrower shall deliver to Agent a Notice of Borrowing with respect to each proposed Borrowing, such Notice of Borrowing to be delivered no later than noon (Chicago time): (A) on the day of such proposed Borrowing, in the case of Prime Rate Loans in an aggregate principal amount equal to or less than $5,000,000, (B) on the Business Day prior to such proposed Borrowing, in the case of Prime Rate Loans in an aggregate principal amount greater than $5,000,000 and (C) on the third (3rd) Business Day prior to such proposed Borrowing, in the case of all LIBOR Loans.  Once given, except as provided in subsection 2.2(d)(ii), a Notice of Borrowing shall be irrevocable and Borrower shall be bound thereby.

(ii)Borrower hereby authorizes Lenders and Agent to make Loans (other than LIBOR Loans) to Borrower’s Account based on telephonic notices

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made by any Person which Agent, in good faith, believes to be acting on behalf of Borrower.  Borrower agrees to deliver to Agent a Notice of Borrowing in respect of each Loan requested by telephone no later than one Business Day following such request.  If the Notice of Borrowing differs in any respect from the action taken by Agent and Lenders, the records of Agent and the Lenders shall govern absent manifest error.  Borrower further hereby authorizes Lenders and Agent to make Loans based on electronic notices made by any Person which Agent, in good faith, believes to be acting on behalf of Borrower.

(c)Mandatory Loan Repayments and Prepayments.

(i)The Loan Commitment shall terminate upon the earlier to occur of: (i) the Commitment Expiry Date and (ii) the date on which Agent or Required Lenders elect to terminate the Loan Commitment and/or declare all Obligations to be due and payable pursuant to Section 8.2 (such earlier date being the “Termination Date”), and there shall become due and Borrower shall pay on the Termination Date, the entire outstanding principal amount of each Loan, together with accrued and unpaid interest thereon to but excluding the Termination Date.

(ii)If at any time the Loan Outstandings exceed the Loan Limit, then, on the next succeeding Business Day, Borrower shall repay the Loans or cash collateralize Letter of Credit Liabilities in the manner specified in subsection 2.4(e) or cancel outstanding Letters of Credit, or any combination of the foregoing, in an aggregate amount equal to such excess.

(iii) There shall also become due and payable and Borrower shall prepay the outstanding Loans in the following amounts and at the following times:

(A)within ten (10) days after the date on which any Credit Party (or Agent as loss payee or assignee) receives any payment which constitutes Major Casualty Proceeds, an amount equal to the amount of such payment (net of: (i) reasonable fees, costs and taxes incurred in connection with the event or events giving rise to such proceeds and (ii) any required permanent payment of Debt (other than Debt secured pursuant to the Security Documents) which is secured by the property that is the subject of such event or events); provided, any payment which constitutes Major Casualty Proceeds shall not be required to be so applied and may be reinvested by any Credit Party within two hundred and seventy (270) days, in replacement assets comparable to the assets giving rise to such payment; provided, further, if no Credit Party intends to reinvest such payment, or if the time period set forth in this sentence expires without any Credit Party having reinvested such payment, Borrower shall prepay the Loans in an amount equal to such payment;

(B)promptly upon receipt by any Credit Party of the proceeds from the issuance and sale of any Debt or equity securities (other than: (1) proceeds of the issuance of Debt securities expressly permitted pursuant to

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Section 5.1, (2) proceeds of the issuance of equity securities by Borrower received on or before the Closing Date, (3) proceeds from the issuance of equity securities to officers, directors and employees of any Credit Party, (4) proceeds of the issuance of equity securities to Borrower or any Subsidiary and (5) provided no Event of Default has occurred and is continuing, or would otherwise arise as a result of such issuance, proceeds from equity issuances, Investor Subordinated Debt and/or capital contributions (other than from a registered public equity offering) in an aggregate amount up to $15,000,000 in any Fiscal Year of the Borrower), an amount equal to one hundred percent (100%) of the Net Cash Proceeds of such issuance and sale; and

(C)promptly upon receipt by any Credit Party of the proceeds of any Asset Disposition, an amount equal to one hundred percent (100%) of the Net Cash Proceeds of such Asset Disposition; provided, no prepayment shall be required pursuant to this subsection 2.1(c)(iii)(C) unless and until the aggregate Net Cash Proceeds received during any Fiscal Year from Asset Dispositions exceeds $500,000 (in which case all Net Cash Proceeds in excess of such amount shall be used to make prepayments pursuant to this subsection 2.1(c)(iii)(C)); provided, further, such Net Cash Proceeds shall not be required to be so applied on such date and may instead be reinvested by any Credit Party within one hundred eighty (180) days, in assets of a kind then used or usable in the business of such Credit Party.  If the applicable Credit Party does not intend to so reinvest such Net Cash Proceeds, or if the period set forth in the immediately preceding sentence expires without such Credit Party having reinvested such Net Cash Proceeds, Borrower shall prepay the Loans in an amount equal to such Net Cash Proceeds.

Amounts used to mandatorily prepay the outstanding Loans shall be applied as a repayment of the outstanding Loans with no concurrent equivalent reduction of the Loan Commitment.

(d)Voluntary Prepayments.  Borrower may from time to time, on at least one (1) Business Day’s prior written notice to Agent specifying the date and amount of such prepayment, prepay the Loans in whole or in part; provided, any such partial prepayment shall be in an amount equal to $100,000 or a higher integral multiple of $25,000 (or the full outstanding amount if less than $100,000 is then outstanding).  No payment pursuant to this subsection 2.1(d) shall reduce the amount of any payment required by subsection 2.1(c).

Amounts used to voluntarily prepay the outstanding Loans shall be applied as a repayment of the outstanding Loans with no concurrent equivalent reduction of the Loan Commitment.

(e)Termination; Reduction.  Borrower may at any time terminate, or from time to time reduce, the Loan Commitment; provided, each such reduction of the Loan Commitment shall be in an amount equal to $100,000 or a higher integral multiple of $25,000.

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Section 2.2Interest, Interest Calculations and Certain Fees.

(a)Interest.  From and following the Closing Date, depending upon Borrower’s election from time to time, subject to the terms hereof, to have portions of the Loans accrue interest determined by reference to the Prime Rate or the LIBOR, the Loans and the other Obligations shall bear interest at the applicable rates set forth below:

(i)If a Prime Rate Loan, or any other Obligation other than a LIBOR Loan, then at the sum of the Prime Rate plus the applicable Prime Rate Margin.

(ii)If a LIBOR Loan, then at the sum of the LIBOR plus the applicable LIBOR Margin.

(b)Unused Line Fee.  From and following the Closing Date, Borrower shall pay Agent, for the benefit of all Lenders committed to make Loans, in accordance with their respective Pro Rata Shares, a fee in an amount equal to: (1) (a) the Loan Commitment less (b) the average daily balance of the Loan Outstandings during the preceding month, multiplied by (2) the Applicable Unused Line Rate.  Such fee is to be paid monthly in arrears on the first day of each month.

(c)Computation of Interest and Related Fees.  All interest and fees under each Financing Document shall be calculated on the basis of a three hundred sixty (360) day year for the actual number of days elapsed.  The date of funding of a Prime Rate Loan and the first day of an Interest Period with respect to a LIBOR Loan shall be included in the calculation of interest.  The date of payment of a Prime Rate Loan and the last day of an Interest Period with respect to a LIBOR Loan shall be excluded from the calculation of interest.  If a Loan is repaid on the same day that it is made, one (1) days’ interest shall be charged.  Interest on all Prime Rate Loans is payable in arrears on the first day of each month (or, if such day is not a Business Day, the following Business Day) and on the maturity of such Loans, whether by acceleration or otherwise.  Interest on LIBOR Loans shall be payable on the last day of the applicable Interest Period, unless the Interest Period is greater than three (3) months, in which case interest will be payable on the last day of each three (3) month interval (or, if such day is not a Business Day, the following Business Day).  In addition, interest on LIBOR Loans is due on the maturity of such Loans, whether by acceleration or otherwise.

(d)LIBOR Provisions.

(i)LIBOR Election.  Borrower may request that Loans to be made be LIBOR Loans, that outstanding portions of Loans be converted to LIBOR Loans and that all or any portion of a LIBOR Loan be continued as a LIBOR Loan upon expiration of the applicable Interest Period.  Any such request will be made by submitting a Notice of Borrowing to Agent.  Once given, and except as provided in clause (ii) below, a Notice of Borrowing shall be irrevocable and Borrower shall be bound thereby.  Upon the expiration of an Interest Period, in the absence of a new Notice of Borrowing submitted to Agent not less than three (3) Business Days prior to the end of such Interest Period, the LIBOR Loan then maturing shall be automatically converted to a Prime Rate Loan.  There may be no more than six (6) LIBOR Loans outstanding at any one time.  Loans which are not requested as

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LIBOR Loans in accordance with this subsection 2.2(d)(i) shall be Prime Rate Loans.  Agent will notify Lenders, by telephonic or facsimile notice, of each Notice of Borrowing received by Agent not less than two (2) Business Days prior to the first day of the Interest Period of the LIBOR Loan requested thereby.

(ii)Inability to Determine LIBOR.  In the event, prior to commencement of any Interest Period relating to a LIBOR Loan, Agent shall reasonably determine or be notified in writing by Required Lenders that adequate and reasonable methods do not exist for ascertaining LIBOR, Agent shall promptly provide notice of such determination to Borrower and Lenders (which shall, absent manifest error, be conclusive and binding on Borrower and Lenders).  In such event: (1) any request for a LIBOR Loan or for a conversion to or continuation of a LIBOR Loan shall be automatically withdrawn and shall be deemed a request for a Prime Rate Loan, (2) each LIBOR Loan will automatically, on the last day of the then current Interest Period relating thereto, become a Prime Rate Loan and (3) the obligations of Lenders to make LIBOR Loans shall be suspended until Agent or Required Lenders determine that the circumstances giving rise to such suspension no longer exist, in which event Agent shall so notify Borrower and Lenders.

(iii)Illegality.  Notwithstanding any other provisions hereof, if any law, rule, regulation, treaty or directive or interpretation or application thereof shall make it unlawful for any Lender to make, fund or maintain LIBOR Loans, such Lender shall promptly give notice of such circumstances to Agent, Borrower and the other Lenders.  In such an event: (1) the commitment of such Lender to make LIBOR Loans or convert Prime Rate Loans to LIBOR Loans shall be immediately suspended until such time as it shall no longer be unlawful for such Lender to make, fund or maintain LIBOR Loans and (2) such Lender’s outstanding LIBOR Loans shall be converted automatically to Prime Rate Loans on the last day of the Interest Period thereof or at such earlier time as may be required by law.

(iv)LIBOR Breakage Fee.  Upon: (i) any default by Borrower in making any borrowing of, conversion into or continuation of any LIBOR Loan following Borrower’s delivery to Agent of any applicable Notice of Borrowing or (ii) any payment of a LIBOR Loan on any day that is not the last day of the Interest Period applicable thereto (regardless of the source of such prepayment and whether voluntary, by acceleration or otherwise), Borrower shall pay Agent, for the benefit of all Lenders that funded or were prepared to fund any such LIBOR Loan, an amount equal to the amount of any losses, expenses and liabilities (including, without limitation, any loss (including interest paid) in connection with the re-employment of such funds but excluding loss of anticipated profits) that any Lender may sustain as a result of such default or such payment.  For purposes of calculating amounts payable to a Lender under this paragraph, each Lender shall be deemed to have actually funded its relevant LIBOR Loan through the purchase of a deposit bearing interest at LIBOR in an amount equal to the amount of that LIBOR Loan and having a maturity and

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repricing characteristics comparable to the relevant Interest Period; provided, however, each Lender may fund each of its LIBOR Loans in any manner it sees fit, and the foregoing assumption shall be utilized only for the calculation of amounts payable under this subsection.

(v)Increased Costs.  If, after the Closing Date, the adoption of, or any change in, any applicable law, rule or regulation, or any change in the interpretation or administration of any applicable law, rule or regulation by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency:  (i) shall impose, modify or deem applicable any reserve (including any reserve imposed by the Board of Governors of the Federal Reserve System, or any successor thereto, but excluding any reserve included in the determination of the LIBOR pursuant to the provisions of this Agreement), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by any Lender; or (ii) shall impose on any Lender any other condition (other than in respect of Taxes, which shall be governed by Section 2.7) affecting its LIBOR Loans, its Notes or its obligation to make LIBOR Loans; and the result of anything described in clauses (i) and (ii) above is to increase the cost to (or to impose a cost on) such Lender of making or maintaining any LIBOR Loan, or to reduce the amount of any sum received or receivable by such Lender under this Agreement or under its Notes with respect thereto, then upon demand by such Lender (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail, a copy of which shall be furnished to Agent), Borrower shall pay directly to such Lender such additional amount as will compensate such Lender for such increased cost or such reduction, so long as such amounts have accrued on or after the day which is one hundred eighty (180) days prior to the date on which such Lender first made demand therefor.

(e)Capital Adequacy.  If any Lender shall reasonably determine that any change in, or the adoption or phase-in of, any applicable law, rule or regulation regarding capital adequacy, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or the compliance by any Lender or any Person controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender’s or such controlling Person’s capital as a consequence of such Lender’s obligations hereunder or under any Support Agreement to a level below that which such Lender or such controlling Person could have achieved but for such change, adoption, phase-in or compliance (taking into consideration such Lender’s or such controlling Person’s policies with respect to capital adequacy) by an amount reasonably deemed by such Lender or such controlling Person to be material, then from time to time, upon demand by such Lender (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable

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detail, a copy of which shall be furnished to Agent), Borrower shall pay to such Lender such additional amount as will compensate such Lender or such controlling Person for such reduction, so long as such amounts have accrued on or after the day which is one hundred eighty (180) days prior to the date on which such Lender first made demand therefor.  In determining such additional amounts, each Lender will act reasonably and in good faith.

Section 2.3Notes.  The portion of the Loans made by each Lender shall be evidenced by a promissory note executed by Borrower (each a “Note”), each of which shall be issued for a principal amount which is stated to be equal to the lesser of: (i) such Lender’s Pro Rata Share of the Loan Commitment and (ii) the aggregate unpaid principal amount of all Loans made or deemed made by the applicable Lender to Borrower under the terms of this Agreement.

Section 2.4Letters of Credit and Letter of Credit Fees.

(a)Letter of Credit.  On the terms and subject to the conditions set forth herein, Agent will prior to the Termination Date issue letters of credit or guarantees (each, a “Support Agreement”), either directly to a beneficiary that is not an LC Issuer or otherwise, to induce an LC Issuer to issue or increase the amount of, or extend the expiry date of, a Letter of Credit so long as:

(i)Agent shall have received a Notice of LC Credit Event at least two (2) Business Days before the relevant date of issuance, increase or extension; and

(ii)After giving effect to such issuance or increase: (x) the aggregate Letter of Credit Liabilities, to the extent supported by a Support Agreement, under all Letters of Credit do not exceed $12,500,000, and (y) the Loan Outstandings do not exceed the Loan Limit.

(b)Letter of Credit Fee.  Borrower shall pay to Agent, for the benefit of the Lenders which have committed to make Loans, in accordance with their respective Pro Rata Shares, a letter of credit fee with respect to the Letter of Credit Liabilities for each Letter of Credit, computed for each day from the date of issuance of such Letter of Credit to the date that is the last day a drawing is available under such Letter of Credit, at a rate per annum equal to the LIBOR Margin then applicable to Loans.  Such fee shall be payable in arrears on the first Business Day of each calendar month prior to the Termination Date and on such date.  In addition, Borrower agrees to pay promptly to the LC Issuer any fronting or other fees that it may charge in connection with any Letter of Credit.

(c)Reimbursement Obligations of Borrower.  If Agent shall make a payment to an LC Issuer pursuant to a Support Agreement, after receipt of notice thereof from Agent, Borrower shall promptly reimburse Agent for the amount of such payment and, to the extent that so doing would not, to Agent’s knowledge, cause the Loan Outstandings to exceed the Loan Limit, Borrower shall be deemed to have requested a Prime Rate Loan, the proceeds of which will be used to satisfy such Reimbursement Obligations.  Borrower shall pay interest, on demand, on all amounts so paid by Agent

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for each day until Borrower reimburses Agent therefor at a rate per annum equal to the sum of two percent (2%) plus the interest rate applicable to Loans (which are Prime Rate Loans) for such day.

(d)Reimbursement and Other Payments by Borrower.  To the extent permitted under applicable law, the obligations of Borrower to reimburse Agent pursuant to subsection 2.4(c) shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including the following:

(i)any lack of validity or enforceability of, or any amendment or waiver of or any consent to departure from, any Letter of Credit or any related document;

(ii)the existence of any claim, set-off, defense or other right which Borrower may have at any time against the beneficiary of any Letter of Credit, the LC Issuer (including any claim for improper payment), Agent, any Lender or any other Person, whether in connection with any Financing Document or any unrelated transaction, provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim;

(iii)any statement or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever;

(iv)any affiliation between the LC Issuer and Agent; or

(v)to the extent permitted under applicable law, any other circumstance or happening whatsoever, whether or not similar to any of the foregoing.

(e)Deposit Obligations of Borrower.  In the event any Letters of Credit are outstanding at the time that Borrower is required to repay the Obligations as a result of an Event of Default or the Loan Commitment is terminated or reduced to an amount that is less than the aggregate amount of Loans, Letters of Credit and other Obligations outstanding, Borrower shall deposit with Agent for the benefit of all Lenders which have committed to make Loans hereunder cash in an amount equal to: (i)(A) one hundred percent (100%) of the aggregate outstanding Letter of Credit Liabilities to be available to Agent to reimburse payments of drafts drawn under such Letters of Credit and pay any fees and expenses related thereto plus (B) an amount equal to the aggregate amount of fees payable under subsection 2.4(b) with respect to such Letters of Credit for the full remaining terms of such Letters of Credit which are not otherwise prepaid by Borrower or (ii) in the case of a reduction in the Loan Commitment, if less than the amount described in clause (i), the amount by which the outstanding Loans, Letters of Credit and other Obligations, together with the aggregate amount of fees payable under subsection 2.4(b) with respect to such Letters of Credit for the full remaining terms of such Letters of Credit outstanding, exceed the Loan Commitment.  Upon termination of any such

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Letter of Credit, to the extent not previously applied by Agent in the manner described herein, the unearned portion of any prepaid fees attributable to such Letter of Credit, together with all cash deposits of the type described in the preceding clause (i), shall be refunded to Borrower.

(f)Participations in Support Agreements.

(i)Concurrently with the issuance of each Letter of Credit, Agent shall be deemed to have sold and transferred to each Lender, and each Lender shall be deemed irrevocably and unconditionally to have purchased and received from Agent, without recourse or warranty, an undivided interest and participation in, to the extent of such Lender’s Pro Rata Share of the Loan Commitment, Agent’s Support Agreement liabilities and obligations in respect of such Letters of Credit and Borrower’s Reimbursement Obligations with respect thereto.  If Borrower does not pay any Reimbursement Obligation when due, then Borrower shall be deemed to have immediately requested that Lenders make a Loan which is a Prime Rate Loan in a principal amount equal to such Reimbursement Obligation.  Agent shall promptly notify Lenders of such deemed request and each Lender shall make available to Agent its Pro Rata Share of such Loan.  The proceeds of such Loan shall be paid over by Agent to the LC Issuer for the account of Borrower in satisfaction of reimbursement obligations then owing by Borrower to such LC Issuer in respect of outstanding Letters of Credit.

(ii)If Agent makes any payment or disbursement under any Support Agreement and: (x) Borrower has not reimbursed Agent in full for such payment or disbursement in accordance with subsection 2.4(c), (y) a Loan may not be made pursuant to the immediately preceding clause (i) or (z) any reimbursement received by Agent from Borrower is or must be returned or rescinded upon or during any bankruptcy or reorganization of any Credit Party or otherwise, each Lender shall be irrevocably and unconditionally obligated to pay to Agent its Pro Rata Share of such payment or disbursement (but no such payment shall diminish the Obligations of Borrower under subsection 2.4(c)).  To the extent any Lender shall not have made such amount available to Agent by noon (Chicago time) on the Business Day on which such Lender receives notice from Agent of such payment or disbursement, such Lender agrees to pay interest on such amount to Agent forthwith on demand accruing daily at the Federal Funds Rate, for the first three (3) days following such Lender’s receipt of such notice, and thereafter at the Prime Rate plus the Prime Rate Margin in respect of Loans.  Any Lender’s failure to make available to Agent its Pro Rata Share of any such payment or disbursement shall not relieve any other Lender of its obligation hereunder to make available to Agent such other Lender’s Pro Rata Share of such payment, but no Lender shall be responsible for the failure of any other Lender to make available to Agent such other Lender’s Pro Rata Share of any such payment or disbursement.

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Section 2.5General Provisions Regarding Payment; Loan Account.

(a)All payments to be made by Borrower under any Financing Document, including payments of principal and interest on the Notes, and all fees, expenses, indemnities and reimbursements, shall be made without set-off or counterclaim, in lawful money of the United States of America and in immediately available funds.  If any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension.  Borrower shall make all payments in immediately available funds to the Payment Account before noon (Chicago time) on the date when due.  Notwithstanding anything to the contrary set forth in this subsection 2.5(a), Agent shall be permitted, in its sole discretion, but subject to the limitations set forth in subsection 2.1(a)(ii), to satisfy any of the payment obligations described in this subsection 2.5(a) through the making of Agent Advances.

(b)Agent shall maintain a loan account (the “Loan Account”) on its books to record Loans and other extensions of credit made by the Lenders hereunder or under any other Financing Document, all payments thereon made by Borrower and the Loan Commitment Amount of each Lender.  All entries in the Loan Account shall be made in accordance with Agent’s customary accounting practices as in effect from time to time.  The balance in the Loan Account, as recorded on Agent’s most recent printout or other written statement, shall be conclusive and binding evidence of the amounts due and owing to Agent and each Lender by Borrower absent clear and convincing evidence to the contrary; provided, any failure to so record or any error in so recording shall not limit or otherwise affect Borrower’s duty to pay all amounts owing hereunder or under any other Financing Document.  Unless Borrower notifies Agent in writing of any objection to any such printout or statement (specifically describing the basis for such objection) within sixty (60) days after the date of receipt thereof, it shall be deemed final, binding and conclusive upon Borrower in all respects as to all matters reflected therein; provided, however, in the event Borrower finds an error in any such printout or statement after such sixty (60) day period, it shall notify the Agent in writing of such purported error and Agent shall, in the event it agrees (after reasonable review of such notice and such printout or statement) that an error was made, take reasonable steps to correct such error.

Section 2.6Maximum Interest.

(a)In no event shall the interest charged with respect to the Notes or any other obligations of Borrower under any Financing Document exceed the maximum amount permitted under the laws of the State of New York or of any other applicable jurisdiction.

(b)Notwithstanding anything to the contrary herein or elsewhere, if at any time the rate of interest payable hereunder or under any Note or other Financing Document (the “Stated Rate”) would exceed the highest rate of interest permitted under any applicable law to be charged (the “Maximum Lawful Rate”), then for so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable shall be equal to the Maximum Lawful Rate; provided, that if at any time thereafter the Stated Rate is

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less than the Maximum Lawful Rate, Borrower shall, to the extent permitted by law, continue to pay interest at the Maximum Lawful Rate until such time as the total interest received is equal to the total interest which would have been received had the Stated Rate been (but for the operation of this provision) the interest rate payable.  Thereafter, the interest rate payable shall be the Stated Rate unless and until the Stated Rate again would exceed the Maximum Lawful Rate, in which event this provision shall again apply.

(c)In no event shall the total interest received by any Lender exceed the amount which it could lawfully have received had the interest been calculated for the full term hereof at the Maximum Lawful Rate. If, notwithstanding the prior sentence, any Lender has received interest hereunder in excess of the Maximum Lawful Rate, such excess amount shall be applied to the reduction of the principal balance of the Loans or to other amounts (other than interest) payable hereunder, and if no such principal or other amounts are then outstanding, such excess or part thereof remaining shall be paid to Borrower.

(d)In computing interest payable with reference to the Maximum Lawful Rate applicable to any Lender, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the actual number of days in the year in which such calculation is made.

Section 2.7Taxes.

(a)All payments of principal and interest on the Loans and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp, documentary, property or franchise taxes and other taxes, fees, duties, levies, withholdings or other charges of any nature whatsoever imposed by any taxing authority, excluding all taxes imposed on Agent or any Lender by the jurisdiction under which Agent or such Lender is organized, conducts business or is otherwise subject to such taxation (other than solely as a result of entering into this Agreement or any other Financing Documents or performing any obligations, receiving any payments or enforcing any rights under this Agreement or any other Financing Document) (all non-excluded items being called “Taxes”).  If any withholding or deduction from any payment to be made by Borrower hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then Borrower will: (i) pay directly to the relevant authority the full amount required to be so withheld or deducted; (ii) promptly forward to Agent an official receipt or other documentation reasonably satisfactory to Agent evidencing such payment to such authority; and (iii) except as otherwise specifically provided in subsection 2.7(c) hereof, pay to Agent for the account of Agent and Lenders such additional amount or amounts as is necessary to ensure that the net amount actually received by Agent and each Lender will equal the full amount Agent and such Lender would have received had no such withholding or deduction been required.  If any Taxes are directly asserted against Agent or any Lender with respect to any payment received by Agent or such Lender hereunder, Agent or such Lender may pay such Taxes and Borrower will promptly pay such additional amounts (including any penalty, interest or expense) as is necessary in order that the net amount received by such Person after the payment of such Taxes (including any Taxes on such additional amount)

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shall equal the amount such Person would have received had such Taxes not been asserted so long as such amounts have accrued on or after the day which is one hundred eighty (180) days prior to the date on which Agent or such Lender first made demand therefor.

(b)If Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to Agent, for the account of Agent and the respective Lenders, the required receipts or other required documentary evidence, Borrower shall indemnify Agent and Lenders for any incremental Taxes, interest or penalties that may become payable by Agent or any Lender as a result of any such failure.

(c)Each Lender that: (i) is organized under the laws of a jurisdiction other than the United States of America and (ii)(A) is a party hereto on the Closing Date or (B) becomes an assignee of an interest under this Agreement under subsection 11.6(a) after the Closing Date (unless such Lender was already a Lender hereunder immediately prior to such assignment) shall, on or before the date it becomes a party to this Agreement and on or before the date, if any, such Lender changes its applicable lending office, execute and deliver to Borrower and Agent one or more (as Borrower or Agent may reasonably request) Forms W-8ECI, W-8BEN, W-8IMY (as applicable) or successors thereto or other applicable form, certificate or document prescribed by the United States Internal Revenue Service certifying as to such Lender’s entitlement to exemption from withholding or deduction of Taxes, or, if such Lender is claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest”, one or more (as Borrower or Agent may reasonably request) Forms W-8BEN or successor thereto and a certificate representing that such Lender is not a bank for purposes of Section 881(c)(3)(A) of the Code, is not a 10 percent shareholder (within the meaning of Section 881(c)(3)(B) of the Code) of Borrower and is not a controlled foreign corporation related to Borrower (within the meaning of Section 881(c)(3)(C) of the Code).  In addition, each Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Lender.  Borrower shall not be required to pay additional amounts to any Lender pursuant to this Section 2.7 to the extent that the obligation to pay such additional amounts would not have arisen but for the failure of such Lender to comply with this paragraph.

Section 2.8Ancillary Services.  Borrower may from time to time request, and Agent or any Lender that is an Affiliate of a Designated Lender Affiliate may, in its sole discretion, from time to time arrange for Borrower to obtain from Agent or any Designated Lender Affiliate, Ancillary Services although Borrower is not required to do so.  To the extent Ancillary Services are provided, Borrower agrees to indemnify and hold Agent and Lenders harmless from any and all costs and obligations now or hereafter incurred by Agent or any Lenders which arise from the indemnity given by Agent or any Lender to any Designated Lender Affiliates related to such Ancillary Services.  The agreement contained in this Section 2.8 shall survive termination of this Agreement.  Borrower acknowledges and agrees that the obtaining of Ancillary Services: (a) is in the sole and absolute discretion of Agent and each Designated Lender Affiliate, and (b) is subject to all rules and regulations of Agent and each applicable Designated Lender Affiliate.

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Section 2.9Change of Lending Office.  Each Lender agrees that, upon the occurrence of any event giving rise to the Obligations of Borrower under subsection 2.7(a) or subsection 2.2(d)(v) hereof with respect to such Lender, it will, if reasonably requested by Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event with the object of avoiding the consequences of such event, including avoiding the need for, or reducing the amounts of, additional costs of Borrower pursuant to subsection 2.7(a) or subsection 2.2(d)(v); provided, such designation is made on terms that, in the sole judgment of such Lender, cause each Lender and its lending office(s) to suffer no economic, legal or regulatory disadvantage, and provided, further, nothing in this Section shall affect or postpone any of the Obligations of Borrower or the rights of any Lender pursuant to subsection 2.7(a) or subsection 2.2(d)(v) hereof

Section 2.10Replacement of Lenders under Certain Circumstances. Borrower shall be permitted to replace any Lender with an Eligible Assignee, if such Lender:

(a)requests reimbursement for amounts owing pursuant to subsection 2.7(a) or subsection 2.2(d)(v) hereof; or

(b)affirmatively refuses to approve any waiver, amendment or modification to this Agreement that is otherwise approved by the Required Lenders;

provided, in either of such cases: (i) the assignment to such Eligible Assignee does not conflict with any applicable law, rule or regulation, (ii) no Event of Default shall have occurred and be continuing at the time of such replacement, (iii) prior to any such replacement, such Lender shall not have designated a different lending office under Section 2.9 hereof so as to eliminate the continued need for payment of amounts owing pursuant to subsection 2.7(a) or subsection 2.2(d)(v) hereof, (iv) the replacement financial institution shall purchase, at par, all Loans and other amounts owing to such replaced Lender on or prior to the date of replacement, (v) such replacement is carried out in accordance with and subject to the restrictions contained in Section 11.6, (vi) until such time as such replacement shall be consummated, Borrower shall pay all additional amounts, if any, required pursuant to subsection 2.7(a) or subsection 2.2(d)(v) hereof, as the case may be, and (vii) no such replacement shall be deemed to be a waiver of any rights which Borrower, Agent or any other Lender shall have against the replaced Lender.

ARTICLE III
REPRESENTATION AND WARRANTIES

To induce Agent and Lenders to enter into this Agreement and to make the Loans and other credit accommodations contemplated hereby, Borrower hereby represents and warrants to Agent and each Lender that:

Section 3.1Existence and Power.  Each Credit Party is a corporation, partnership or limited liability company, as the case may be, duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has all powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except where the failure to have such licenses, authorizations, consents and

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approvals would not reasonably be expected to have a Material Adverse Effect.  Each Credit Party is qualified to do business as a foreign entity in each jurisdiction in which it is required to be so qualified, which jurisdictions as of the Closing Date are specified on the Information Certificate, except where the failure to be so qualified would not reasonably be expected to have a Material Adverse Effect.

Section 3.2Organization and Governmental Authorization; No Contravention.  The execution, delivery and performance by each Credit Party of the Operative Documents to which it is a party are within its powers, have been duly authorized by all necessary action pursuant to its Organizational Documents, require no further action by or in respect of, or filing with, any governmental body, agency or official (except for: (i) those that have been obtained or made prior to the Closing Date, (ii) filings to perfect the Liens created by the Security Documents (iii) consents, authorizations, notices and filings necessary or required in connection with the consummation of the transactions contemplated by the Unsecured Notes Debt Documents which are not contemplated or required by the terms of the Unsecured Notes Debt documents to occur on or before the Closing Date, and (iv) consents, authorizations, notices and filings which the failure to obtain or make would not reasonably be expected to have a Material Adverse Effect) and do not violate, conflict with or cause a breach or a default under any provision of applicable law or regulation or of the Organizational Documents of any Credit Party or of any agreement, judgment, injunction, order, decree or other instrument binding upon it, except for such violations, conflicts, breaches or defaults as would not reasonably be expected to have a Material Adverse Effect.

Section 3.3Binding Effect.  Each of the Financing Documents and, as of the Closing Date, each of the other Operative Documents to which any Credit Party is a party constitutes a valid and binding agreement or instrument of such Credit Party, enforceable against such Credit Party in accordance with its respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws relating to the enforcement of creditors’ rights generally and by general equitable principles.

Section 3.4Capitalization.  The authorized equity securities of each of the Credit Parties as of the Closing Date is as set forth on the Information Certificate.  All issued and outstanding equity securities of each of the Credit Parties are duly authorized and validly issued, fully paid, nonassessable, free and clear of all Liens other than those in favor of Agent for the benefit of Agent and Lenders, and such equity securities were issued in compliance with all applicable state, federal and foreign laws concerning the issuance of securities.  The identity of the holders of the equity securities of each of the Credit Parties and the percentage of their fully-diluted ownership of the equity securities of each of the Credit Parties as of the Closing Date is set forth on the Information Certificate.  No shares of the capital stock or other equity securities of any Credit Party, other than those described above, are issued and outstanding, other than shares of the capital stock or other equity securities of Borrower which are otherwise not prohibited by the terms of this Agreement.  Except as set forth on the Information Certificate, as of the Closing Date there are no preemptive or other outstanding rights, options, warrants, conversion rights or similar agreements or understandings for the purchase or acquisition from any Credit Party of any equity securities of any such entity.

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Section 3.5Financial Information.

(a)The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of December 31, 2002 and the related consolidated statements of operations, stockholders’ equity and cash flows for the Fiscal Year then ended, reported on by KPMG LLP, the U.S. member firm of KPMG International, copies of which have been delivered to Agent and the Lenders, fairly present, in all material respects and in conformity with GAAP, the consolidated financial position of Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations, changes in stockholders’ equity (or comparable calculation) and cash flows for such period.

(b)The unaudited consolidated balance sheet of Borrower and its Consolidated Subsidiaries as of September 30, 2003 and the related unaudited consolidated and consolidating statements of operations and consolidated cash flows for the nine (9) months then ended, copies of which have been delivered to Agent, fairly present, in all material respects and in conformity with GAAP applied on a basis consistent with the financial statements referred to in subsection 3.5(a), the consolidated and consolidating financial position of Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for the nine (9) months then ended (subject to normal year-end adjustments and the absence of footnote disclosures).

(c)The pro forma consolidated balance sheet of Borrower and its Consolidated Subsidiaries as of September 30, 2003, copies of which have been delivered to Agent and the Lenders, fairly presents in all material respects, in conformity with GAAP applied on a basis consistent with the financial statements referred to in subsection 3.5(a), the consolidated financial position of Borrower and its Consolidated Subsidiaries as of such date, adjusted to give effect (as if such events had occurred on such date) to: (i) the transactions contemplated by the Operative Documents, (ii) the application of the proceeds therefrom contemplated by the Operative Documents and (iii) the payment of all legal, accounting and other fees related thereto to the extent known at the time of the preparation of such balance sheet.

(d)The information contained in the most recently delivered Borrowing Base Certificate was complete and correct on the date delivered and the amounts shown therein were determined as provided in the Financing Documents.

(e)After giving effect to the transactions contemplated by the Operative Documents (but for this purpose assuming that such transactions had occurred prior to December 31, 2002), since December 31, 2002, there has been no change in the business, operations, properties, prospects or condition (financial or otherwise) of Borrower and its Consolidated Subsidiaries, taken as a whole, that has had, or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.

Section 3.6Litigation.  Except as specifically disclosed in the Information Certificate, there is no action, suit or proceeding pending against, or to Borrower’s knowledge threatened against, any Credit Party or, to Borrower’s knowledge, any party to any Operative Document or any Equity Document (other than a Credit Party, any Lender or any Affiliate of any Lender)

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before any court or arbitrator or any governmental body, agency or official that would reasonably be expected to have a Material Adverse Effect or which in any manner draws into question the validity of any of the Financing Documents.

Section 3.7Ownership of Property.  Borrower and each of its Subsidiaries is the lawful owner of, has good and marketable title to and is in lawful possession of, or has valid leasehold interests in, all material properties and other assets (real or personal, tangible, intangible or mixed) purported to be owned or leased (as the case may be) by such Person on the balance sheet referred to in subsection 3.5(b), except as sold or otherwise disposed of since the date of such balance sheet in the ordinary course of business or as permitted by the terms of this Agreement.

Section 3.8No Default.  No Default or Event of Default has occurred and is continuing and no Credit Party is in breach or default under or with respect to any material contract, agreement, lease or other instrument to which it is a party or by which its property is bound or affected, which breach or default would reasonably be expected to have a Material Adverse Effect.

Section 3.9Labor Matters.  As of the Closing Date, there are no strikes or other labor disputes pending or, to Borrower’s knowledge, threatened against any Credit Party.  Hours worked and payments made to the employees of the Credit Parties have not been in violation of the Fair Labor Standards Act or any other applicable law dealing with such matters except where any such violation would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  All payments due from the Credit Parties, or for which any claim may be made against any of them, on account of wages and employee and retiree health and welfare insurance and other benefits have been paid or accrued as a liability on their books, as the case may be except where any such failure to pay or accrue any such liability would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  The consummation of the transactions contemplated by the Financing Documents and the other Operative Documents will not give rise to a right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which it is a party or by which it is bound.

Section 3.10Regulated Entities.  No Credit Party is an “investment company” or a company “controlled” by an “investment company” or a “subsidiary” of an “investment company,” all within the meaning of the Investment Company Act of 1940.  No Credit Party is a “holding company,” or a “subsidiary company” of a “holding company,” or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company,” within the meaning of the Public Utility Holding Company Act of 1935.

Section 3.11Margin Regulations.  None of the proceeds from the Loans have been or will be used, directly or indirectly, for the purpose of purchasing or carrying any Margin Stock, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any Margin Stock or for any other purpose which might cause any of the Loans to be considered a “purpose credit” within the meaning of Regulation T, U or X of the Federal Reserve Board.

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Section 3.12Compliance With Laws.  Borrower and each Subsidiary is in compliance with the requirements of all applicable laws, ordinances, rules, regulations and requests of governmental authorities, except for such laws, ordinances, rules, regulations and requirements the noncompliance with which could not reasonably be expected to have a Material Adverse Effect.

Section 3.13Taxes.  Except to the extent subject to a Permitted Contest or to the extent failure to do so would not have a Material Adverse Effect or result in a Lien upon any of the Collateral, all Federal, state and local tax returns, reports and statements required to be filed by or on behalf of each Credit Party have been filed with the appropriate governmental agencies in all jurisdictions in which such returns, reports and statements are required to be filed, and all Taxes (including real property Taxes) and other charges shown to be due and payable in respect thereof have been timely paid prior to the date on which any fine, penalty, interest, late charge or loss may be added thereto for nonpayment thereof.  Except to the extent subject to a Permitted Contest, all state and local sales and use Taxes required to be paid by each Credit Party have been paid.  Except to the extent subject to a Permitted Contest, all Federal and state returns have been filed by each Credit Party for all periods for which returns were due with respect to employee income tax withholding, social security and unemployment taxes, and the amounts shown thereon to be due and payable have been paid in full or adequate provisions therefor have been made.

Section 3.14Compliance with ERISA.

(a)All required reports and documents with respect to any Pension Plan have been properly filed with the appropriate governmental agencies except where any failure to so file would not reasonably be expected to have a Material Adverse Effect.  All Pension Plans (and related trusts and insurance contracts) comply in form and in operation in all material respects with the current applications of ERISA and the Code.  With respect to each Pension Plan, there have been no prohibited transactions as defined in Section 406 of ERISA or Section 4975 of the Code that have not been reported and corrected.

(b)During the twelve (12) month period prior to the Closing Date or the making of any Loan or the issuance of any Letter of Credit: (i) no steps have been taken to terminate any Pension Plan and (ii) no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA or Regulation 2510.3 — 102(b)(1) of ERISA.  No condition exists or event or transaction has occurred with respect to any Pension Plan which would reasonably be expected to result in the incurrence by any Credit Party of any material liability, fine or penalty.  No Credit Party has incurred liability to the PBGC (other than for current premiums) with respect to any employee Pension Plan.  All contributions (if any) have been made to any Multiemployer Pension Plan that are required to be made by any Credit Party or any other member of the Controlled Group under the terms of the plan or of any collective bargaining agreement or by applicable law; no Credit Party nor any member of the Controlled Group has withdrawn or partially withdrawn from any Multiemployer Pension Plan, incurred any withdrawal liability with respect to any such plan or received notice of any claim or demand for withdrawal liability or partial withdrawal liability from any such

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plan, and no condition has occurred which, if continued, would reasonably be expected to result in a withdrawal or partial withdrawal from any such plan, and no Credit Party nor any member of the Controlled Group has received any notice that any Multiemployer Pension Plan is in reorganization, that increased contributions may be required to avoid a reduction in plan benefits or the imposition of any excise tax, that any such plan is or has been funded at a rate less than that required under Section 412 of the Code, that any such plan is or may be terminated, or that any such plan is or may become insolvent.

Section 3.15Broker Fees and Other Payments.  Except as set forth in the Information Certificate: (i) no broker, finder or other intermediary has brought about the obtaining, making or closing of the transactions contemplated by the Operative Documents, (ii) no Credit Party has or will have any obligation to any Person in respect of any finder’s or brokerage fees in connection herewith, therewith or in connection with any Equity Document, (iii) no Credit Party shall be required to make any payments or redemptions with respect to any Debt as a result of the obtaining, making or closing of the transactions contemplated by the Operative Documents and (iv) no Credit Party is party to any contract or agreement with any Person under which any such Person obtains any rights of redemption or repayment from any Credit Party as a result of the obtaining, making or closing of the transactions contemplated by the Operative Documents.

Section 3.16Related Transactions.  Except as would not be reasonably be expected to have a Material Adverse Effect, all transactions which are contemplated to occur by the Unsecured Notes Debt Documents and the Equity Documents have been consummated on or prior to the date hereof (including without limitation the disbursement and transfer of all funds in connection therewith) in all material respects pursuant to the provisions of the applicable Unsecured Notes Debt Documents and Equity Documents, true and complete copies of which have been made available to Agent as set forth in the Closing Checklist, and in compliance with all applicable provisions of law.

Section 3.17Employment, Equityholders and Subscription Agreements.  Except for the Operative Documents, the Equity Documents and the other agreements set forth in the Information Certificate, as of the Closing Date there are no: (i) collective bargaining agreements or other organized labor agreements covering any employees of any Credit Party, (ii) agreements for managerial, consulting or similar services to which any Credit Party is a party or by which it is bound with an Affiliate of such Credit Party or (iii) agreements regarding any Credit Party, its assets or operations or any investment therein to which any of its equityholders which hold more than five percent (5%) of the equity of Borrower on a fully-exercised, fully-diluted basis, is a party or by which it is bound.

Section 3.18Compliance with Environmental Requirements; No Hazardous Materials.  Except in each case as set forth on the Information Certificate and as would not reasonably be expected to have or give rise to a Material Adverse Effect:

(a)No Hazardous Materials are located on any properties now or previously owned, leased or operated by any Credit Party or have been released into the environment, or deposited, discharged, placed or disposed of at, on, under or near any of such properties in a manner that would require the taking of any action under any Environmental Law or which could reasonably be expected to have a Material Adverse

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Effect.  No portion of any such property is being used, or has been used at any previous time, for the disposal, storage, treatment, processing or other handling of Hazardous Materials in violation of any Environmental Law nor is any such property affected by any Hazardous Materials Contamination.

(b)No underground storage tanks are located on any properties now or previously owned, leased or operated by any Credit Party, or were located on any such property and subsequently removed or filled.

(c)No notice, notification, demand, request for information, complaint, citation, summons, investigation, administrative order, consent order and agreement, litigation or settlement with respect to Hazardous Materials or Hazardous Materials Contamination is in existence or, to Borrower’s knowledge, proposed, threatened or anticipated with respect to or in connection with the operation of any properties now or previously owned, leased or operated by any Credit Party.  All such properties and their existing and prior uses, and any disposal of Hazardous Materials from any thereof, comply and at all times have complied with all Environmental Laws.  There is no condition on any of such properties which is in violation of any Environmental Laws and no Credit Party has received any communication from or on behalf of any governmental authority that any such condition exists.

(d)There has been no environmental investigation, study, audit, test, review or other analysis conducted of which Borrower has knowledge in relation to the current or prior business of Borrower or any property or facility now or previously owned, leased or operated by any Credit Party which has not been made available to Agent.

(e)For purposes of this Section 3.18, each Credit Party shall be deemed to include any business or business entity (including a corporation) which is, in whole or in part, a predecessor of such Credit Party.

Section 3.19Intellectual Property.  Each Credit Party owns, is licensed to use or otherwise has the right to use, all Intellectual Property that is material to the condition (financial or other), business or operations of the Credit Parties taken as a whole (other than Intellectual Property with respect to which the failure to own or otherwise have such license or right would not reasonably be expected to have a Material Adverse Effect) and all such material Intellectual Property owned by each Credit Party existing as of the Closing Date and registered with the U.S. government, any foreign government or any agency or department thereof is set forth on the Information Certificate.  All registered Intellectual Property of each Credit Party is duly and properly registered, filed or issued in the appropriate office and jurisdictions for such registrations, filings or issuances except where such failure would not reasonably be expected to have a Material Adverse Effect.  To Borrower’s knowledge: (i) each Credit Party conducts its business without infringement or claim of infringement of any Intellectual Property rights of others (other than infringements or claims that would not reasonably be expected to have a Material Adverse Effect) and (ii) there is no infringement or claim of infringement by others of any United States Intellectual Property rights of any Credit Party, which infringement or claim of infringement would reasonably be expected to have a Material Adverse Effect.

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Section 3.20Real Property Interests.  Except for the ownership, leasehold or other interests set forth in the Information Certificate, no Credit Party has, as of the Closing Date, any ownership, leasehold or other interest in real property.

Section 3.21Solvency.  Borrower and each Subsidiary: (a) owns and will own assets the fair saleable value of which are: (i) greater than the total amount of its liabilities (including contingent liabilities) and (ii) greater than the amount that will be required to pay the probable liabilities of its then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to it; (b) has capital that is not unreasonably small in relation to its business as presently conducted or after giving effect to any contemplated transaction; and (c) does not intend to incur and does not believe that it will incur debts beyond its ability to pay such debts as they become due.

Section 3.22Full Disclosure.  None of the information (financial or otherwise) furnished by or on behalf of any Credit Party to Agent or any Lender in connection with the consummation of the transactions contemplated by the Operative Documents or the Equity Documents, including without limitation the information set forth in the Information Certificate, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which such statements were made.  All financial projections delivered to Agent and the Lenders have been prepared on the basis of the assumptions stated therein.  Such projections represent Borrower’s best estimate of Borrower’s future financial performance and such assumptions are believed by Borrower to be fair in light of current business conditions; provided that Borrower can give no assurance that such projections will be attained.

ARTICLE IV
AFFIRMATIVE COVENANTS

Borrower agrees that, so long as any Credit Exposure exists:

Section 4.1Financial Statements and Other Reports.  Borrower will maintain a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in accordance with GAAP (including, without limitation, the maintenance of full, true and correct books of record and account) and to provide the information required to be delivered to the Lenders hereunder, and will deliver to Agent, and, in the case of the deliveries required by paragraphs (a) through (f), (l), (m), (o) and (p), each Lender:

(a)within thirty (30) days after the end of each month which is not the last month of a fiscal quarter and within forty five (45) days after the end of each month which is the last month of a fiscal quarter (including the last month of Borrower’s Fiscal Year), a consolidated balance sheet of Borrower and its Consolidated Subsidiaries as at the end of such month and the related consolidated and consolidating statements of operations and consolidated cash flows for such month, and for the portion of the Fiscal Year ended at the end of such month setting forth in each case in comparative form the

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figures for the corresponding periods of the previous Fiscal Year and the figures for such month and for such portion of the Fiscal Year ended at the end of such month set forth in the annual operating and capital expenditure budgets and cash flow forecast delivered pursuant to subsection 4.1(l), all in reasonable detail and certified by a Responsible Officer as fairly presenting in all material respects the financial condition and results of operations of Borrower and its Consolidated Subsidiaries and as having been prepared in accordance with GAAP applied on a basis consistent with the audited financial statements of Borrower, subject to changes resulting from audit and normal year-end adjustments and the absence of footnote disclosures;

(b)as soon as available and in any event within ninety (90) days after the end of each Fiscal Year, a consolidated balance sheet of Borrower and its Consolidated Subsidiaries as of the end of such Fiscal Year and the related consolidated and consolidating statements of operations, consolidated stockholders’ equity (or the comparable item, if Borrower is not a corporation) and consolidated cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal Year and the figures for such Fiscal Year set forth in the annual operating and capital expenditure budgets and cash flow forecast delivered pursuant to subsection 4.1(l), certified (solely with respect to such consolidated statements) without qualification by KPMG LLP, the U.S. member firm of KPMG International, or other independent public accountants reasonably acceptable to Agent of nationally recognized standing;

(c)together with each delivery of financial statements pursuant to subsections 4.1(a) and (b), a Compliance Certificate;

(d)together with each delivery of financial statements pursuant to subsection 4.1(b) above, a written statement by the independent public accountants giving the report thereon stating that their audit examination has included a review of the terms of this Agreement as it relates to accounting matters;

(e)promptly upon receipt thereof, copies of all reports submitted to any Credit Party by independent public accountants in connection with each annual, interim or special audit of the financial statements of any Credit Party made by such accountants, including the comment letter submitted by such accountants to management in connection with their annual audit;

(f)promptly upon their becoming available, copies of: (i) all financial statements, reports, notices and, if a Credit Party is a public company, proxy statements sent or made available generally by any such Credit Party to its security holders, and (ii) all regular and periodic reports and all registration statements and prospectuses filed by any Credit Party with any securities exchange or with the Securities and Exchange Commission or any successor;

(g)promptly upon any officer of any Credit Party obtaining knowledge: (i) of the existence of any Event of Default or Default, or becoming aware that the holder of any Debt of any Credit Party has given any notice or taken any other action with respect to, a claimed default thereunder which would reasonably be expected to have a Material

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Adverse Effect, (ii) of any change in any Credit Party’s certified accountant or, if a Credit Party is a public company, any resignation, or decision not to stand for re-election, by any member of any such Credit Party’s board of directors (or comparable body), (iii) that any Person has given any notice to any Credit Party of, or taken any other action with respect to a claimed default under any material agreement or instrument (other than the Financing Documents) to which any Credit Party is a party or by which any of its assets is bound, other than with respect to such claimed defaults which Borrower does not reasonably expect to have a Material Adverse Effect, or (iv) of the institution of any litigation or arbitration of an amount equal to or greater than $1,000,000 or any adverse judgment (or its equivalent in an arbitration) in any litigation or arbitration involving a potential liability of any Credit Party equal to or greater than $1,000,000, a certificate of a Responsible Officer specifying the nature and period of existence of any such condition or event, or specifying the notice given or action taken by such holder or Person and the nature of such claimed default (including any Event of Default or Default), event or condition, and what action the applicable Credit Party has taken, is taking or proposes to take with respect thereto;

(h)promptly upon any officer of any Credit Party obtaining knowledge of: (i) the institution of any steps by any member of the Controlled Group or any other Person to terminate any Pension Plan, (ii) the failure of any member of the Controlled Group to make a required contribution to any Pension Plan (if such failure is sufficient to give rise to a Lien under Section 302(f) of ERISA) or to any Multiemployer Pension Plan, (iii) the taking of any action with respect to a Pension Plan which would reasonably be expected to result in the requirement that Borrower or any Subsidiary furnish a bond or other security to the PBGC or such Pension Plan, (iv) the occurrence of any event with respect to any Pension Plan or Multiemployer Pension Plan which would reasonably be expected to result in the incurrence by any member of the Controlled Group of any material liability, fine or penalty (including any claim or demand for withdrawal liability or partial withdrawal from any Multiemployer Pension Plan), (v) any material increase in the contingent liability of Borrower or any Subsidiary with respect to any post-retirement welfare plan benefit or (vi) any notice that any Multiemployer Pension Plan is in reorganization, that increased contributions may be required to avoid a reduction in plan benefits or the imposition of an excise tax, that any such plan is or has been funded at a rate less than that required under Section 412 of the Code, that any such plan is or may be terminated, or that any such plan is or may become insolvent, a certificate of a Responsible Officer specifying the nature and period of existence of any such condition or event, or specifying the notice given or action taken by such holder or Person, and what action the applicable Credit Party has taken, is taking or proposed to take with respect thereto;

(i)promptly upon any officer of any Credit Party obtaining knowledge of any complaint, order, citation, notice or other written communication from any Person delivered to any Credit Party with respect to, or if any officer of any Credit Party becomes aware of any of the following which would reasonably be expected to give rise to, individually or in the aggregate, a Material Adverse Effect: (x) the existence or alleged existence of a violation of any Environmental Law or the incurrence of any liability, obligation, loss, damage, cost, expense, fine, penalty or sanction or the

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requirement to commence any remedial action resulting from or in connection with any air emission, water discharge, noise emission, Hazardous Material or any other environmental, health or safety matter at, upon, under or within any of the properties now or previously owned, leased or operated by any Credit Party, or due to the operations or activities of any Credit Party or any other Person on or in connection with any such property or any part thereof or (y) any release on any of such properties of Hazardous Materials in a quantity that is reportable under any applicable Environmental Law, a certificate of a Responsible Officer specifying the nature and period of existence of any such condition or event, or specifying the notice given or action taken by such holder or Person, and what action the applicable Credit Party has taken, is taking or proposes to take with respect thereto;

(j)promptly upon any officer of any Credit Party obtaining knowledge that any Credit Party has either: (x) registered or applied to register any material Intellectual Property with the U.S. government, any foreign government or any agency or department thereof, or (y) acquired any interest in real property (including leasehold interests in real property), a certificate of a Responsible Officer describing such Intellectual Property and/or such real property in such detail as Agent shall reasonably require;

(k)copies of any reports or notices of non-payment of any material taxes received by any Credit Party from any Federal, state or local governmental agency or body;

(l)within thirty (30) days following the first day of each Fiscal Year, Borrower’s annual operating plans, operating and capital expenditure budgets, and financial forecasts, including consolidated and consolidating statements of operations, consolidated stockholders’ equity and consolidated cash flows, each for such Fiscal Year and the two (2) subsequent Fiscal Years presented on a monthly basis for such Fiscal Year and annually for such two (2) subsequent Fiscal Years, all of which shall be in a format reasonably consistent with projections, budgets and forecasts theretofore provided to the Lenders, and promptly following the preparation thereof, formal updates to any of the foregoing from time to time prepared by management of Borrower;

(m)(i) in the event the amount of Loan Outstandings is greater than zero ($0), within thirty (30) days after the last day of each fiscal quarter, (ii) in the event the most recent financial statements delivered pursuant to subsection 4.1(a) indicate the amount of Loans Outstanding may exceed the Loan Limit and (iii) if an Event of Default has occurred and is continuing, within thirty (30) days after the last day of each calendar month, a Borrowing Base Certificate as of the last day of the month most recently ended;

(n)if Agent or any Lender determines that obtaining appraisals is necessary in order for Agent or such Lender to comply with applicable laws or regulations, appraisal reports in form and substance and from appraisers satisfactory to Agent stating the then current fair market values of all or any portion of the real estate owned by Borrower or any Subsidiaries.  In addition to the foregoing, from time to time, upon the occurrence of an Event of Default, Agent may require Borrower to obtain and deliver to Agent appraisal reports in form and substance and from appraisers satisfactory to Agent stating

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the then current market values of all or any portion of the real estate and personal property owned by Borrower or any Subsidiaries;

(o)with reasonable promptness, such other information and data with respect to any Credit Party as from time to time may be reasonably requested by Agent or any Lender;

(p)Borrower will permit, and will cause each Subsidiary to permit, at the sole cost of Borrower or any applicable Subsidiary, representatives of Agent and of any Lender (but at such Lender’s expense unless such visit or inspection is made concurrently with Agent) to visit and inspect once per calendar year, in connection with the Lender’s meeting described in Section 4.18, upon commercially reasonable prior written notice, during normal business hours and, absent the existence of an Event of Default, under the guidance of officers of Borrower or such Subsidiary, any of their respective properties, to examine and make abstracts or copies from any of their respective books and records, to discuss their respective affairs, finances and accounts with their respective officers, general managers, key employees and independent public accountants and, if an Event of Default has occurred and is continuing, to conduct an analysis of their respective Inventory and Accounts; provided, however, if an Event of Default has occurred and is continuing, such visits and inspections may be conducted as often as may reasonably be desired by Agent or any Lender and no notice to Borrower or any applicable Subsidiary of such exercise shall be required; and

(q)In the event of any issuance of capital stock of or other equity interests in Borrower which will or would reasonably be expected to constitute an issuance of capital stock or other equity interests representing more than five percent (5%) of the then-outstanding capital stock of and other equity interests in Borrower, Borrower shall give written notice thereof to Agent prior to such issuance.

Section 4.2Payment and Performance of Obligations.  Borrower: (i) will pay and discharge, and cause each Subsidiary to pay and discharge, at or before maturity, all of their respective obligations and liabilities, including tax liabilities, except: (x) where the same may be the subject of a Permitted Contest and (y) for such obligations and/or liabilities the nonpayment or nondischarge of which could not reasonably be expected to have a Material Adverse Effect, (ii) will maintain, and cause each Subsidiary to maintain, in accordance with GAAP, appropriate reserves for the accrual of all of their respective obligations and liabilities and (iii) will not breach or permit any Subsidiary to breach, or permit to exist any default under, the terms of any lease, commitment, contract, instrument or obligation to which it is a party, or by which its properties or assets are bound, except for such breaches or defaults which could not reasonably be expected to have a Material Adverse Effect.

Section 4.3Maintenance of Existence.  Borrower will preserve, renew and keep in full force and effect, and will cause each Subsidiary to preserve, renew and keep in full force and effect their respective existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided, however, nothing in this Section 4.3 shall prevent the: (i) sales of assets and other transactions by the Borrower or its Subsidiaries which are undertaken in accordance with Section 5.6 or (ii) withdrawal by the Borrower or any of its

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Subsidiaries of its qualification as a foreign corporation, partnership or limited liability company, as the case may be, in any jurisdiction where such withdrawal could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

Section 4.4Maintenance of Property; Insurance.

(a)Borrower will keep, and will cause each Subsidiary to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted, other than as would not reasonably be expected to have a Material Adverse Effect.

(b)Borrower will maintain, and will cause each Subsidiary to maintain with financially sound and reputable insurance companies insurance on all such property and against such risks as is consistent and in accordance with industry practice for companies similarly situated owning similar properties and engaged in similar businesses as Borrower or any of its Subsidiaries operates; provided, such insurance shall at all times be substantially of the same or higher amounts and same or better quality as the insurance maintained by Borrower and its Subsidiaries as of the Closing Date and as reviewed on or prior to the Closing Date by Agent, as such amounts may be increased from time to time in relation to increases in size of Borrower and its Subsidiaries.

(c)On or prior to the Closing Date, Borrower will cause Agent to be named as an additional insured, assignee and loss payee, as applicable, on each insurance policy required to be maintained pursuant to this Section 4.4 pursuant to endorsements in form and content reasonably acceptable to Agent.  Borrower will deliver to Agent: (i) on the Closing Date, a certificate from Borrower’s insurance broker dated such date showing the amount of coverage as of such date, and that such policies will include effective waivers (whether under the terms of any such policy or otherwise) by the insurer of all claims for insurance premiums against all loss payees and additional insureds and all rights of subrogation against all loss payees and additional insureds, and that if all or any part of such policy is canceled, terminated or expires, the insurer will forthwith endeavor give prior written notice thereof to each additional insured and loss payee (and will give such notice to the Credit Party insured thereunder) and that no cancellation, reduction in amount or material change in coverage thereof shall be effective until at least thirty (30) days after receipt by each Credit Party which is either insured or the loss payee thereunder of written notice thereof, (ii) upon the reasonable request of any Lender through Agent from time to time information as to the insurance carried, (iii) within five (5) Business Days of receipt of notice from any insurer, a copy of any notice of cancellation, reduction in amount, nonrenewal or material change in coverage from that existing on the date of this Agreement, and (iv) forthwith, notice of any cancellation or nonrenewal of coverage by Borrower.

(d)In the event Borrower fails to provide Agent with evidence of the insurance coverage required by this Agreement, Agent may purchase such insurance at Borrower’s expense to protect Agent’s interests in the Collateral.  This insurance may, but need not, protect Borrower’s interests.  The coverage purchased by Agent may not pay any claim made by Borrower or any claim that is made against Borrower in

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connection with the Collateral.  Borrower may later cancel any insurance purchased by Agent, but only after providing Agent with evidence that Borrower has obtained insurance as required by this Agreement.  If Agent purchases insurance as provided above, Borrower will be responsible for the costs of that insurance, including interest and other charges imposed by Agent in connection with the placement of the insurance, until the effective date of the cancellation or expiration of the insurance.  The costs of the insurance may be added to the Obligations.  The costs of the insurance may be more than the cost of insurance Borrower is able to obtain on its own.

Section 4.5Compliance with Laws.  Borrower will comply, and cause each Subsidiary to comply, with the requirements of all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including Environmental Laws and ERISA and the rules and regulations thereunder), except for such laws, ordinances, rules, regulations and requirements the noncompliance with which would not reasonably be expected to have a Material Adverse Effect.

Section 4.6Reserved.

Section 4.7Use of Proceeds.  The proceeds of Loans shall be used by Borrower solely for: (i) working capital and general corporate purposes of Borrower, its Domestic Subsidiaries and its Foreign Subsidiaries which have entered into and delivered any Financing Documents required to be delivered hereunder and (ii) Permitted Acquisitions.

Section 4.8Lenders’ Meetings.  Within one hundred twenty (120) days after the end of each Fiscal Year and, if an Event of Default has occurred and is continuing, on such date as is and at such times as are reasonably requested by Agent, Borrower will conduct a meeting of Agent and the Lenders to discuss such Fiscal Year’s (or other applicable period’s) results and the financial condition of Borrower and the Subsidiaries at which shall be present a Responsible Officer and such officers of the Credit Parties as may be reasonably requested to attend by Agent or any Lender, such request or requests to be made within a reasonable time prior to the scheduled date of such meeting.  Such meetings shall be held at a time and place convenient to the Lenders and to Borrower; provided, however, Borrower and the Lenders hereby agree the chief executive office of Borrower shall constitute such a convenient place.

Section 4.9Reserved.

Section 4.10Reserved.

Section 4.11Bank, Investment and Other, Similar Accounts.  Borrower will cause Control Agreements to be in place with respect to each bank, investment and other, similar accounts of Borrower and its Domestic Subsidiaries no later than December 16, 2004.

Section 4.12Further Assurances.  Borrower will, and will cause each Subsidiary to, at its own cost and expense, cause to be promptly and duly taken, executed, acknowledged and delivered all such further acts, documents and assurances as may from time to time be necessary or as Agent or the Required Lenders may from time to time reasonably request in order to carry out the intent and purposes of the Financing Documents and the transactions contemplated hereby and thereby, including all such actions to Guarantee the Obligations and create, establish,

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preserve, protect and perfect Liens on the capital stock of or other equity securities in, and any and all assets of such Persons (other than Excluded Collateral), in each case, to the extent and in the manner provided for in the applicable Security Documents in favor of Agent for the benefit of the Lenders (including the property of such Persons acquired after the date hereof), including on the capital stock of or other equity securities in and any and all assets of each Credit Party (other than Excluded Collateral), other than Subsidiaries which are “controlled foreign corporations,” within the meaning of Section 957 of the Code, or which hold stock of or other equity interests in a “controlled foreign corporation” (in which case, with respect to such “controlled foreign corporation,” Agent and the Lenders shall be entitled to a pledge of sixty five percent (65%) of the issued and outstanding capital stock of or other equity interests in such Person); provided, however,if such “controlled foreign corporation” may guaranty the Obligations or if the assets, capital stock or other equity securities of such “controlled foreign corporation” may serve, directly or indirectly, as security for the performance of an obligation of a United States Person without causing all or any portion of the undistributed earnings of such “controlled foreign corporation” to be treated as a deemed inclusion to such “controlled foreign corporation’s” United States parent for federal income tax purposes or otherwise having any adverse effect on Borrower or any of its Subsidiaries with respect to taxes (because a change has become effective in the relevant sections of the Code or the treasury regulations thereunder after the Closing Date), Borrower shall (or shall cause each such “controlled foreign corporation” to, as applicable) guaranty the Obligations and establish, preserve, protect and perfect Liens in favor of Agent for the benefit of the Lenders on one hundred percent (100%) of the capital stock of or other equity securities in and any and all assets of each such “controlled foreign corporation,”  in each case whether now owned or hereafter acquired.

Section 4.13New Leases; Certain New Subsidiaries.

(a)Borrower shall, and shall cause each of its Subsidiaries to, in connection with the negotiation of any new real property leases to which any of them may become a party, undertake efforts to negotiate leases which: (i) constitute Unrestricted Leases, (ii) do not require that leasehold improvements become the property of landlord upon the installation of such improvements or any other time prior to the expiration of the lease term, and (iii) do not contain a negative pledge clause with respect the assets of tenant, including any leasehold improvements.  Promptly upon the execution of any new real property lease by Borrower or any of its Subsidiaries, Borrower shall, or shall cause the relevant Subsidiary to, deliver a copy of such real property lease to Agent, certified by a Responsible Officer as being a true, correct and complete copy thereof.

(b) Of all new fitness clubs which are opened by Borrower or any of its Subsidiaries, the Borrower’s beneficial interest in the capital stock of Subsidiaries which are parties to Unrestricted Leases shall be owned by Intermediate Holdco.

ARTICLE V
NEGATIVE COVENANTS

Borrower agrees that, so long as any Credit Exposure exists:

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Section 5.1Debt.  Borrower will not, and will not permit any Subsidiary to, directly or indirectly, create, incur, assume, guarantee or otherwise become or remain directly or indirectly liable with respect to, any Debt, or any contingent obligations which would be Debt hereunder if they were non-contingent, except for:

(a)(i) Debt, Letter of Credit Liabilities and liabilities and obligations arising from Cash-Collateralized Letters of Credit under the Financing Documents; and (ii) to the extent they are fully cash collateralized in a manner satisfactory to Agent, letters of credit which are not issued under or pursuant to this Agreement or any of the other Financing Documents with an aggregate face amount not greater than $12,500,000 at any time;

(b)Debt or such contingent obligations outstanding on the date of this Agreement as set forth in the Information Certificate;

(c)Unsecured Notes Debt;

(d)Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring any fixed asset (including through Capital Leases), in an aggregate principal amount at any time outstanding not greater than $10,000,000;

(e)(1) intercompany Debt arising from loans or advances made (or other forms of Debt) between and among Borrower and its Domestic Subsidiaries which are Guarantors, and (2) intercompany Debt arising from loans or advances made (or other forms of Debt) by and among Borrower and its wholly-owned Foreign Subsidiaries; provided, no such loans or advances made (or other forms of Debt) by Borrower to any such wholly-owned Foreign Subsidiary may be made if the Foreign Subsidiary Advance Amount exceeds $15,000,000 or would exceed $15,000,000 by the making of any such loan; provided, in the case of clause (2) above, all such loans by Borrower shall be evidenced by promissory notes, the sole originally executed counterparts of which shall be pledged and delivered by Borrower to Agent, for the benefit of Agent and Lenders, as security for the Obligations; provided, further, in the case of clauses (1) and (2) above, upon the request of Agent at any time when an Event of Default has occurred and is continuing, all such intercompany Debt (and, with respect to obligations of any “controlled foreign corporation” within the meaning of Section 957 of the Code, only to the extent that the Borrower has, in good faith, determined that there is no risk of adverse tax consequences) shall be evidenced by promissory notes, the sole originally executed counterparts of which shall be pledged and delivered to Agent, for the benefit of Agent and Lenders, as security for the Obligations;

(f)Debt of Borrower or any Subsidiary under Interest Rate Protection Agreements entered into with respect to Debt permitted under this Section 5.1 so long as the entering into of such Interest Rate Protection Agreements are bona fide hedging activities and are not for speculative purposes;

(g)Debt consisting of guaranties and keep-well arrangements by Borrower and its Subsidiaries of each other’s Debt (other than Debt of Borrower permitted under

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subsections 5.1(j)), lease obligations and construction obligations otherwise permitted under this Agreement;

(h)Debt of a Domestic Subsidiary acquired pursuant to a Permitted Acquisition (or Debt assumed at the time of a Permitted Acquisition of an asset securing such Debt), provided: (w) such Debt was not incurred in connection with, or in anticipation or contemplation of, such Permitted Acquisition, (x) such Debt does not constitute debt for borrowed money, it being understood and agreed that Capital Lease and purchase money Debt shall not constitute debt for borrowed money for purposes of this clause (x), (y) at the time of such Permitted Acquisition, such Debt does not exceed twenty percent (20%) of the total value of the assets of the Domestic Subsidiary so acquired, or of the asset so acquired, as the case may be, and (z) the aggregate principal amount of all Debt permitted by this clause (h) shall not exceed $5,000,000 at any one time outstanding;

(i)Seller Subordinated Debt issued by Borrower to a seller as consideration for a Permitted Acquisition effected in accordance with Section 5.7 in an aggregate principal amount not to exceed $2,500,000 (as such $2,500,000 principal amount may be increased through the issuance of additional Seller Subordinated Debt or through the capitalization of regularly accrued unpaid interest in respect of regularly scheduled interest payments in accordance with the terms thereof) at any time outstanding;

(j)Investor Subordinated Debt issued by Borrower to an Investor;

(k)Debt borrowed from, held by or issued to landlords of real property leased by Subsidiaries which: (i) is incurred by such Subsidiary in connection with the terms of its lease with such landlord, (ii) is either unsecured or secured only by the assets of such Subsidiary which are located at the property subject to such lease and (iii) does not exceed $5,000,000 in the aggregate; and

(l)to the extent they comply with the terms of clause (12) of Annex C hereto, “earnouts” issued by Borrower or any other Credit Party in connection with a Permitted Acquisition;

(m)contingent obligations which would be Debt hereunder if they were non-contingent and which:

(1) result from endorsements for collection or deposit in the ordinary course of business;

(2)are incurred in the ordinary course of business with respect to surety and appeal bonds, performance bonds and other similar obligations which do not exceed $500,000 in the aggregate at any time outstanding;

(3)arise with respect to customary indemnification obligations in favor of purchasers, and customary purchase price adjustment obligations in favor of purchasers, in each case in connection with dispositions otherwise permitted under Section 5.6; or

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(4)arise with respect to customary indemnification obligations in favor of sellers, and customary purchase price adjustment obligations in favor of sellers, in each case in connection with Permitted Acquisitions; and

(n)unsecured Debt not described in clauses (a) through (m) above, not to exceed $2,000,000 in the aggregate at any time outstanding.

Section 5.2Liens.  Borrower will not, and will not permit any Subsidiary to, directly or indirectly, create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except:

(a)Liens created by the Security Documents;

(b)Liens existing on the date of this Agreement as set forth in the Information Certificate together with any applicable UCC continuation statements;

(c)any Lien on any asset securing purchase money Debt (including through Capital Leases) permitted under subsection 5.1(d) incurred or assumed for the purpose of financing all or any part of the cost of acquiring such asset, provided, such Lien attaches to such asset concurrently with or within ninety (90) days after the acquisition thereof;

(d)Liens for taxes or other governmental charges not at the time delinquent or thereafter payable without penalty or the subject of a Permitted Contest;

(e)Liens arising in the ordinary course of business: (i) in favor of carriers, warehousemen, mechanics and materialmen, and other similar Liens imposed by law and (ii) in connection with worker’s compensation, unemployment compensation and other types of social security (excluding Liens arising under ERISA) or in connection with surety bonds, bids, performance bonds and similar obligations for sums not overdue or the subject of a Permitted Contest and not involving any deposits or advances or borrowed money or the deferred purchase price of property or services and, in each case, for which it maintains adequate reserves;

(f)attachments, appeal bonds, judgments and other similar Liens, for sums not exceeding $1,000,000 in the aggregate arising in connection with court proceedings; provided, the execution or other enforcement of such Liens and the claims secured thereby are the subject of a Permitted Contest;

(g)easements, rights of way, restrictions, minor defects or irregularities in title and other similar Liens not interfering in any material respect with the ordinary conduct of the business of Borrower or any Subsidiary;

(h)licenses, sublicenses, leases or subleases granted to other Persons not materially interfering with the conduct of the business of Borrower or any Subsidiary;

(i)statutory and common law and landlords’ liens under leases to which Borrower or any of its Subsidiaries is a party;

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(j)Liens on property or assets acquired pursuant to a Permitted Acquisition, or on property or assets of a Subsidiary of Borrower in existence at the time such Subsidiary is acquired pursuant to a Permitted Acquisition, provided: (y) any Debt that is secured by such Liens is permitted to exist under Section 5.1, and (z) such Liens are not incurred in connection with, or in contemplation or anticipation of, such Permitted Acquisition and do not attach to any other asset of Borrower or any Subsidiary;

(k)Liens on Intellectual Property to the extent such Liens arise from the granting of licenses to use such Intellectual Property to any Person in the ordinary course of business of the Credit Parties in accordance with their past practices;

(l)Liens on cash collateral which support letters of credit issued by Persons other than Agent or any Lender which are fully cash collateralized in a manner reasonably satisfactory to Agent and are not otherwise specifically prohibited hereunder; and

(m)to the extent the same constitutes a Lien hereunder, any interest or title of a lessor under any lease of property to, or of any consignor of goods consigned to (including any such interest or title of any creditor of any such consignee in goods consigned to), Borrower or any Subsidiary, in each case so long as such Lien extends solely to the property the subject of such lease or consignment, as the case may be.

In connection with the granting of Liens of the type described in clauses (c), (g), (j) and (k) of this Section 5.1 by Borrower of any Subsidiary, Agent shall be authorized to take any actions deemed appropriate by it in connection therewith (including, without limitation, by executing appropriate lien releases or lien subordination agreements in favor of the holder or holders of such Liens, in either case solely with respect to the item or items of equipment or other assets subject to such Liens).

Section 5.3Restricted Distributions.  Borrower will not, and will not permit any Subsidiary to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Distribution; provided, the foregoing shall not restrict or prohibit wholly-owned Subsidiaries from making dividends or distributions and shall not restrict or prohibit:

(a)repurchases of shares of (or options to purchase shares of) equity interests in Borrower or options therefor from former employees of Borrower or its Subsidiaries upon their death, disability, termination or retirement, so long as: (i) before and after giving effect to any such dividend or distribution for such purposeno Event of Default shall have occurred and be continuing and (ii) such repurchases or payments after the date hereof do not exceed $750,000 in any Fiscal Year and do not exceed $3,750,000 in the aggregate (plus the amount of cash proceeds received by Borrower under any “key-man” life insurance policy covering any such officer, director or employee the proceeds of which are used to make such Restricted Distributions);

(b)dividends or distributions to the Holders at such times and in such amounts as are necessary to permit payment of taxes and administrative expenses (including without limitation the payment of reasonable director fees) payable by the

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Holders, so long as before and after giving effect to any such dividend or distribution for such purpose, no Event of Default shall have occurred and be continuing; and

(c)any non-wholly-owned Subsidiary of Borrower may pay cash Dividends to its shareholders generally so long as Borrower or its respective Subsidiary which owns the equity interest in the Subsidiary paying such Dividends receives at least its proportionate share thereof (based upon its relative holding of the equity interest in the Subsidiary paying such Dividends and taking into account the relative preferences, if any, of the various classes of equity interests of such Subsidiary).

Section 5.4Restrictive Agreements.  Borrower will not, and will not permit any Subsidiary to, directly or indirectly: (i) enter into or assume any agreement (other than the Operative Documents) prohibiting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired; provided, the foregoing shall not apply to: (w) prohibitions imposed by law, (x) prohibitions created under the Equity Documents, (y) restrictions or conditions imposed by any agreement relating to secured Debt or Capital Leases otherwise permitted under this Agreement, if such restrictions or conditions apply solely to the property or assets securing such Debt or subject to such Capital Lease or (z) customary provisions in leases restricting assignment thereof, or (ii) create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind (except as provided by the Unsecured Notes Debt Documents) on the ability of any Subsidiary to: (1) pay or make Restricted Distributions to Borrower or any other Subsidiary; (2) pay any Debt owed to Borrower or any other Subsidiary; (3) make loans or advances to Borrower or any other Subsidiary; or (4) transfer any of its property or assets to Borrower or any other Subsidiary, except for such encumbrances or restrictions existing under or by reason of: (u) applicable law, (v) this Agreement, the Equity Documents and the Operative Documents, (w) customary provisions establishing change of control triggers under or restricting subletting or assignment of any lease governing a leasehold interest of Borrower or any Subsidiary; provided, nothing in this clause (w) shall be deemed to limit or diminish the obligations of Borrower arising pursuant to subsection 4.14(b) hereof, (x) customary provisions restricting assignment of any licensing agreement (in which Borrower or any Subsidiary is the licensee) or other contract entered into by Borrower or any Subsidiary in the ordinary course of business, (y) restrictions on the transfer of any asset pending the close of the sale of such asset and (z) restrictions on the transfer of any asset subject to a Lien permitted by subsections 5.2(b), (c) or (j).

Section 5.5Payments and Modifications of Unsecured Notes Debt; Warrant Documents.

(a)Borrower will not, and will not permit any Subsidiary to, directly or indirectly: (i) amend or otherwise modify the terms of any Unsecured Notes Debt or any Unsecured Notes Debt Document if the effect of such amendment or modification is to: (v) increase the interest rate or fees on such the Unsecured Notes Debt; (w) change the dates upon which payments of principal or interest are due on, or the principal amount of, the Unsecured Notes Debt; (x) change any event of default or add or make more restrictive any covenant with respect to the Unsecured Notes Debt; (y) change the prepayment provisions of the Unsecured Notes Debt; or (z) change or amend any other term if such change or amendment would materially increase the obligations of the

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obligor or confer additional material rights on the holder of the Unsecured Notes Debt in a manner adverse to Borrower, any Subsidiary, Agent or Lenders or (ii) if the amount of the Loans outstanding is greater than $0, declare, pay, make or set aside any amount for payment in respect of Unsecured Notes Debt, except for payments of principal and interest (excluding voluntary prepayments) in respect of such Unsecured Notes Debt which are required to be made pursuant to the terms of the Unsecured Notes Debt Documents.

(b)Borrower will not, and will not permit any Subsidiary to, directly or indirectly, modify in a manner adverse to Agent or the Lenders any of the terms of that certain Senior Subordinated Note and Warrant Purchase Agreement dated as of December 15, 2000 by and among Borrower and each of the “Noteholders” party thereto, as amended by that certain Amendment No. 1 to Common Stock Purchase Warrant, Amendment No. 2 to Senior Subordinated Note and Warrant Purchase Agreement and Consent dated as of November 8, 2003.

Section 5.6Consolidations, Mergers and Sales of Assets.  Borrower will not, and will not permit any Subsidiary to, directly or indirectly: (i) consolidate or merge with or into any other Person, or (ii) sell, lease, license or otherwise transfer, directly or indirectly, any of its or their assets, other than:

(a)sales of Inventory in the ordinary course of their respective businesses;

(b)dispositions of cash and Cash Equivalents;

(c)dispositions of obsolete, uneconomic or worn-out equipment and materials in the ordinary course of business;

(d)disposition of equipment and other assets, if all of the following conditions are met: (i)  each such sale is in an arm’s-length transaction and Borrower or the respective Subsidiary receives at least fair market value (as determined in good faith by Borrower or such Subsidiary, as the case may be), (ii) the total consideration received by Borrower or such Subsidiary is at least seventy five percent (75%) cash and is paid at the time of the closing of such sale, (iii) the aggregate market value of assets sold or otherwise disposed of does not exceed $1,000,000 per year, (iv) the Net Cash Proceeds of such Asset Disposition are applied and/or reinvested as required by subsection 2.1(c), and (v) no Default or Event of Default then exists or would result from such Asset Disposition;

(e)the abandonment, sale or other disposition of Intellectual Property that is, in the reasonable judgment of Borrower, no longer of material economic value to the business of the Credit Parties taken as a whole;

(f)each of Borrower and its Subsidiaries may sell or discount, in each case without recourse and in the ordinary course of business, Accounts arising in the ordinary course of business, but only in connection with the compromise or collection thereof and not as part of any financing transaction;

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(g)each of Borrower and its Subsidiaries may grant leases, licenses, sublicenses or subleases to other Persons, none of which shall otherwise materially interfere with the conduct of the business of Borrower or any of its other fitness clubs or Subsidiaries, so long as no such grant otherwise limits or prohibits Agent’s security interest in the assets or property subject thereto;

(h)any Subsidiary of Borrower may transfer assets to Borrower or to any wholly-owned Domestic Subsidiary of Borrower which is a Guarantor and all of whose capital stock and other equity interests have been pledged to Agent for the benefit of the Lenders pursuant to the Security Documents, so long as the security interests granted to Agent for the benefit of the Lenders pursuant to the Security Documents in the assets so transferred shall remain in full force and effect and perfected (to at least the same extent as in effect immediately prior to such transfer);

(i)any Subsidiary of Borrower may merge with and into, or be dissolved or liquidated into, any wholly-owned Domestic Subsidiary of Borrower which is a Guarantor and all of whose capital stock and other equity interests have been pledged to Agent for the benefit of the Lenders pursuant to the Security Documents, so long as: (i) the wholly-owned Domestic Subsidiary which is a Guarantor and whose capital stock or other equity interests have been pledged is the surviving corporation of any such merger, dissolution or liquidation and (ii) both the security interests granted to the Agent for the benefit of the Lenders pursuant to the Security Documents in the assets of such Subsidiary and the pledge interests granted to the Agent for the benefit of the Lenders pursuant to the Security Documents in the capital stock of or other equity interests in such Subsidiary shall remain in full force and effect and perfected (to at least the same extent as in effect immediately prior to such merger, dissolution or liquidation); and

(j)Permitted Acquisitions may be made to the extent otherwise permitted by Section 5.7

To the extent the Required Lenders or all of the Lenders, as the case may be, waive the provisions of this Section 5.6 with respect to the sale of any Collateral, or any Collateral is sold as permitted by this Section 5.6 (other than to Borrower or a Subsidiary thereof), such Collateral shall be sold free and clear of the Liens created by the Security Documents, and the Agent shall be authorized to take any actions deemed appropriate in order to effect the foregoing.

Notwithstanding anything contained in this Agreement or in any of the other Financing Documents to the contrary, Borrower and its Subsidiaries may sell or close fitness clubs in their reasonable business judgment, so long as: (i) no Event of Default of the type described in subsections 8.1(a), 8.1(b) (arising with respect to the failure of Borrower to satisfy certain of its covenants and agreements made under Article VI or the occurrence of any “Mandatory Redemption Event” described in the “Certificate of Designation” creating the Preferred Stock while any such Preferred Stock has been issued or is otherwise outstanding), 8.1(f) or 8.1(g) is then continuing or would result therefrom, and (ii) Borrower has not failed to satisfy any of its covenants or other agreements made in subsections 4.1(a), (b), (c), (g)(i), (g)(iii), (l) or (m) (and such failure has continued for a period of forty five (45) days).

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Section 5.7Permitted Acquisitions, Investments.  Except as otherwise specifically permitted herein, Borrower will not, and will not permit any Subsidiary to, directly or indirectly acquire any assets other than in the ordinary course of business.  Borrower will not, and will not permit any Subsidiary to, directly or indirectly, lend money or credit or make advances or Guarantees to or time deposits with any Person, or purchase, hold or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any other Person, or purchase or own a futures contract or otherwise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract, or hold any cash or Cash Equivalents (each of the foregoing an “Investment” and, collectively, “Investments”), except that the following shall be permitted:

(a)Investments set forth on the Information Certificate;

(b)Investments in cash or Cash Equivalents;

(c)Investments in Subsidiaries, so long as: (i) Borrower has pledged to Agent such amount of the outstanding capital stock or other equity interests of any such Subsidiary as may be required to be pledged pursuant to the terms of Section 4.12, and (ii) to the extent (and only to the extent) required by the terms of Section 4.12, such Subsidiary has Guaranteed the Obligations and secured such Guarantee by granting in favor of Agent, for its benefit and the benefit of the Lenders, a Lien on all or substantially all of the assets of such Subsidiary which constitute personal property (other than Excluded Collateral);

(d)bank deposits established in accordance with Section 5.13;

(e)Investments in securities of account debtors received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such account debtors; and

(f)loans to officers and employees of Domestic Subsidiaries and Foreign Subsidiaries in an aggregate principal amount not to exceed $750,000 at any time outstanding;

(g)Borrower may acquire and hold obligations of one (1) or more officers, directors or other employees of Borrower or any Subsidiary in connection with such officers’, directors’ or employees’ acquisition of shares of capital stock of Borrower so long as no cash is paid by Borrower or any Subsidiary to such officers, directors or employees in connection with the acquisition of any such obligations;

(h)Borrower may enter into Interest Rate Protection Agreements to the extent otherwise permitted by Section 5.1;

(i)Borrower and its Subsidiaries may acquire and hold promissory notes and other non-cash consideration issued by the purchaser of assets in connection with a sale of such assets to the extent permitted by Section 5.6 so long as such notes and other non-cash consideration are pledged to Agent for the benefit of the Lenders;

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(j)Borrower and its Subsidiaries may make intercompany loans and advances between or among one another to the extent expressly permitted in Section 5.1;

(k)to the extent otherwise permitted by Section 5.1, guaranties, keep-well arrangements and reimbursement obligations; and

(l)so long as no Default or Event of Default then exists or would result therefrom, Borrower and its Subsidiaries may make Investments not otherwise permitted by clauses (a) through (k) of this Section 5.7 in an aggregate amount not to exceed $500,000 in any Fiscal Year of Borrower.

Without limiting the generality of the foregoing, Borrower will not, and will not permit any Subsidiary to:

(i)acquire or create any Subsidiary; or

(ii)engage in any joint venture or partnership with any other Person, provided, Borrower and its wholly-owned Subsidiaries shall be permitted to:

(A) enter into Permitted Acquisitions,

(B) establish, create and, to the extent permitted by this Agreement, acquire wholly-owned Subsidiaries so long as (1) all of the equity interests of each such new wholly-owned Subsidiary are pledged pursuant to a pledge agreement which is substantially in the form of the “Pledge Agreement” entered into by Borrower and Agent on the date hereof or otherwise in form and substance reasonably satisfactory to Agent (provided that Borrower and its wholly-owned Subsidiaries shall only pledge equity interests of any “foreign controlled corporation” within the meaning of Section 957 of the Code to the extent provided in Section 4.12), (2) each such new wholly-owned Domestic Subsidiary executes a counterpart of the Security Documents, granting and perfecting a Lien on all or substantially all of the assets of such Subsidiary which constitute personal property (other than Excluded Collateral), and (3) each such new wholly-owned Domestic Subsidiary (and, to the extent required by Section 4.12, each such new wholly-owned Foreign Subsidiary), to the extent requested by the Agent or the Required Lenders, takes all other actions required pursuant to the Security Documents or Section 4.12, including, without limitation, a Guarantee of the Obligations; and

(C) establish, create and acquire equity interests in non-wholly-owned Subsidiaries, in each case to the extent otherwise permitted by Section 5.7 and the definition of “Permitted Acquisition,” so long as: (1) all of the equity interests of each such Subsidiary owned by Borrower and each other Credit Party are pledged pursuant to a pledge agreement which is form and substance reasonably satisfactory to Agent (provided that Borrower and its wholly-owned Subsidiaries shall only pledge equity interests of any “foreign controlled corporation” within the meaning of

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Section 957 of the Code to the extent provided in Section 4.12), (2) each such new wholly-owned Domestic Subsidiary executes a counterpart of the Security Documents, granting and perfecting a Lien on all or substantially all of the assets of such Subsidiary pursuant to Section 4.12, (3) each such Subsidiary (and, to the extent required by the Security Documents or Section 4.12, each such Foreign Subsidiary), to the extent requested by the Agent or the Required Lenders, takes all other actions required pursuant to the Security Documents or Section 4.12, including, without limitation, a Guarantee of the Obligations, (4) Borrower or such Subsidiary owns the majority of equity interests of such non-wholly-owned Subsidiary and retains “control” thereof (as such term is defined in the definition of “Affiliate”) and (5) the aggregate amount invested by Borrower and its Subsidiaries in connection with all such non-wholly-owned Subsidiaries does not exceed $10,000,000.

All new Subsidiaries shall execute and deliver, or cause to be executed and delivered, agreements, officer’s certificates, instruments and other relevant documentation of the type described in and contemplated by Section 4.12.  Foreign Subsidiaries shall be deemed to be “wholly-owned” Subsidiaries of another Person if all of their shares or other equity interests are owned or otherwise held by such other Person, other than directors’ qualifying shares or other, nominal shares or equity interests issued to other Persons, in each case for the purpose of local requirements of law.

Section 5.8Transactions with Affiliates.  Borrower will not, and will not permit any Subsidiary to, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of Borrower except:

(a)as otherwise specifically permitted by Section 5.12;

(b)as otherwise disclosed in the Information Certificate;

(c)for transactions that are disclosed to Agent in writing in advance of being entered into and which contain terms that are no less favorable to Borrower or any Subsidiary, as the case may be, than those which might be obtained from a third party not an Affiliate of any Credit Party;

(d)Borrower or any Subsidiary of Borrower may enter into customary indemnification and contribution agreements in favor of the Sponsors, their Affiliates and each person who becomes a director, officer, agent or employee of Borrower or any of its Subsidiaries, in respect of liabilities: (A) arising under the Securities Act, the Exchange Act and any other applicable securities laws in connection with any offering of securities by Borrower or any of its Subsidiaries, (B) incurred to third parties for any action or failure to act of Borrower or any of its Subsidiaries, predecessors or successors, (C) arising out of the performance by the Sponsors of management consulting or financial advisory services provided to Borrower or any of its Subsidiaries, (D) arising

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out of the fact that any indemnitee was or is a director, officer, agent or employee of Borrower or any of its Subsidiaries, or is or was serving at the request of any such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or enterprise or (E) to the fullest extent permitted by Delaware or other applicable state law, out of any breach or alleged breach by such indemnitee of his or her fiduciary duty as a director or officer of Borrower or any of its Subsidiaries, provided that any such indemnity or contribution arrangements in favor of the Investors and their Affiliates (other than those arising under Delaware or other applicable state law) shall be pursuant to one or more Management Agreements;

(e)dividends may be paid to the extent otherwise specifically permitted by Section 5.3;

(f)loans may be made and other transactions may be entered into by Borrower and its Subsidiaries to the extent not otherwise prohibited by the terms of this Agreement;

(g)customary director fees in an aggregate amount not to exceed $100,000 per annum, together with customary expenses, may be paid to non-officer directors of Borrower and its Subsidiaries; provided, however, reasonable and customary fees equivalent to those paid to outside, independent, non-Affiliate directors of similarly situated companies may be paid to outside, independent, non-Affilate directors of Borrower; and

(h)Borrower and its Subsidiaries may enter into, and may make payments under, employment agreements, employee benefits plans, stock option plans, indemnification provisions and other similar compensatory arrangements with officers, employees and directors of Borrower and its Subsidiaries in the ordinary course of business and in substantial accordance with past practices;

(i)Borrower or any Subsidiary of Borrower may enter into any transaction that is between Borrower or any such Subsidiary and any Affiliate of Borrower that is primarily engaged in a business related to any business of Borrower or any of its Subsidiaries so long as each such transaction is approved in good faith by a majority of the independent directors of Borrower as being on terms that are at least as favorable to Borrower or such Subsidiary, as the case may be, as those that might be obtained at the time from Persons who are not Affiliates and is otherwise permitted pursuant to the terms of this Agreement;

(j)Borrower or any Subsidiary of Borrower may enter into any transaction with any Affiliate of Borrower that is also a customer, client, supplier or purchaser or seller of goods or services of or to Borrower or any of its Subsidiaries, in each case so long as each such transaction is in the ordinary course of business, is approved in good faith by the senior management of Borrower as being on terms that are at least as favorable to Borrower or such Subsidiary as those that might be obtained at the time from Persons who are not Affiliates and is otherwise permitted pursuant to the terms of this Agreement; and

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(k)to the extent otherwise allowed pursuant to this Agreement and in any event other than equity that would not otherwise be permitted under Section 5.1, Borrower may issue equity in any form whatsoever.

For purposes of this Section 5.8: (A) any transaction with any Affiliate shall be deemed to have satisfied the standards set forth in clauses (i) and (j) above if: (i) such transaction is approved by a majority of the Disinterested Directors of the board of directors of Borrower or such Subsidiary, or (ii) in the event that at the time of any such transaction, there are no Disinterested Directors serving on the board of directors of Borrower or such Subsidiary, such transaction shall be approved by a nationally recognized expert with expertise in appraising the terms and conditions of the type of transaction for which approval is required, and (B) “Disinterested Director” shall mean, with respect to any Person and transaction, a member of the board of directors of such Person who does not have any material direct or indirect financial interest in or with respect to such transaction or any other transaction which is part of a series of transactions that includes such transaction in question.

Section 5.9Modification of Organizational Documents.  Borrower will not, and will not permit any Subsidiary to, directly or indirectly amend or otherwise modify any Organizational Documents of such Person, except for: (i) such amendments or other modifications required by law which are fully disclosed to Agent in writing no later than concurrently upon their effectiveness and (ii) such amendments or other modifications that would not reasonably be expected to be adverse to the interests of Agent or the Lenders in any material respect or adversely effect the Collateral or the Liens of Agent and the Lenders therein.

Section 5.10Fiscal Year.  Borrower will not, and will not permit any Subsidiary to, change its Fiscal Year.

Section 5.11Conduct of Business.  Borrower will not, and will not permit any Subsidiary to, directly or indirectly, engage in any line of business other than those businesses engaged in on the Closing Date and businesses reasonably related thereto.

Section 5.12Investor Fees.  Borrower will not, and will not permit any Subsidiary to, directly or indirectly, pay or become obligated to pay any management, consulting or similar advisory fees or other amounts to or for the account of any Investor or any Affiliate of such Investor except an aggregate amount which does not exceed $1,200,000 in any Fiscal Year, so long as: (i) no Event of Default of the type described in subsections 8.1(a), 8.1(b)(ii) (arising with respect to the failure of Borrower to satisfy certain of its covenants and agreements made under Article VI or the occurrence of any “Mandatory Redemption Event” described in the “Certificate of Designation” creating the Preferred Stock while any such Preferred Stock is outstanding), 8.1(f) or 8.1(g) is then continuing or would result therefrom, and (ii) Borrower has not failed to satisfy any of its covenants or other agreements made in subsections 4.1(a), (b), (c), (g)(i), (g)(iii), (l) or (m) (and such failure has continued for a period of forty five (45) days).

Section 5.13Bank Accounts.  Borrower will not, and will not permit any Subsidiary to, directly or indirectly, establish any new bank account without prior written notice to Agent and unless Agent, Borrower or such Subsidiary and the bank at which the account is to be opened enter into a Control Agreement regarding such bank account; provided, however, with

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respect to new bank accounts of Foreign Subsidiaries (in the event the provisions of Section 4.12 do not require the grant of a security interest therein), Borrower shall only be required to promptly provide Agent with descriptions of such new bank accounts in a manner consistent with that included in the Information Certificate.

ARTICLE VI
FINANCIAL COVENANTS

Borrower agrees that, so long as: (i) any Credit Exposure exists and (ii) the amount of Loans Outstanding (exclusive of amounts available for drawing under outstanding Letters of Credit) is greater than zero ($0):

Section 6.1Capital Expenditures.  Borrower will not permit the aggregate amount of Capital Expenditures for any Fiscal Year to exceed the sum of: (i) for the Fiscal Year ending December 31, 2003, $40,000,000 or (ii) for any Fiscal Year ending thereafter, $60,000,000.  If Borrower does not utilize the entire amount of Capital Expenditures permitted in any period set forth above, Borrower may carry forward to the immediately succeeding period only: (i) one hundred percent (100%) of such unutilized amount up to an aggregate amount of $15,000,000 and (ii) fifty percent (50%) of the unutilized amount in excess of $15,000,000 (in each case with Capital Expenditures made by Borrower in such succeeding period applied last to such carried forward amount).

Section 6.2Interest Coverage Ratio.  Borrower will not permit the Interest Coverage Ratio as of the last day of each fiscal quarter ending during the periods set forth below to be less than the ratio set forth below for such period:

Period	Ratio
Closing Date through December 31, 2004	1.55
January 1, 2005 through December 31, 2005	2.05
January 1, 2006 through December 31, 2006	2.55
January 1, 2007 and thereafter	3.10

Section 6.3Total Debt to EBITDA Ratio.  Borrower will not permit the ratio of: (i) Total Debt on any date set forth below to (ii) EBITDA for the twelve (12) month period ending on such date (or, if any portion of such period precedes the Closing Date, for the period commencing on the Closing Date and ending on such date, expressed on an annualized basis) to exceed the ratio set forth below opposite such date:

Date	Ratio
December 31, 2003	5.50
March 31, 2004	5.50
June 30, 2004	5.25
September 30, 2004	5.25
December 31, 2004	5.00

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Date	Ratio
March 31, 2005	4.50
June 30, 2005	4.50
September 30, 2005	4.50
December 31, 2005	4.50
March 31, 2006	3.75
June 30, 2006	3.75
September 30, 2006	3.75
December 31, 2006	3.75
March 31, 2007	3.25
June 30, 2007	3.25
September 30, 2007	3.25
December 31, 2007	3.25
March 31, 2008	3.00
June 30, 2008	3.00
September 30, 2008	3.00
December 31, 2008 and the last day of each fiscal quarter ending thereafter	3.00

Section 6.4Senior Debt to EBITDA Ratio.  Borrower will not permit the ratio of: (i) Senior Debt as of the last day of any fiscal quarter to (ii) EBITDA for the twelve (12) month period ending on such date (or, if any portion of such period precedes the Closing Date, for the period commencing on the Closing Date and ending on such date, expressed on an annualized basis) to exceed 1.00.

ARTICLE VII
CONDITIONS

Section 7.1Conditions to Closing; Conditions to Initial Loans.

(a)Conditions to Closing.  The effectiveness of this Agreement shall be subject to the receipt by Agent of each agreement, document and instrument set forth on the Closing Checklist, each in form and substance satisfactory to Agent, and to the consummation of the following conditions precedent, each to the satisfaction of Agent and Lenders in their sole discretion:

(i)evidence of the consummation of the transactions (other than the funding of any Loans) contemplated by the Operative Documents, including without limitation the issuance of debt contemplated by the Unsecured Notes Debt Documents;

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(ii)the payment by Borrower to each Lender its Pro Rata Share of a commitment fee in the aggregate amount of $562,500, which commitment fee shall be deemed to be fully-earned and non-refundable upon payment thereof;

(iii)the satisfaction of Agent as to the absence, since December 31, 2002, of any material adverse change in any aspect of the business, operations, properties or condition (financial or otherwise) of Borrower, any Credit Party, or any event or condition which would reasonably be expected to result in such a material adverse change;

(iv)the payment of all other fees, expenses and other amounts due and payable under each Financing Document; and

(v)receipt by Agent of such other documents, instruments and/or agreements as Agent may reasonably request.

Promptly upon the effectiveness of the Agreement, the Agent shall notify Borrower and the Lenders thereof, and such notice shall be conclusive and binding on all parties hereto.

(b)Conditions to Initial Loans.  The obligation of each Lender to make any initial Loans (other than the issuance of Letters of Credit which are fully cash collateralized by Borrower with Agent in a restricted account; Letters of Credit which are fully cash collateralized in such a manner may be issued in accordance with the terms of this Agreement and the other Financing Documents upon satisfaction of the conditions precedent set forth in subsection 7.1(a)) and of Agent to issue any Support Agreements hereunder shall be subject to the effectiveness of this Agreement, and to the satisfaction of the following additional conditions precedent, each to the satisfaction of Agent and Lenders in their sole discretion:

(i)receipt by Agent of a duly executed Compliance Certificate which evidences that: (i) Borrower is in compliance on a pro forma basis with the covenants set forth in Article VI recomputed for the most recently ended month for which information is available, (ii) no Default or Event of Default has occurred and is continuing and (iii) Borrower has not defaulted in its agreements or covenants made in subsections 4.1(a), (b), (c), (g)(iii), (l) or (m); and

(ii)receipt by Agent of a duly executed Borrowing Base Certificate;

(iii)the existence of Control Agreements with respect to all bank accounts of Borrower and its Domestic Subsidiaries for a period of not less than ninety one (91) consecutive days preceding the proposed date of such requested initial Loan; and

(iv)receipt by Agent of a certificate issued by a Responsible Officer of Borrower to Agent and the Lenders which certifies that Borrower has (or will have, after giving pro forma effect to the transactions contemplated with respect to and occurring concurrently with the making of such Loan) less than $5,000,000 of available (unrestricted) cash on its balance sheet; and

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(v)receipt by Agent of all items described under and in the matter set forth in that certain post-closing letter agreement dated as of the Closing Date by and among Borrower, Agent and each Lender;

provided, however, Letters of Credit (whether Cash-Collateralized Letters of Credit or otherwise) may be issued under this Agreement and the other, applicable Financing Documents if all conditions thereto other than clause (iv) above have been satisfied.

Section 7.2Conditions to Each Loan and Support Agreement.  The obligation of the Lenders to make a Loan or of Agent to issue any Support Agreement (including on the Closing Date) is subject to the satisfaction of the following additional conditions:

(a)in the case of a Borrowing, receipt by Agent of a Notice of Borrowing in accordance with subsection 2.1(b) and in the case of any Support Agreement, receipt by Agent of a Notice of LC Credit Event in accordance with subsection 2.4(a);

(b)the fact that, immediately after such Borrowing and after application of the proceeds thereof or after such issuance, the Loan Outstandings will not exceed the Loan Limit;

(c)the fact that, immediately before and after such Borrowing or issuance, no Default or Event of Default shall have occurred and be continuing and Borrower shall not have defaulted in any of its agreements or covenants made in subsections 4.1(a), (b), (c), (g)(iii), (l) or (m);

(d)the fact that the representations and warranties of each Credit Party contained in the Financing Documents shall be true and correct in all material respects on and as of the date of such Borrowing or issuance, except to the extent that any such representation or warranty relates to a specific date in which case such representation or warranty shall be true and correct in all material respects as of such earlier date; and

(e)to the extent no Borrowing Base Certificate was received for the last day of the immediately preceding fiscal quarter due to the fact the amount of Loan Outstandings was equal to zero ($0) at such time, receipt by Agent of a duly executed Borrowing Base Certificate as of that date.

Each Borrowing, each giving of a Notice of LC Credit Event hereunder and each giving of a Notice of Borrowing hereunder shall be deemed to be a representation and warranty by Borrower on the date of such borrowing or notice as to the facts specified in subsections 7.2(b), 7.2(c) and 7.2(d).

ARTICLE VIII
EVENTS OF DEFAULT

Section 8.1Events of Default.  For purposes of the Financing Documents, the occurrence of any of the following conditions and/or events, whether voluntary or involuntary, by operation of law or otherwise, shall constitute an “Event of Default”:

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(a)Borrower shall: (i) fail to pay when due any principal or (ii) fail to pay any interest, premium or fee under any Financing Document or any other amount payable under any Financing Document and, solely with respect to this clause (ii), such failure to pay shall remain unremedied for three (3) or more Business Days;

(b)Borrower shall fail to observe or perform any covenant contained in: (i)   subsections 4.1(a), (b), (c), (g)(iii), (l) or (m) and such default is not remedied or waived within thirty (30) days or (ii) subsection 4.1(g)(i), Sections 4.7, 4.11, 4.13 or 4.14, Articles V or VI or the occurrence of any “Mandatory Redemption Event” described in the “Certificate of Designation” creating the Preferred Stock;

(c)any Credit Party defaults in the performance of or compliance with any term contained in this Agreement, in any other Financing Document or in any document, agreement or instrument entered into in connection with Ancillary Services (other than occurrences described in other provisions of this Section 8.1 for which a different grace or cure period is specified or which constitute immediate Events of Default) and such default is not remedied or waived within thirty (30) days after the earlier of: (1) receipt by Borrower of notice from Agent or Required Lenders of such default or (2) actual knowledge of Borrower or any other Credit Party of such default;

(d)any representation, warranty, certification or statement made by any Credit Party or any other Person in any Financing Document or in any certificate, financial statement or other document delivered pursuant to any Financing Document is incorrect in any respect (or in any material respect if such representation, warranty, certification or statement is not by its terms already qualified as to materiality) when made (or deemed made);

(e)(1) failure of any Credit Party to pay when due or within any applicable grace period any principal, interest or other amount on Debt (other than the Loans), or the occurrence of any breach, default, condition or event with respect to any Debt (other than the Loans), if the effect of such failure or occurrence is to cause or to permit the holder or holders thereof to cause, Debt having an aggregate principal amount in excess of $1,000,000 to become or be declared due prior to its stated maturity, or (2) the occurrence of an “Event of Default” under the Unsecured Notes Indenture;

(f)any Credit Party shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing;

(g)an involuntary case or other proceeding shall be commenced against any Credit Party seeking liquidation, reorganization or other relief with respect to it or its

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debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) days; or an order for relief shall be entered against any Credit Party under the federal bankruptcy laws as now or hereafter in effect;

(h)(1) institution of any steps by any Person to terminate a Pension Plan if as a result of such termination any Credit Party or any member of the Controlled Group could be required to make a contribution to such Pension Plan, or would reasonably be expected to incur a liability or obligation to such Pension Plan, in excess of $1,000,000 (2) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA, or (3) there shall occur any withdrawal or partial withdrawal from a Multiemployer Pension Plan and the aggregate withdrawal liability (without unaccrued interest) to all Multiemployer Pension Plans as a result of such withdrawal (including any outstanding withdrawal liability that any Credit Party or any member of the Controlled Group have incurred on the date of such withdrawal) exceeds $1,000,000;

(i)one (1) or more judgments or orders for the payment of money aggregating in excess of $1,000,000 shall be rendered against any or all Credit Parties and such judgments or orders shall continue unsatisfied and unstayed for a period of thirty (30) days;

(j)(1) the Investors shall collectively cease to, directly or indirectly, own and control at least: (A) that percentage of the outstanding voting equity interests of Borrower necessary at all times to elect a majority of the board of directors (or similar governing body) of Borrower and to direct the management policies and decisions of Borrower, or (B) a majority of the economic and voting interest in Borrower, (2) Borrower shall cease to, directly or indirectly, own and control: (A) one hundred percent (100%) of each class of the outstanding equity interests of each Subsidiary owned by it or its Subsidiaries on the Closing Date, or (B) with respect to Subsidiaries of Borrower whose equity securities were acquired by Borrower or any Subsidiary after the Closing Date, Borrower or such applicable, acquiring Subsidiary shall cease to, directly or indirectly, own and control at least a majority of the outstanding voting equity interests of acquired Subsidiary necessary at all times to elect a majority of the board of directors (or similar governing body) of such acquired Subsidiary and to direct the management policies and decisions of such acquired Subsidiary,  or (3) any “Change of Control” occurs under any Unsecured Notes Debt Document (as defined thereunder);

(k)any Lien created by any of the Security Documents shall at any time fail to constitute a valid and perfected Lien on any of the Collateral purported to be secured thereby (other than an immaterial portion of the Collateral), subject to no prior or equal Lien except Permitted Liens, or any Credit Party shall so assert in writing; or

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(l)any of the Financing Documents shall for any reason fail to constitute the valid and binding agreement of any Credit Party thereto, or any such Credit Party shall so assert in writing.

Section 8.2Acceleration and Suspension or Termination of Loan Commitment.  Upon the occurrence and during the continuance of an Event of Default, Agent may, and shall if requested by Required Lenders: (i) by notice to Borrower suspend or terminate the Loan Commitment, in whole or in part (and, if in part, such reduction shall be pro rata among the Lenders having a Commitment to make Loans) and/or (ii) by notice to the Borrower declare the Obligations (other than any Ancillary Services) to be, and the Obligations (other than any Ancillary Services) shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by Borrower and Borrower will pay the same; provided, in the case of any of the Events of Default specified in subsection 8.1(f) or 8.1(g) above, without any notice to Borrower or any other act by Agent or the Lenders, the Loan Commitment shall thereupon terminate and all of the Obligations (other than any Ancillary Services) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by Borrower and Borrower will pay the same.

Section 8.3Cash Collateral.  If: (i) any Event of Default specified in subsection 8.1(f) or 8.1(g) shall occur, (ii) the Obligations shall have otherwise been accelerated pursuant to Section 8.2 or (iii) the Loan Commitment shall have been terminated pursuant to Section 8.2, then without any request or the taking of any other action by Agent or the Lenders, Borrower shall immediately comply with the provisions of subsection 2.4(e) with respect to the deposit of cash and future payment of related fees.

Section 8.4Default Rate of Interest and Suspension of LIBOR Rate Options.  At the election of the Required Lenders (or the Agent, if the Agent in its capacity as a Lender hereunder (by itself or together or with its Affiliates) holds: (i) more than fifty percent (50%) of the Loan Commitment or (ii) if the Loan Commitment has been terminated, more than fifty percent (50%) of the sum of: (x) the aggregate outstanding principal balance of the Loans plus (y) the aggregate amount of Reimbursement Obligations), after the occurrence of an Event of Default of the type described in subsection 8.1(a) and for so long as it continues, principal and interest on the Loans which is due and owing but has not been paid by Borrower in accordance with the terms of this Agreement shall bear interest at per annum rates equal to the rate of interest which may be charged with respect to such Loans and other Obligations plus two percent (2.0%).  Furthermore, at the election of the Required Lenders during any period in which any Event of Default is continuing: (x) as the Interest Periods for LIBOR Loans then in effect expire, such Loans shall be converted into Prime Rate Loans following the end of each such Interest Period and (y) the LIBOR election will not be available to Borrower.

Section 8.5Setoff Rights.  During the continuance of any Event of Default, each Lender is hereby authorized by Borrower at any time or from time to time, with reasonably prompt subsequent notice to Borrower (any prior or contemporaneous notice being hereby expressly waived) to set off and to appropriate and to apply any and all: (A) balances held by such Lender at any of its offices for the account of Borrower or any of its Subsidiaries (regardless of whether such balances are then due to Borrower or its Subsidiaries), and (B) other

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property at any time held or owing by such Lender to or for the credit or for the account of Borrower or any of its Subsidiaries, against and on account of any of the Obligations; except that no Lender shall exercise any such right without the prior written consent of Agent.  Any Lender exercising a right to set off shall purchase for cash (and the other Lenders shall sell) interests in each of such other Lender’s Pro Rata Share of the Obligations as would be necessary to cause all Lenders to share the amount so set off with each other Lender in accordance with their respective Pro Rata Share of the Obligations.  Borrower agrees, to the fullest extent permitted by law, that any Lender may exercise its right to set off with respect to the Obligations as provided in this Section 8.5.

Section 8.6Application of Proceeds.  Notwithstanding anything to the contrary contained in this Agreement, upon the occurrence and during the continuance of an Event of Default: (a) Borrower irrevocably waives the right to direct the application of any and all payments at any time or times thereafter received by Agent from or on behalf of Borrower or any guarantor of all or any part of the Obligations, and Agent shall have the continuing and exclusive right to apply and to reapply any and all payments received at any time or times after the occurrence and during the continuance of an Event of Default and the proceeds of any sale of, or other restriction upon, all or any part of the Collateral, against the Obligations in such manner as Agent may deem advisable notwithstanding any previous application by Agent and (b) in the absence of a specific determination by Agent with respect thereto, the proceeds of any sale of, or other realization upon, all or any part of the Collateral shall be applied: first, to all fees, costs, indemnities and expenses incurred by or owing to Agent and any Designated Lender Affiliate that is an Affiliate of Agent, with respect to this Agreement, the other Financing Documents, any Ancillary Services or the Collateral; second, to all fees, costs, indemnities and expenses incurred by or owing to any Lender and any Designated Lender Affiliate that is an Affiliate of any Lender, with respect to this Agreement, the other Financing Documents, any Ancillary Services or the Collateral; third, to accrued and unpaid interest on the Obligations (including any interest which but for the provisions of the U.S. Bankruptcy Code, would have accrued on such amounts); fourth, to the principal amount of the Obligations outstanding; and fifth to any other indebtedness or obligations of Borrower owing to Agent, any Lender or any Designated Lender Affiliate under the Financing Documents or with respect to Ancillary Services.  Any balance remaining shall be delivered to Borrower or to whomever may be lawfully entitled to receive such balance or as a court of competent jurisdiction may direct.

ARTICLE IX
EXPENSES, INDEMNITY, TAXES AND RIGHT TO PERFORM

Section 9.1Expenses.  Borrower hereby agrees to promptly pay: (i) all reasonable costs and expenses of Agent (including without limitation the reasonable fees, costs and expenses of one (1) firm of counsel to, and independent appraisers and consultants retained by Agent, the services of which were reasonably determined by Agent to be necessary) in connection with the examination, review, due diligence investigation, documentation, negotiation, closing and syndication of the transactions contemplated by the Financing Documents, in connection with the performance by Agent of its rights and remedies under the Financing Documents and in connection with the continued administration of the Financing Documents including any amendments, modifications, consents and waivers to and/or under any and all Financing Documents, (ii) without limitation of the preceding clause (i), all reasonable

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out-of-pocket costs and expenses of Agent in connection with the creation, perfection and maintenance of Liens pursuant to the Financing Documents, including title investigations, (iii) without limitation of the preceding clause (i), expenses of Agent in connection with protecting, storing, insuring, handling, maintaining or selling any Collateral and in connection with any workout, collection, bankruptcy, insolvency and other enforcement proceedings under any and all of the Financing Documents, and (iv) all costs and expenses incurred by Lenders in connection with any workout, collection, bankruptcy, insolvency and other enforcement proceedings under any and all Financing Documents; provided, to the extent that the costs and expenses referred to in this clause (iv) consist of fees, costs and expenses of counsel, Borrower shall be obligated to pay such fees, costs and expenses for only one counsel acting for all Lenders (other than Agent).

Section 9.2Indemnity.  Borrower hereby agrees to indemnify, pay and hold harmless Agent and Lenders and the officers, directors, employees, affiliates, agents, advisors and counsel of Agent and Lenders (each, an “Indemnitee,” and each of Agent and each Lender together with its respective officers, directors, employees and counsel, an “Indemnified Group”) from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (other than in respect of taxes, which shall be governed by Section 2.7, but including the reasonable fees and disbursements of counsel for such Indemnitee) in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnitee shall be designated a party thereto and including any such proceeding initiated by or on behalf of a Credit Party, and the reasonable expenses of investigation by engineers, environmental consultants and similar technical personnel and any commission, fee or compensation claimed by any broker (other than any broker retained by Agent or Lenders) asserting any right to payment for the transactions contemplated hereby, which may be imposed on, incurred by or asserted against such Indemnitee as a result of or in connection with the transactions contemplated hereby or by the other Financing Documents (including: (i)(A) as a direct or indirect result of the presence on or under, or escape, seepage, leakage, spillage, discharge, emission or release from, any property now or previously owned, leased or operated by Borrower, any Subsidiary or any other Person of any Hazardous Materials or any Hazardous Materials Contamination, (B) arising out of or relating to the offsite disposal of any materials generated or present on any such property or (C) arising out of or resulting from the environmental condition of any such property or the applicability of any governmental requirements relating to Hazardous Materials, whether or not occasioned wholly or in part by any condition, accident or event caused by any act or omission of Borrower or any Subsidiary, and (ii) proposed and actual extensions of credit under this Agreement) and the use or intended use of the proceeds of the Notes and Letters of Credit, except that Borrower shall have no obligation hereunder to an Indemnitee with respect to any liability resulting from the gross negligence or willful misconduct of such Indemnitee or a member of its Indemnified Group, as determined by a court of competent jurisdiction.  To the extent that the undertaking set forth in the immediately preceding sentence may be unenforceable, Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all such indemnified liabilities incurred by the Indemnitees or any of them.

Section 9.3Taxes.  Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, assessments or charges, including any interest or penalties thereon, at any time payable or ruled to be payable in respect of the

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existence, execution or delivery of this Agreement or the other Financing Documents or the issuance of the Notes or Letters of Credit and to indemnify and hold Agent and Lenders harmless against liability in connection with any such assessments, charges or taxes; provided, Borrower shall not be responsible under this Section 9.3 for: (i) any such fees or taxes arising from the gross negligence or willful misconduct of Agent or a Lender or (ii) property taxes imposed on Agent or any Lender in connection with the existence of the Notes or Letters of Credit.

Section 9.4Right to Perform.  If any Credit Party fails to perform any obligation hereunder or under any other Financing Document, Agent itself may, but shall not be obligated to, cause such obligation to be performed at Borrower’s expense and Borrower agrees to reimburse Agent therefor on demand.  All amounts owing hereunder or under any other Financing Document may be satisfied in full, subject to the provisions of subsection 2.1(a)(ii), through the making of Agent Advances.

ARTICLE X
AGENT

Section 10.1Appointment and Authorization.  Each Lender hereby irrevocably appoints and authorizes Agent to enter into each of the Security Documents on its behalf and to take such actions as Agent on its behalf and to exercise such powers under the Financing Documents as are delegated to Agent by the terms thereof, together with all such powers as are reasonably incidental thereto.  Except as otherwise expressly provided in Section 11.5 or by the terms of the Financing Documents, Agent is authorized and empowered to amend, modify, or waive any provisions of this Agreement or the other Financing Documents on behalf of Lenders.  The provisions of this Article X (except as expressly provided in Section 10.12 and subsection 10.13(d)) are solely for the benefit of Agent and Lenders and neither Borrower nor any other Credit Party shall have any rights as a third party beneficiary of any of the provisions hereof.  In performing its functions and duties under this Agreement, Agent shall act solely as agent of Lenders and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for Borrower or any other Credit Party.  Agent may perform any of its duties hereunder, or under the Financing Documents, by or through its agents or employees.

Section 10.2Agent and Affiliates.  Agent shall have the same rights and powers under the Financing Documents as any other Lender and may exercise or refrain from exercising the same as though it were not Agent, and Agent and its Affiliates may lend money to, invest in and generally engage in any kind of business with each Credit Party or Affiliate of any Credit Party as if it were not Agent hereunder.

Section 10.3Action by Agent.  The duties of Agent shall be mechanical and administrative in nature.  Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender.  Nothing in this Agreement or any of the Financing Documents, express or implied, is intended to or shall be construed to impose upon Agent any obligations in respect of this Agreement or any of the Financing Documents except as expressly set forth herein or therein.

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Section 10.4Consultation with Experts.  Agent may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts.

Section 10.5Liability of Agent.  Neither Agent nor any of its directors, officers, agents or employees shall be liable to any Lender for any action taken or not taken by it in connection with the Financing Documents, except that Agent shall be liable to the extent of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction.  Neither Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify: (i) any statement, warranty or representation made in connection with any Financing Document or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements specified in any Financing Document; (iii) the satisfaction of any condition specified in any Financing Document, except receipt of items required to be delivered to Agent; (iv) the validity, effectiveness, sufficiency or genuineness of any Financing Document, any Lien purported to be created or perfected thereby or any other instrument or writing furnished in connection therewith; (v) the existence or non-existence of any Default or Event of Default; or (vi) the financial condition of any Credit Party.  Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex, facsimile or electronic transmission or similar writing) believed by it to be genuine or to be signed by the proper party or parties.  Agent shall not be liable for any apportionment or distribution of payments made by it in good faith and if any such apportionment or distribution is subsequently determined to have been made in error the sole recourse of any Lender to whom payment was due but not made, shall be to recover from other Lenders any payment in excess of the amount to which they are determined to be entitled (and such other Lenders hereby agree to return to such Lender any such erroneous payments received by them).

Section 10.6Indemnification.  Each Lender shall, in accordance with its Pro Rata Share, indemnify Agent (to the extent not reimbursed by Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from Agent’s gross negligence or willful misconduct as determined by a court of competent jurisdiction) that Agent may suffer or incur in connection with the Financing Documents or any action taken or omitted by Agent hereunder or thereunder.  If any indemnity furnished to Agent for any purpose shall, in the opinion of Agent, be insufficient or become impaired, Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against even if so directed by Required Lenders until such additional indemnity is furnished.  The obligations of Lenders under this Section 10.6 shall survive the payment in full of the Obligations and the termination of this Agreement.

Section 10.7Right to Request and Act on Instructions.  Agent may at any time request instructions from Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the Financing Documents Agent is permitted or desires to take or to grant, and if such instructions are promptly requested, Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from any action or withholding any approval under any of the Financing Documents until it shall have received such instructions from Required Lenders

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or all or such other portion of the Lenders as shall be prescribed by this Agreement.  Without limiting the foregoing, no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting under this Agreement or any of the other Financing Documents in accordance with the instructions of Required Lenders and, notwithstanding the instructions of Required Lenders, Agent shall have no obligation to take any action if it believes, in good faith, that such action exposes Agent to any liability for which it has not received satisfactory indemnification in accordance with the provisions of Section 10.6.

Section 10.8Credit Decision.  Each Lender acknowledges that it has, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement.  Each Lender also acknowledges that it will, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under the Financing Documents.

Section 10.9Collateral Matters.  Lenders irrevocably authorize Agent, at its option and in its discretion, to release any Lien granted to or held by Agent under any Security Document: (i) upon termination of the Loan Commitment and payment in full of all Obligations and the expiration, termination or cash collateralization (to the satisfaction of Agent) of all Letters of Credit; or (ii) constituting property sold or to be sold or disposed of as part of or in connection with any disposition permitted under any Financing Document (it being understood and agreed that Agent may conclusively rely without further inquiry on a certificate of a Responsible Officer as to the sale or other disposition of property being made in full compliance with the provisions of the Financing Documents).  Upon request by Agent at any time, Lenders will confirm in writing Agent’s authority to release particular types or items of Collateral pursuant to this Section 10.9.

Section 10.10Agency for Perfection.  Agent and each Lender hereby appoint each other Lender as agent for the purpose of perfecting Agent’s security interest in assets which, in accordance with the Uniform Commercial Code in any applicable jurisdiction, can be perfected by possession or control.  Should any Lender (other than Agent) obtain possession or control of any such assets, such Lender shall notify Agent thereof, and, promptly upon Agent’s request therefore, shall deliver such assets to Agent in accordance with Agent’s instructions or transfer control to Agent in accordance with Agent’s instructions.  Each Lender agrees that it will not have any right individually to enforce or seek to enforce any Security Document or to realize upon any Collateral for the Loans unless instructed to do so by Agent, it being understood and agreed that such rights and remedies may be exercised only by Agent.

Section 10.11Notice of Default.  Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default except with respect to defaults in the payment of principal, interest and fees required to be paid to Agent for the account of Lenders, unless Agent shall have received written notice from a Lender or Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a “notice of default.”  Agent will notify each Lender of its receipt of any such notice.  Agent shall take such action with respect to such Default or Event of Default as may be requested by Required Lenders in accordance with the terms hereof.  Unless and until Agent has received any such

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request, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interests of Lenders.

Section 10.12Successor Agent.  Agent may resign at any time by giving written notice thereof to the Lenders and Borrower.  Upon any such resignation, Required Lenders shall have the right to appoint a successor Agent, reasonably acceptable to Borrower, which shall be an entity which is organized or licensed under the laws of the United States of America or any state thereof.  If no successor Agent shall have been so appointed by Required Lenders, and shall have accepted such appointment, within thirty (30) days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of Lenders, appoint a successor Agent reasonably acceptable to Borrower, which shall be an entity which is organized or licensed under the laws of the United States of America or any state thereof.  Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder.  After any retiring Agent’s resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent.

Section 10.13Disbursements of Loans; Payment.

(a)           Loan Advances, Payments and Settlements; Interest and Fee Payments.

(i)            Agent shall have the right, on behalf of Lenders, to disburse funds to Borrower for all Loans requested by Borrower pursuant to the terms of this Agreement.  Absent the prior receipt by Agent of a written notice from any Lender pursuant to which such Lender notifies Agent that such Lender shall cease making Loans (whether due to the existence of a Default or Event of Default or otherwise), Agent shall be conclusively entitled to assume, for purposes of the preceding sentence, that each Lender will fund its Pro Rata Share of all Loans requested by Borrower.  Each Lender shall reimburse Agent on demand, in accordance with the provisions of the immediately following paragraph, for all funds disbursed on its behalf by Agent pursuant to the first sentence of this clause (i), or if Agent so requests, each Lender will remit to Agent its Pro Rata Share of any Loan before Agent disburses the same to Borrower.  If Agent elects to require that each Lender make funds available to Agent, prior to a disbursement by Agent to Borrower, Agent shall advise each Lender by telephone, facsimile or electronic mail of the amount of such Lender’s Pro Rata Share of the Loan requested by Borrower or made pursuant to an Agent Advance no later than noon (Chicago time) on the date of funding of such Loan, and each such Lender shall pay Agent on such date such Lender’s Pro Rata Share of such requested Loan, in same day funds, by wire transfer to the Payment Account, or such other account as may be identified in writing by Agent to Lenders from time to time.  If any Lender fails to pay the amount of its Pro Rata Share within one (1) Business Day after Agent’s demand, Agent shall promptly notify Borrower, and Borrower shall immediately repay such amount to Agent.  Any repayment required pursuant to

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this Section 10.13 shall be without premium or penalty.  Nothing in this Section 10.13 or elsewhere in this Agreement or the other Financing Documents shall be deemed to require Agent to advance funds on behalf of any Lender or to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights that Agent or Borrower may have against any Lender as a result of any default by such Lender hereunder.

(ii)           On a Business Day of each week as selected from time to time by Agent, or more frequently (including daily), if Agent so elects (each such day being a “Settlement Date”), Agent will advise each Lender by telephone, facsimile or electronic mail of the amount of each such Lender’s Pro Rata Share of the Loan balance (including any Agent Advances) as of the close of business of the Business Day immediately preceding the Settlement Date.  In the event that payments are necessary to adjust the amount of such Lender’s actual Pro Rata Share of the Loan balance to such Lender’s required Pro Rata Share of the Loan balance as of any Settlement Date, the party from which such payment is due: (i) shall be deemed, irrevocably and unconditionally, to have purchased, without recourse or warranty, an undivided interest and participation in the Loans sufficient to equate such Lender’s actual Pro Rata Share of the Loan balance as of such Settlement Date with such Lender’s required Pro Rata Share of the Loans as of such date and (ii) shall pay Agent, without setoff or discount, in same day funds, by wire transfer to the Payment Account not later than noon (Chicago time) on the Business Day following the Settlement Date the full purchase price for such interest and participation, equal to one hundred percent (100%) of the principal amount of the Loans being purchased and sold.  In the event settlement shall not have occurred by the date and time specified in the immediately preceding sentence, interest shall accrue on the unsettled amount at the Federal Funds Rate, for the first three (3) days following the scheduled date of settlement, and thereafter at the Prime Rate plus the Prime Rate Margin.

(iii)         On each Settlement Date, Agent shall advise each Lender by telephone, facsimile or electronic mail of the amount of such Lender’s Pro Rata Share of principal, interest and fees paid for the benefit of Lenders with respect to each applicable Loan, to the extent of such Lender’s credit exposure with respect thereto, and shall make payment to such Lender not later than noon (Chicago time) on the Business Day following the Settlement Date of such amounts in accordance with wire instructions delivered by such Lender to Agent, as the same may be modified from time to time by written notice to Agent; provided, that, in the case such Lender is a Defaulted Lender, Agent shall be entitled to set off the funding short-fall against that Defaulted Lender’s respective share of all payments received from Borrower.

(iv)          The provisions of this subsection 10.13(a) shall be deemed to be binding upon Agent and Lenders notwithstanding the occurrence of any Default or Event of Default, or any insolvency or bankruptcy proceeding pertaining to Borrower or any other Credit Party.

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(b)           Reserved.

(c)           Return of Payments.

(i)            If Agent pays an amount to a Lender under this Agreement in the belief or expectation that a related payment has been or will be received by Agent from Borrower and such related payment is not received by Agent, then Agent will be entitled to recover such amount from such Lender on demand without setoff, counterclaim or deduction of any kind, together with interest accruing on a daily basis at the Federal Funds Rate.

(ii)           If Agent determines at any time that any amount received by Agent under this Agreement must be returned to Borrower or paid to any other Person pursuant to any insolvency law or otherwise, then, notwithstanding any other term or condition of this Agreement or any other Financing Document, Agent will not be required to distribute any portion thereof to any Lender.  In addition, each Lender will repay to Agent on demand any portion of such amount that Agent has distributed to such Lender, together with interest at such rate, if any, as Agent is required to pay to Borrower or such other Person, without setoff, counterclaim or deduction of any kind.

(d)           Defaulted Lenders.  The failure of any Defaulted Lender to make any Loan or any payment required by it hereunder shall not relieve any other Lender of its obligations to make such Loan or payment, but neither any Lender nor Agent shall be responsible for the failure of any Defaulted Lender to make a Loan or make any other payment required hereunder.  Notwithstanding anything set forth herein to the contrary, a Defaulted Lender shall not have any voting or consent rights under or with respect to any Financing Document or constitute a “Lender” (or be included in the calculation of “Required Lenders” hereunder) for any voting or consent rights under or with respect to any Financing Document.  At Borrower’s request, Agent or a Person reasonably acceptable to Agent and Borrower (whose acceptance shall not be unreasonably withheld) shall have the right with Agent’s consent and in Agent’s sole discretion (but shall have no obligation) to purchase from any Defaulted Lender, and each Defaulted Lender agrees that it shall, at Agent’s request, sell and assign to Agent or such Person, all of the lending commitments and commitment interests of that Defaulted Lender for an amount equal to the principal balance of all Loans held by such Defaulted Lender and all accrued interest and fees with respect thereto through the date of sale, such purchase and sale to be consummated pursuant to an executed Assignment Agreement.

Section 10.14  Documentation Agent, Syndication Agent, Administrative Agent and Lead Arranger.  Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Financing Document, none of Documentation Agent, Syndication Agent, Administrative Agent nor Lead Arranger shall have any duties or responsibilities, nor shall any of Documentation Agent, Syndication Agent, Administrative Agent or Lead Arranger have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this

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Agreement or any other Financing Document or otherwise exist against Documentation Agent, Syndication Agent, Administrative Agent or Lead Arranger.

ARTICLE XI
MISCELLANEOUS

Section 11.1Survival.  All agreements, representations and warranties made herein and in every other Financing Document shall survive the execution and delivery of this Agreement and the other Financing Documents.  The indemnities and agreements set forth in Article IX shall survive the payment of the Obligations and any termination of this Agreement.

Section 11.2No Waivers.  No failure or delay by Agent or any Lender in exercising any right, power or privilege under any Financing Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  The rights and remedies herein and therein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 11.3Notices.  All notices, requests and other communications to any party hereunder shall be in writing (including prepaid overnight courier, facsimile transmission or similar writing) and shall be given to such party at its address, facsimile number or electronic mail address set forth on the signature pages hereof (or, in the case of any such Lender who becomes a Lender after the date hereof, in an Assignment Agreement or in a notice delivered to Borrower and Agent by the assignee Lender forthwith upon such assignment) or at such other address, facsimile number or electronic mail address as such party may hereafter specify for the purpose by notice to Agent and Borrower; provided, that notices, requests or other communications shall be permitted by electronic mail only where expressly provided in the Financing Documents.  Each such notice, request or other communication shall be effective: (i) if given by facsimile or electronic mail, when such notice is transmitted to the facsimile number or electronic mail address specified by this Section 11.3 or (ii) if given by mail, prepaid overnight courier or any other means, when received at the applicable address specified by this Section.

Section 11.4Severability.  In case any provision of or obligation under this Agreement or the Notes or any other Financing Document shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

Section 11.5Amendments and Waivers.  Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by Borrower and the Required Lenders (and, if: (x) any amendment would increase either such Lender’s Loan Commitment Amount, by such Lender and (y) the rights or duties of Agent or LC Issuer are affected thereby, by Agent or the LC Issuer, as the case may be); provided, no such amendment or waiver shall, unless signed by each Lender affected thereby: (i) reduce the principal of, rate of interest on or any fees with respect to any Loan or Reimbursement Obligation; (ii) postpone the date fixed for any payment (other than a payment pursuant to subsection 2.1(c)) of principal of any Loan, or of any Reimbursement Obligation or of interest on any Loan or any Reimbursement Obligation or any fees payable to such Lenders hereunder or for

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any termination of any commitment; (iii) change the definition of the term Required Lenders or the percentage of Lenders which shall be required for Lenders to take any action hereunder; (iv)  amend or waive this Section 11.5 or the definitions of the terms used in this Section 11.5 insofar as the definitions affect the substance of this Section 11.5; (v) consent to the assignment, delegation or other transfer by any Credit Party of any of its rights and obligations under any Financing Document; (vi) increase the Borrowing Base solely through an amendment or modification of the forms of calculations set forth in the Borrowing Base Certificate; or (vii) amend, waive compliance with, consent to violations of or otherwise modify Section 5.13, subsections 4.13(a), 7.1(b)(iii) or 7.1(b)(iv), the “waterfall” provisions contained in Section 8.6 or the pro rata treatment of payments contained in Section 10.13.

Section 11.6Assignments; Participations.

(a)           Assignments.

(i)            Subject to the terms of this Section 11.6, any Lender may at any time assign to one (1) or more Eligible Assignees (each an “Assignee”) all or any portion of such Lender’s Loans and interest in the Loan Commitment, with the prior written consent of Agent and, solely to the extent no Event of Default has occurred and is continuing, Borrower (from which consent shall not be unreasonably withheld); provided, no such consents shall be required for an assignment by a Lender to a Lender or to an Affiliate of a Lender; provided, further, so long as no Event of Default pursuant to subsections 8.1(a), 8.1(f) or 8.1(g) has occurred and is then continuing, any assignment to Black Diamond Capital Management or any of its Affiliates shall require the consent of Borrower.  Except as Agent may otherwise agree, any such assignment shall be in a minimum aggregate amount equal to $3,000,000 or, if less, the assignor’s entire interests in the Loan Commitment and outstanding Loans.  Borrower and Agent shall be entitled to continue to deal solely and directly with such assigning Lender in connection with the interests so assigned to an Assignee until Agent shall have received and accepted an effective Assignment Agreement executed, delivered and fully completed by the applicable parties thereto and a processing fee of $3,500.  Any attempted assignment not made in accordance with this subsection 11.6(a) shall be treated as the sale of a participation under subsection 11.6(b). Borrower shall be deemed to have granted its consent to any assignment requiring its consent hereunder unless Borrower has expressly objected to such assignment within ten (10) days after notice thereof.

(ii)           From and after the date on which the conditions described above have been met: (i) such Assignee shall be deemed automatically to have become a party hereto and, to the extent that rights and obligations hereunder have been assigned to such Assignee pursuant to such Assignment Agreement, shall have the rights and obligations of a Lender hereunder and (ii) the assigning Lender, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment Agreement, shall be released from its rights (other than its indemnification rights) and obligations hereunder.  Upon the request of the Assignee (and, as applicable, the assigning Lender) pursuant to an effective

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Assignment Agreement, Borrower shall execute and deliver to Agent for delivery to the Assignee (and, as applicable, the assigning Lender) Notes in the aggregate principal amount of the Assignee’s percentage interest in the Loan Commitment (and, as applicable, Notes in the principal amount of that portion of the Loan Commitment retained by the assigning Lender retained by the assigning Lender).  Upon receipt by the assigning Lender of such Note, the assigning Lender shall return to Borrower any prior Note held by it or issue a lost note affidavit therefor.

(iii)         Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment Agreement delivered to it and a register for the recordation of the names and addresses of each Lender, and the commitments of, and principal amount of the Loans owing to, such Lender pursuant to the terms hereof.  The entries in such register shall be conclusive absent manifest error, and Borrower, Agent and Lenders may treat each Person whose name is recorded therein pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary.  Such register shall be available for inspection by Borrower and any Lender, at any reasonable time upon reasonable prior notice to Agent.

(iv)          Notwithstanding the foregoing provisions of this subsection 11.6(a) or any other provision of this Agreement, any Lender may at any time assign all or any portion of its Loans and its Note as collateral security to a Federal Reserve Bank or, as applicable, to such Lender’s trustee for the benefit of its investors (provided that no such assignment shall release any Lender from any of its obligations hereunder).

(v)            To the extent such a restriction is permitted by applicable law, any foreclosure upon the Loans or Note of any Lender granted as collateral security under subsection 11.6(a)(iv) above shall be subject to all other applicable provisions of this subsection 11.6(a).

(b)           Participations.  Any Lender may at any time sell to one (1) or more Eligible Assignees participating interests in its Loans, commitments or other interests hereunder (each. a “Participant”).  In the event of a sale by a Lender of a participating interest to a Participant: (a) such Lender’s obligations hereunder shall remain unchanged for all purposes, (b) Borrower and Agent shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations hereunder and (c) all amounts payable by Borrower shall be determined as if such Lender had not sold such participation and shall be paid directly to such Lender.  No Participant shall have any direct or indirect voting rights hereunder except with respect to any event described in Section 11.5 expressly requiring the unanimous vote of all Lenders or, as applicable, all affected Lenders.  Each Lender agrees to incorporate the requirements of the preceding sentence into each participation agreement which such Lender enters into with any Participant.  Borrower agrees that if amounts outstanding under this Agreement are due and payable (as a result of acceleration or otherwise), each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement and with respect to any Letter of Credit to the same extent as if the amount of

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its participating interest were owing directly to it as a Lender under this Agreement; provided that such right of set-off shall be subject to the obligation of each Participant to share with Lenders, and Lenders agree to share with each Participant, as provided in Section 8.5.

Section 11.7Headings.  Headings and captions used in the Financing Documents (including the Exhibits, Schedules and Annexes hereto and thereto) are included for convenience of reference only and shall not be given any substantive effect.

Section 11.8Confidentiality.  In handling any confidential information of any Credit Party, Agent and each Lender shall exercise the same degree of care that it exercises with respect to its own proprietary information to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement, except that disclosure of such information may be made: (i) to agents, employees, Subsidiaries, Affiliates, attorneys and advisors of such Person in connection with its present or prospective business relations with the Credit Parties arising out of the Financing Documents, provided, solely with respect to real property leases to which Borrower or its Subsidiaries are a party, such Lender shall inform each such Person of the agreements under this Section 11.8 and take reasonable actions to cause compliance by any such Person referred to in this clause (i) with this agreement (including, where appropriate, to cause any such Person to acknowledge its agreement to be bound by the agreements under this Section 11.8), (ii) to prospective transferees or purchasers of any interest in the Loans; provided, they have agreed to be bound by the provision of this Section 11.8 pursuant to an instrument for the benefit of Borrower (it being understood that each relevant Lender shall be solely responsible for obtaining such instrument), (iii) as required by law, regulation, rule, request or order, subpoena, judicial order or similar order and in connection with any litigation and (iv) as may be required in connection with the examination, audit or similar investigation of such Person.  Confidential information shall include only such information identified as such at the time provided to Agent and shall not include information that either: (A) is in the public domain, or becomes part of the public domain after disclosure to such Person through no fault of such Person, or (B) is disclosed to such Person by a third party; provided, Agent does not have actual knowledge that such third party is prohibited from disclosing such information.

Notwithstanding the foregoing, any Taxpayer (and each employee, representative or other agent of such Taxpayer) may disclose to any and all Persons, without limitation of any kind, the tax treatment and tax structure (in each case, within the meaning of Treasury Regulation Section 1.6011-4) of the Transaction and all materials of any kind (including opinions or other tax analyses) that are provided to such Taxpayer relating to such tax treatment and tax structure; provided that, with respect to any document or similar item that contains information concerning the tax treatment or tax structure of the Transaction as well as other information, this authorization shall only apply to such portions of the document or similar item that relate to the tax treatment or tax structure of the Transaction; provided, further, no such Person shall disclose any information relating to such tax treatment or tax structure to the extent nondisclosure is reasonably necessary in order to comply with applicable securities laws.

Section 11.9         GOVERNING LAW; SUBMISSION TO JURISDICTION.  THIS AGREEMENT, EACH NOTE AND EACH OTHER FINANCING DOCUMENT SHALL

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BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.  BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK AND IRREVOCABLY AGREES THAT, SUBJECT TO AGENT’S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER FINANCING DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS.  BORROWER EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS.  BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON BORROWER BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.

Section 11.10WAIVER OF JURY TRIAL.  EACH OF BORROWER, AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE FINANCING DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

Section 11.11Publication; Advertisement.

(a)           Publication.  Except as may be required by applicable law, rule or regulation of any applicable governmental authority, no Credit Party will directly or indirectly publish, disclose or otherwise use in any public disclosure, advertising material, promotional material, press release or interview, any reference to the name, logo or any trademark of Merrill Lynch or any of its Affiliates or any reference to this Agreement or the financing evidenced hereby, in any case without Merrill Lynch’s prior written consent.

(b)           Advertisement.  Each Credit Party hereby authorizes Merrill Lynch to publish the name of such Credit Party and the amount of the financing evidenced hereby in any “tombstone” or comparable advertisement which Merrill Lynch elects to publish.  In addition, each Credit Party agrees that Merrill Lynch may provide lending industry trade organizations with information necessary and customary for inclusion in league table measurements after the Closing Date.  With respect to any of the foregoing, Merrill Lynch shall provide Borrower with an opportunity to review and confer with Merrill Lynch regarding the contents of any such tombstone, advertisement or information, as applicable, prior to its publication.

Section 11.12Counterparts; Integration.  This Agreement and the other Financing Documents may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.  This Agreement and the other Financing Documents constitute the entire agreement and

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understanding among the parties hereto and supersede any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.

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[Signature Page Follows]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

BORROWER:
EQUINOX HOLDINGS, INC., a Delaware corporation
By:	/s/ Scott Rosen
	Name:	Scott Rosen
	Title:	Chief Financial Officer
	Address:		895 Broadway
			New York, New York 10003
Facsimile number:					(212) 780-9769
Borrower’s Account Designation:
JPMorgan Chase Bank
ABA No.:				0201 000 021
Account No.:				777634821
Account Name:				Equinox Holdings, Inc.
Reference:				Operating Account

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

AGENT AND LENDER:
MERRILL LYNCH CAPITAL, a division of Merrill Lynch Business Financial Services Inc., as Agent and a Lender
By:	/s/ Jennifer Kloud
	Name:		Jennifer Kloud
	Title:		Vice President
Address:	222 North LaSalle Street, 17th Floor Chicago, Illinois  60601 Attn:  Legal Department
Facsimile number:
Payment Account Designation:
Lasalle Bank, N.A.
Chicago, Illinois
ABA No.:		071000505
Account No.:		5800393182
Account Name:		Equinox Holdings, Inc.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

SYNDICATION AGENT:
UBS SECURITIES LLC, as Syndication Agent
By:	/s/ Thomas J.W. Archie			/s/ Olive O. Trumbo II
	Name:		Thomas J.W. Archie		Olive O. Trumbo II
	Title:		Director		Director
Address:		677 Washington Boulevard
		Stamford, CT 06912
Facsimile number:

LENDER:
UBS LOAN FINANCE LLC, as a Lender
By:	/s/ Wilfred V. Sant                  /s/ Thomas R. Salzano
	Name:			Wilfred V. Sant           Thomas R. Salzano
	Title:			Associate Director       Director
				Banking Products Services, US	Banking Products Services, US
Address:		677 Washington Boulevard
		Stamford, CT 06901
Facsimile number:			(203) 719-4176

Payment Account Designation:
UBS AG, Stamford Branch
ABA No.:	026007993
Account No.:	101 - WD - 897400-001
Account Name:	BPS Loan Finance LLC
Attn:	Deborah Porter

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

DOCUMENTATION AGENT AND LENDER:
WACHOVIA BANK, NATIONAL ASSOCIATION,as a Lender and as Documentation Agent
By:	/s/ Steven Nielson
	Name:		Steven Nielson
	Title:		Associate
Address:	1339 Chestnut St. 12th FL Widener Bldg.
	Philadelphia, PA 19107
Facsimile number:		267-321-6700
Payment Account Designation:
ABA No.:		53000219
Account No.:		1459168114011
Account Name:		Retail; Ref: Equinox Holdings

ANNEX A to Credit Agreement

COMMITMENT ANNEX

Lender	Loan Commitment Amount		Loan Commitment Percentage
Merrill Lynch Capital	$	15,000,000	60.00	%
UBS Loan Finance LLC	$	6,400,000	25.60	%
Wachovia Bank, National Association	$	3,600,000	14.40	%
TOTAL	$	25,000,000.00	100.00	%

ANNEX B to Credit Agreement

JW CHILDS COINVESTORS

JWC - EH, LLC
JWC Equity Funding II, Inc.
Bock Family Trust
Childs, John W.
Childs, Richard S.
Childs, James E.
Anderson, Samual A.
Healy, Timothy J.
Hopkins, Glenn A.
Horn, Jerry D.
Rudy, Raymond B.
Schmaltz, Dana
Chechesse Creek Trust
Segal, Steven G.
SGS 1995 Family Limited Partnership
Steven G. Segal 1995 Irrevocable Trust
SGS-III Family Limited Partnership
Suttin, Adam L.
Suttin Irrevocable Family Trust, Adam L.
Suttin Family Trust II
Suttin IRA, Eugene N.
Yun, Edward D.
Yun Family Trust
Kozlowski, Ed
Rebacliff, Baker & Dobbs, LLC
Schmidt, Benno C.
Soussou, Mario
Watts, Bill
OFS Investment Partners II

ANNEX C to Credit Agreement

CONDITIONS AND FACTORS FOR PERMITTED ACQUISITIONS

Any Permitted Acquisition, in order to be permitted hereunder must satisfy the following minimum requirements (unless waived or otherwise permitted by Agent):

(1)           the total consideration paid or payable by Borrower and its Subsidiaries for any single Permitted Acquisition (or related series of such acquisitions) made by Borrower and/or its Subsidiaries (including, without limitation all Debt and other “earnout” or other obligations assumed or incurred in connection therewith) shall not exceed $6,000,000 and after giving effect to such Permitted Acquisition, the aggregate consideration paid or payable by Borrower and its Subsidiaries for all Permitted Acquisitions made (including, without limitation all Debt assumed or incurred in connection therewith) shall not exceed $20,000,000; provided, however, no such acquisition may be made of any foreign Person or assets if the Foreign Subsidiary Advance Amount exceeds $15,000,000 or would exceed $15,000,000 by the consummation of any such acquisition.

(2)           Agent shall receive not less than five (5) Business Days prior written notice of such Permitted Acquisition, which notice shall include a reasonably detailed description of the proposed terms of such Acquisition and identify the anticipated closing date;

(3)           the acquired Person must be a Person engaged in substantially the same type of business as the Borrower and its Subsidiaries immediately prior to such Permitted Acquisition;

(4)           such Permitted Acquisition shall be structured as: (a) an asset acquisition by a wholly-owned Domestic Subsidiary or Foreign Subsidiary of Borrower or Intermediate Holdco, (b) a merger of the acquired Person with and into a Domestic Subsidiary or Foreign Subsidiary of Borrower, with such Domestic Subsidiary or Foreign Subsidiary as the surviving corporation in such merger, or (c) a merger of a Domestic Subsidiary or Foreign Subsidiary of Borrower or Intermediate Holdco with and into the acquired Person with the acquired Person as the surviving corporation in such merger and as a wholly owned Domestic Subsidiary or Foreign Subsidiary of Borrower or Intermediate Holdco, or (d) a purchase of one hundred percent (100%) of the capital stock of the acquired Person by Borrower, Intermediate Holdco or a wholly owned Domestic Subsidiary or Foreign Subsidiary of either of them;

(5)           Agent shall receive, not less than five (5) Business Days prior to the consummation of such Permitted Acquisition:

(a)           financial statements regarding the acquired Person or assets for the last two (2) fiscal years, with information for the immediately preceding fiscal year on a monthly basis, together with projected financial statements for the next twelve (12) month period of the acquired Person or assets; provided, however, Borrower shall, if such projections are not so delivered, deliver or cause to be delivered such projections to Agent within ninety (90) days of the consummation of such Permitted Acquisition; and

(b)           a Compliance Certificate calculated after giving effect to the proposed Permitted Acquisition which states that, among other things, no Default or Event of Default exist or shall exist after giving effect to such Permitted Acquisition and the incurrence of any Loans or other Debt or “earnout” or other liabilities or obligations in connection therewith.

(6)           (a) Agent, for the benefit of Lenders, is granted a first priority perfected security interest (subject only to Permitted Liens) in substantially all assets being acquired pursuant to such Permitted Acquisition in accordance with the terms of and to the extent and only to the extent required by Section 4.12 of the Credit Agreement, (b) in the case of a Permitted Acquisition involving the purchase of any acquired Person’s capital stock or other equity interests, the applicable Credit Party shall pledge all of the shares of capital stock or other equity interests of such acquired Person owned or otherwise acquired by it to Agent for the benefit of Lenders, and shall cause such acquired Person to guarantee the Obligations and to grant to Agent, for the benefit of Lenders, a first priority perfected security interest (subject only to Permitted Liens) in substantially all of such Person’s assets in accordance with the terms of the Security Documents, all to the extent and only to the extent required by Section 4.12 of the Credit Agreement, and (c) Agent will be provided such other documents and instruments as Agent shall reasonably request to perfect or maintain the perfection of its security interest in assets of the acquired Person, all such documents to be delivered no later than five (5) Business Days after the later to occur of the closing of such Permitted Acquisition and such request;

(7)           after giving effect to such Permitted Acquisition and the incurrence of any Loans or other Debt in connection therewith: (i) Borrower shall be in compliance on a pro forma basis with the covenants set forth in Section VI recomputed for the most recently ended month of Borrower for which information is available regarding the business being acquired, (ii) Borrower can demonstrate to Agent projected pro forma compliance with the covenants set forth in Article VI, for the twelve (12) month period immediately following the consummation of the proposed Permitted Acquisition based on the combined operating results of the acquired Person and of Borrower for the twelve (12) month period ending on the last day of the month for which financial statements for such acquired Person and for Borrower are available, and (iii) the availability under the Loan Limit is not less than $5,000,000;

(8)           such Permitted Acquisition shall be consensual and, if applicable, shall have been approved by the board of directors or similar governing body of the Person being acquired;

(9)           all consents necessary for such Permitted Acquisition (including such consents as the Agent deems reasonably necessary) have been acquired, except for those consents with respect to which the failure to obtain would not be reasonably expected to have a Material Adverse Effect;

(10)         as soon as practicable after the closing of such Permitted Acquisition, and in any event within fifteen (15) Business Days after such closing, Borrower shall deliver copies of all documents to be executed in connection with such Permitted Acquisition to Agent and Lenders;

(11)         the acquired Person must have had “pro forma EBITDA” (EBITDA plus any overhead expenses Borrower reasonably believes will no longer be incurred as a result of such acquisition) greater than $(1,000,000) for the immediately preceding four (4) fiscal quarters, taken as a whole;

(12)         to the extent Borrower or any other Credit Party issues any “earnouts” in connection with such acquisition, each such “earnout” shall:

(A)          not provide for any security;

(B)          not provide any guaranty or other support by Borrower or any Subsidiary of Borrower;

(C)          when combined with all other “earnout” obligations of Borrower and its Subsidiaries, not exceed an aggregate amount of $5,000,000 of potential principal, interest and other fees, costs and expenses outstanding at any time;

(D)          not contain any covenants;

(E)           provide that the obligations of Borrower or the applicable Subsidiary thereunder are fully subordinated to the Obligations on a basis satisfactory to Agent; and

(F)           be otherwise reasonably satisfactory to Agent; and

(13)         promptly after obtaining knowledge thereof, Borrower shall provide notice of any material change to any of the documents or information previously provided above.

ANNEX D to Credit Agreement

SELECTED UNRESTRICTED LEASE TERMS

Notwithstanding the foregoing, if tenant or a Related Entity is listed and traded on a nationally-recognized stock exchange, NASDAQ or an over-the-counter market, the transfer, sale or other disposition (including pursuant to a registration statement filed under the Securities Act of 1933, as amended) of the stock of such corporation shall not be deemed a transfer or assignment of this lease.  In addition, none of the following transactions shall be deemed a transfer or assignment (each a “No Consent Transfer”) and landlord’s consent to such transaction shall not be required:

(i)            transfers of the stock of tenant or a Related Entity to a Related Entity or to an entity into which tenant or a Related Entity is merged or consolidated or to which all or substantially all of tenant’s or a Related Entity’s assets are transferred; or

(ii)           a sale of tenant’s or a Related Entity’s business or a change of Control of tenant or a Related Entity by asset purchase, stock purchase or otherwise, to an entity which purchases substantially all of tenant’s or a Related Entity’s similar fitness centers and continues to operate such business at the [demised premises]; or

(iii)         an assignment to a Related Entity; or

(iv)          issuance of stock in tenant or a Related Entity pursuant to an initial public offering or a private placement; or

(v)            transfers of a majority of the stock in or assets of tenant or a Related Entity to a third party provided there is no material change in the then senior management of tenant;

“Control” of a person or entity means the possession, directly or indirectly, of the power to vote five percent (5%) or more of any class of voting securities of such person or entity or to direct or cause the direction of the management or policies of such person or entity, whether through the ownership of voting securities, by contract or otherwise.  “Controls” and “Controlled” shall have similar meanings, as the context requires.

“Related Entity” means an entity that Controls, is Controlled by or is in common Control with tenant.

EXHIBIT A to Credit Agreement

Form of Assignment Agreement

ASSIGNMENT AGREEMENT

This Assignment Agreement (this “Assignment Agreement”) is entered into as of                          . 200   by and between the Assignor named on the signature page hereto (“Assignor”) and the Assignee named on the signature page hereto (“Assignee”).  Reference is made to the Credit Agreement dated as of December 16, 2003 (as amended or otherwise modified from time to time, the “Credit Agreement”) by and among Equinox Holdings, Inc., a Delaware corporation (“Borrower”), the financial institutions party thereto from time to time, as Lenders, and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Agent.  Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Credit Agreement.

Assignor and Assignee hereby agree as follows:

1.             Assignor hereby sells and assigns to Assignee, and Assignee hereby purchases and assumes from Assignor the interests set forth on the schedule attached hereto (the “Schedule”), in and to Assignor’s rights and obligations under the Credit Agreement as of the effective date set forth on the Schedule (the “Effective Date”).  Such purchase and sale is made without recourse, representation or warranty except as expressly set forth herein.  On the Effective Date, Assignee shall pay to Assignor an amount equal to the aggregate amounts assigned pursuant to the Schedule (exclusive of unfunded portions of the Revolving Loan Commitment) and Assignor shall pay to Assignee a closing fee in respect of the transactions contemplated hereby in the amount specified on the Schedule.

2.             Assignor: (i) represents that as of the Effective Date, that it is the legal and beneficial owner of the interests assigned hereunder free and clear of any adverse claim, (ii) makes no other representation or warranty and assumes no responsibility with respect to any statement, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, any other Financing Documents or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any other Credit Party or any other Person or the performance or observance by any Credit Party of its Obligations under the Credit Agreement or any other Financing Documents or any other instrument or document furnished pursuant thereto.

3.             Assignee: (i) confirms that it has received a copy of the Credit Agreement and the other Financing Documents, together with copies of the most recent financial statements delivered pursuant thereto and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement; (ii) agrees that it will, independently and without reliance upon Agent, Assignor or any other Lender and based on such documents and information as it shall deem appropriate at

1

the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) appoints and authorizes Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the other Financing Documents as are delegated to Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (iv) agrees that it will perform in accordance with their terms all obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender; (v) represents that on the date of this Assignment Agreement it is not presently aware of any facts that would cause it to make a claim under the Credit Agreement; (vi) represents and warrants that Assignee is not a foreign person (i.e., a person other than a United States person for United States Federal income tax purposes) or, if it is a foreign person, that it has delivered to Agent and Borrower the documentation required to be delivered to Agent and Borrower by Section 13 below; and (vii) represents and warrants that it has experience and expertise in the making or the purchasing of loans such as the Loans, and that it has acquired the interests described herein for its own account and without any present intention of selling all or any portion of such interests.

4.             Each of Assignor and Assignee represents and warrants to the other party hereto that it has full power and authority to enter into this Assignment Agreement and to perform its obligations hereunder in accordance with the provisions hereof, that this Assignment Agreement has been duly authorized, executed and delivered by such party and that this Assignment Agreement constitutes a legal, valid and binding obligation of such party, enforceable against such party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and by general principles of equity.

5.             Upon the effectiveness of this Assignment Agreement pursuant to Section 13 below: (i) Agent shall register Assignee as a Lender, pursuant to the terms of the Credit Agreement, (ii) Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment Agreement, have the rights and obligations of a Lender thereunder, (iii) Assignor shall, to the extent provided in this Assignment Agreement, relinquish its rights and be released from its obligations under the Credit Agreement and (iv) Agent shall thereafter make all payments in respect of the interest assigned hereby (including payments of principal, interest, fees and other amounts) to Assignee.  Assignor and Assignee shall make all appropriate adjustments in payments for periods prior to the Effective Date by Agent or with respect to the making of this assignment directly between themselves.

6.             Each of Assignor and Assignee hereby agrees from time to time, upon request of the other such party hereto, to take such additional actions and to execute and deliver such additional documents and instruments as such other party may reasonably request to effect the transactions contemplated by, and to carry out the intent of, this Assignment Agreement.

7.             Neither this Assignment Agreement nor any term hereof may be changed, waived, discharged or terminated, except by an instrument in writing signed by the party (including, if applicable, any party required to evidence its consent to or acceptance of this Assignment Agreement) against whom enforcement of such change, waiver, discharge or termination is sought.

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8.             For the purposes hereof and for purposes of the Credit Agreement, the notice address of Assignee shall be as set forth on the Schedule.  Any notice or other communication herein required or permitted to be given shall be in writing and delivered in accordance with the notice provisions of the Credit Agreement.

9.             In case any provision in or obligation under this Assignment Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

10.          THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK

11.          This Assignment Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns.

12.          This Assignment Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures hereto were upon the same agreement.

13.          This Assignment Agreement shall become effective as of the Effective Date upon the satisfaction of each of the following conditions: (i) the execution of a counterpart hereof by each of Assignor and Assignee, (ii) the execution of a counterpart hereof by each of Agent and Borrower as evidence of its consent hereto to the extent required pursuant to subsection 11.6(a) of the Credit Agreement, (iii) the receipt by Agent of the administrative fee referred to in subsection 11.6(a) of the Credit Agreement, (iv) in the event Assignee is a foreign person (i.e., a person other than a United States person for United States Federal income tax purposes), the receipt by Agent and Borrower of Internal Revenue Service Forms W-8ECI, W-8BEN, W-8IMY (as applicable) or successors thereto or other applicable form, certificate or document prescribed by the United States Internal Revenue Service certifying as to such Lender’s entitlement to exemption from withholding or deduction of Taxes, properly completed and executed by Assignee, and (v) the receipt by Agent of originals or telecopies of the counterparts described above.

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[Signature Page Follows]

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The parties hereto have caused this Assignment Agreement to be executed and delivered as of the date first written above.

ASSIGNOR:
By:
Title:
ASSIGNEE:
By:
Title:
Consented to:
MERRILL LYNCH CAPITAL, a division of Merrill Lynch Business Financial Services Inc., as Agent
By:
Title:
[if no Event of Default:
EQUINOX HOLDINGS, INC., a Delaware corporation
By:
Title:	]

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SCHEDULE to Assignment Agreement

Assignor:

Assignee:

Effective Date:

Credit Agreement dated as of December 16, 2003 by and among Equinox Holdings, Inc., a Delaware corporation, as Borrower, the financial institutions party thereto from time to time, as Lenders, and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Agent

Interests Assigned:

Commitment/Loan	Loan Commitment
Assignor Amounts	$
Amounts Assigned	$
Assignor Amounts	$
(post-assignment)
Closing Fee:	$
Assignee Information:
Address for Notices:

Attention:

Telephone:

Facsimile:

5

EXHIBIT B to Credit Agreement

Form of Compliance Certificate

COMPLIANCE CERTIFICATE

EQUINOX HOLDINGS, INC.

Date:             , 200  

This certificate is given by                              , a Responsible Officer of Equinox Holdings, Inc., a Delaware corporation (“Borrower”), pursuant to subsection 4.1(c) of that certain Credit Agreement dated as of December 16, 2003 among Borrower, the Lenders from time to time party thereto and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Agent for Lenders (as such agreement may have been amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”).  Capitalized terms used herein without definition shall have the meanings set forth in the Credit Agreement.

The undersigned Responsible Officer hereby certifies to Agent and Lenders that:

(a)           the financial statements delivered with this certificate in accordance with subsection 4.1(a) and/or 4.1(b) of the Credit Agreement fairly present in all material respects the results of operations and financial condition of Borrowerand its Subsidiaries as of the dates of such financial statements;

(b)           I have reviewed the terms of the Credit Agreement and have made, or caused to be made under my supervision, a review in reasonable detail of the transactions and conditions of Borrower and the Subsidiaries during the accounting period covered by such financial statements;

(c)           such review has not disclosed the existence during or at the end of such accounting period, and I have no knowledge of the existence as of the date hereof, of any condition or event that constitutes a Default or an Event of Default, except as set forth in Schedule 1 hereto, which includes a description of the nature and period of existence of such Default or an Event of Default and what action Borrower has taken, is undertaking and proposes to take with respect thereto; and

(d)           Borrower is in compliance with the covenants contained in Article VI of the Credit Agreement, as demonstrated by the calculation of such covenants below, and Borrower has not defaulted in its agreements or covenants made in subsections 4.1(a), (b), (c), (g)(iii), (g)(iii), (l) or (m) thereof, except as set forth in Schedule 1 hereto.

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IN WITNESS WHEREOF, the undersigned officer has executed and delivered this certificate this        day of                  , 200  .

By
Name
Title	of Borrower

2

SCHEDULE 1 to Compliance Certificate

CAPITAL EXPENDITURES

(Section 6.1)

Capital Expenditures for the applicable measurement period (the “Defined Period”) are defined as follows:
Amount capitalized during the Defined Period by Borrower and its Consolidated Subsidiaries as capital expenditures for property, plant, and equipment or similar fixed asset accounts, including any such expenditures by way of acquisition of a Person or by way of assumption of Debt or other obligations, to the extent reflected as plant, property and equipment		$
Plus:	deposits made in the Defined Period in connection with property, plant, and equipment; less deposits of a prior period included above
Less:	Net Cash Proceeds of Asset Dispositions received during the Defined Period which: (i) Borrower or a Subsidiary is permitted to reinvest pursuant to the terms of the Credit Agreement and (ii) are included in capital expenditures above
	Proceeds of Property Insurance Policies received during the Defined Period which: (i) Borrower or a Subsidiary is permitted to reinvest pursuant to the terms of the Credit Agreement and (ii) are included in capital expenditures above
Capital Expenditures		$

3

Permitted Capital Expenditures (including carry forward of $               from prior Fiscal Year)	$
In Compliance	Yes/No

4

INTEREST COVERAGE RATIO

(Section 6.2)

Interest expense ($         ) (net of: (i) interest income ($        ), (ii) interest paid in kind ($        ) and (iii) amortization of capitalized fees and expenses incurred to consummate the transactions contemplated by the Operative Documents and included in interest expense ($        )) included in the determination of net income of Borrower and its Consolidated Subsidiaries for the Defined Period (“Total Interest Expense”) for the applicable measurement period (the “Defined Period”)		$
Operating Cash Flow for the Defined Period:
EBITDA for the Defined Period (calculated in the manner required by Annex A of the Compliance Certificate)		$
Less:	Capital Expenditures which are not Capital Expenditures for new fitness clubs (including any overhead Capital Expenditures which are appropriately allocated between new and existing fitness clubs)
	To the extent not already reflected in the calculation of EBITDA, other capitalized costs, defined as the gross amount capitalized during the Defined Period, as long term assets, other than Capital Expenditures
Operating Cash Flow		$
Interest Coverage Ratio (Ratio of Operating Cash Flow to Interest Expenses) for the Defined Period		to 1.0
Minimum Required Interest Coverage Ratio for the Defined Period		to 1.0
In Compliance		Yes/No

5

TOTAL DEBT TO EBITDA RATIO

(Section 6.3)

Total Debt:
Average daily principal balance of the Loans for the one (1) month period ending on the last day of the applicable measurement period (the “Defined Period”)		$
Plus:	Outstanding principal balance of Unsecured Notes Debt
	Outstanding principal balance of Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring any fixed asset (including through Capital Leases)
	Outstanding principal balance of unsecured Debt issued by landlords of real property leased by Subsidiaries
	Outstanding principal balance of all other Debt of Borrower and its Consolidated Subsidiaries as of the last day of the Defined Period
Total Debt		$
EBITDA for the Defined Period (calculated in the manner required by Annex A of the Compliance Certificate)		$
Ratio of Total Debt to EBITDA for the Defined Period		to 1.0
Maximum Permitted Ratio of Total Debt to EBITDA for the Defined Period		to 1.0
In Compliance		Yes/No

6

SENIOR DEBT TO EBITDA RATIO

(Section 6.4)

Senior Debt:
Total Debt as of the last day of the applicable measurement period (the “Defined Period”) (calculated in the manner required by Section 6.3 of the Compliance Certificate)		$
Less:	Outstanding principal balance of Unsecured Notes Debt
	Outstanding principal balance of Debt of Borrower and its Subsidiaries which is subordinated in right of payment to the Obligations, including Seller Subordinated Debt
Senior Debt		$
EBITDA for the Defined Period (calculated in the manner required by Annex A of the Compliance Certificate)		$
Ratio of Senior Debt to EBITDA for the Defined Period		to 1.0
Maximum Permitted Ratio of Senior Debt to EBITDA for the Defined Period		to 1.0
In Compliance		Yes/No

7

ANNEX A to Schedule I of Compliance Certificate

EBITDA

EBITDA for the applicable measurement period (the “Defined Period”) is defined as follows:
Net income (or loss) for the Defined Period of Borrower and its Consolidated Subsidiaries, but excluding: (a) the income (or loss) of any Person (other than Domestic Subsidiaries of Borrower) in which Borrower or any of its Domestic Subsidiaries has an ownership interest unless received by Borrower or its Domestic Subsidiary in a cash distribution; and (b) the income (or loss) of any Person accrued prior to the date it became a Domestic Subsidiary of Borrower or is merged into or consolidated with Borrower		$
Plus:	Any provision for (or less any benefit from) income and franchise taxes included in the determination of net income for the Defined Period
	Management fees paid to the Investors which are paid in accordance with Section 5.12 of the Credit Agreement
	Interest expense, net of interest income, deducted in the determination of net income for the Defined Period
	Amortization and depreciation deducted in the determination of net income for the Defined Period
	Losses (or less gains) from Asset Dispositions included in the determination of net income for the Defined Period (excluding sales,expenses or losses related to current assets)
	Other non-cash losses (or less gains) included in the determination of net income for the Defined Period and for which no cash outlay (or cash receipt) is foreseeable
	Expenses and fees included in the determination of net income and incurred during the Defined Period to consummate the transactions contemplated by the Operative Documents, but solely to the extent reported to Agent in writing within forty five (45) days of the Closing Date (including, without limitation, write-offs of previously unamortized financing costs)
	Extraordinary losses (or less gains) included in the determination of net income during the Defined Period, net of related tax effects

8

	Adjustments to reflect actual rent paid in cash (whether positive or negative)
Less:	Expenditures made after the Closing Date, but during the Defined Period, in connection with the consummation of the transactions contemplated by the Operative Documents, but not reflected in the pro forma balance sheet referenced in subsection 3.5(c) of the Credit Agreement and not deducted in the determination of net income
EBITDA for the Defined Period		$

For the purposes of calculating EBITDA for any Defined Period pursuant to any determination of the Total Debt to EBITDA Ratio or the Senior Debt to EBITDA Ratio:

(i) if at any time during such Defined Period Borrower or any of its Subsidiaries shall have made any disposition permitted under the Credit Agreement (other than any disposition which constitutes or is conducted in connection with the closure of fitness clubs), the EBITDA for such Reference Period shall be reduced by an amount equal to the EBITDA (if positive) attributable to the property that is the subject of such disposition for such Defined Period or increased by an amount equal to the EBITDA (if negative) attributable thereto for such Defined Period and (ii) if during the Defined Period Borrower or any of its Subsidiaries shall have made a Permitted Acquisition, EBITDA for the Defined Period shall be calculated after giving pro forma effect thereto in a manner reasonably agreed upon by and between Borrower and Agent.

9

EXHIBIT C to Credit Agreement

Form of Borrowing Base Certificate

EQUINOX HOLDINGS, INC.

Date:                     , 20   

This certificate is given by                               , a Responsible Officer of Equinox Holdings, Inc., a Delaware corporation (“Borrower”), pursuant to subsection 4.1(m) of that certain Credit Agreement dated as of December 16, 2003 by and among Borrower, the Lenders from time to time party thereto and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Agent for Lenders (as such agreement may have been amended, restated, supplemented or otherwise modified from time to time the “Credit Agreement”).  Capitalized terms used herein or in Schedule 1 hereto without definition shall have the meanings set forth in the Credit Agreement.

The undersigned Responsible Officer hereby certifies to Agent and Lenders that:

(a)           Attached hereto as Schedule 1 is a calculation of the Borrowing Base for Borrower as of the above date;

(b)           based on such schedule, the Borrowing Base as of the above date (the “Calculation Date”) is:

$                                 

IN WITNESS WHEREOF, the undersigned officer has executed and delivered this certificate this        day of                 , 20   .

By:

Name:

Title:

1

SCHEDULE 1 to Borrowing Base Certificate

BORROWING BASE CALCULATION

EQUINOX HOLDINGS, INC.

EBITDA-Based Availability Amount
EBITDA (as calculated on the Compliance Certificate) for the twelve (12) month period ending on the last day of the most recent month ending on or preceding the Calculation Date for which Agent has received all of the financial statements for such month required to be delivered pursuant to subsection 4.1(a) of the Credit Agreement		$
Less	Principal amount of Senior Debt (calculated in the manner required by Section 6.4 of the Compliance Certificate) outstanding on the Calculation Date	$
EBITDA-Based Availability Amount		$
Intermediate Holdco Entities-Based Availability Amount
Aggregate amount of Club Contribution from the Intermediate Holdco Entities for the twelve (12) month period ending on the last day of the most recent month ending on or preceding the Calculation Date for which Agent has received all of the financial statements for such month required to be delivered pursuant to subsection 4.1(a) of the Credit Agreement		$
Less	Club Contributions which are less than zero ($0) and are attributable to Intermediate Holdco Entities which were formed on or after the date which is one year before the Calculation Date	$
Plus:	Adjustments to reflect actual rent paid in cash (whether positive or negative)	$
Multiplied by 1.50		$
Less	Principal amount of Senior Debt (calculated in the manner required by Section 6.3 of the Compliance Certificate) outstanding on the Calculation Date
Intermediate Holdco Entities-Based Availability Amount		$

2

Borrowing Base (lesser of EBITDA-Based Availability Amount and Intermediate Holdco Entities-Based Availability Amount) $

3

EXHIBIT D to Credit Agreement

Form of Notice of Borrowing

NOTICE OF BORROWING

EQUINOX HOLDINGS, INC.

Date:             , 200  

This certificate is given by                                      , a Responsible Officer of Equinox Holdings, Inc., a Delaware corporation (“Borrower”), pursuant to Section [2.1(b)/2.2(d)] of that certain Credit Agreement dated as of December 16, 2003 by and among Borrower, the Lenders from time to time party thereto and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Agent for Lenders (as such agreement may have been amended, restated, supplemented or otherwise modified from time to time the “Credit Agreement”).  Capitalized terms used herein without definition shall have the meanings set forth in the Credit Agreement.

The undersigned Responsible Officer hereby gives notice to Agent of Borrower’s request to:  [complete as appropriate]

(a)           on [date] borrow $[               ] of Loans, which Loans shall be [Prime Rate Loans/LIBOR Loans having an Interest Period of           month(s)];

(b)           on [date] convert $[               ] of the aggregate outstanding principal amount of the [               ] Loan, bearing interest at the [               ] Rate, into a(n) [               ] Loan [and, in the case of a LIBOR Loan, having an Interest Period of [               ] month(s)];

(c)           on [date] continue $[               ] of the aggregate outstanding principal amount of the [               ] Loan, bearing interest at the LIBOR, as a LIBOR Loan having an Interest Period of [               ] month(s).

The undersigned officer hereby certifies that, both before and after giving effect to the request above: (i) each of the conditions precedent set forth in subsections 7.2(b), 7.2(c) and 7.2(d) of the Credit Agreement have been satisfied, (ii) all of the representations and warranties contained in the Credit Agreement and the other Financing Documents are true, correct and complete in all material respects as of the date hereof (except to the extent any such representation and/or warranty specifically relates to a specific date or dates, in which case such representation and/or warranty was true, correct and complete as of such earlier date(s), and (iii) no Default or Event of Default has occurred and is continuing on the date hereof.

IN WITNESS WHEREOF, the undersigned officer has executed and delivered this certificate this       day of                , 200  .

By
Name
Title	of Borrower

1

EX-12.1

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Exhibit 12.1

EQUINOX HOLDINGS, INC.
Computation of Earnings to Fixed Charges
All Figures in Thousands, Except Ratios

		Year ended December 31,											Three Months Ended March 31,						Twelve Months Ended March 31,
		1999		2000		2001		2002		2003			2003			2004			2004
Earnings Available for Fixed Charges
	Income (loss) before income taxes	$	7,818	$	3,001	$	5,007	$	5,961	$	(13,454	)	$	(527	)	$	(1,013	)	$	(13,940	)
	Add: Fixed Charges before Preferred Dividends		1,916		4,611		15,746		15,675		37,865			5,009			5,034			37,889
	Total	$	9,734	$	7,612	$	20,753	$	21,636	$	24,411		$	4,482		$	4,021		$	23,949
Fixed Charges
	Interest Expense	$	888	$	2,420	$	13,298	$	12,708	$	33,693		$	3,941		$	3,791		$	33,543
	Rental and Occupancy Expense		1,028		2,191		2,448		2,967		4,172			1,068			1,243			4,346
Total Fixed Charges Before Preferred Dividends		$	1,916	$	4,611	$	15,746	$	15,675	$	37,865		$	5,009		$	5,034		$	37,889
	Preferred Dividends		—		—		157		335		82			—			—			—
Total Fixed Charges		$	1,916	$	4,611	$	15,903	$	16,010	$	37,947		$	5,009		$	5,034		$	37,889
Coverage (deficit) Earnings to Fixed Charges			5.08		1.65		1.30		1.35	$	(13,536	)	$	(527	)	$	(1,013	)	$	(13,940	)

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Exhibit 12.1

EQUINOX HOLDINGS, INC. Computation of Earnings to Fixed Charges All Figures in Thousands, Except Ratios

EX-23.1

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Exhibit 23.1

Consent and Report of Independent Registered Public Accounting Firm

The Board of Directors
Equinox Holdings, Inc.

The audits referred to in our report dated June 16, 2004, included the related financial statement schedules as of December 31, 2003 and 2002, and for each of the years in the three-year period ended December 31, 2003, included in Amendment No. 2 to the registration statement on Form S-4 (Registration No. 333-112531) dated August 6, 2004. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in Amendment No. 2 to the registration statement on Form S-4 (Registration No. 333-112531) dated August 6, 2004.

/s/ KPMG LLP

New York, New York
August 6, 2004

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Exhibit 23.1

EX-25.1

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Exhibit 25.1

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM T-1

STATEMENT OF ELIGIBILITY UNDER
THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility of
a Trustee Pursuant to Section 305(b)(2)

U.S. BANK NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)

31-0841368
I.R.S. Employer Identification No.

800 Nicollet Mall
Minneapolis, Minnesota
(Address of principal executive offices)
55402
(Zip Code)

Michael M. Hopkins
U.S. Bank National Association
225 Asylum Street
Hartford, CT 06103
(860) 241-6820
(Name, address and telephone number of agent for service)

Equinox Holdings, Inc.
(Issuer with respect to the Securities)

Delaware	13-4034296
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
895 Broadway, 3rd floor New York, NY (Address of Principal Executive Offices)	10003 (Zip Code)

9.0% Senior Notes due 2009
(Title of the Indenture Securities)

FORM T-1

Item  1.  GENERAL INFORMATION.  Furnish the following information as to the Trustee.

a)

Name and address of each examining or supervising authority to which it is subject.

Comptroller of the Currency
Washington, D.C.

b)

Whether it is authorized to exercise corporate trust powers.

Yes

Item  2.  AFFILIATIONS WITH OBLIGOR.  If the obligor is an affiliate of the Trustee, describe each such affiliation.

        None

Items  3-15  Items 3-15 are not applicable because to the best of the Trustee's knowledge, the obligor is not in default under any Indenture for which the Trustee acts as Trustee.

Item  16.  LIST OF EXHIBITS:  List below all exhibits filed as a part of this statement of eligibility and qualification.

1.

A copy of the Articles of Association of the Trustee.*



2.

A copy of the certificate of authority of the Trustee to commence business.*



3.

A copy of the certificate of authority of the Trustee to exercise corporate trust powers.*



4.

A copy of the existing bylaws of the Trustee.*



5.

A copy of each Indenture referred to in Item 4. Not applicable.



6.

The consent of the Trustee required by Section 321(b) of the Trust Indenture Act of 1939, attached as Exhibit 6.



7.

Report of Condition of the Trustee as of December 31, 2003, published pursuant to law or the requirements of its supervising or examining authority, attached as Exhibit 7.

*

Incorporated by reference to Registration Number 333-67188.

2

NOTE

        The answers to this statement insofar as such answers relate to what persons have been underwriters for any securities of the obligors within three years prior to the date of filing this statement, or what persons are owners of 10% or more of the voting securities of the obligors, or affiliates, are based upon information furnished to the Trustee by the obligors. While the Trustee has no reason to doubt the accuracy of any such information, it cannot accept any responsibility therefor.

3

SIGNATURE

        Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the Trustee, U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Hartford, State of Connecticut on the 4th of August, 2004.

		U.S. BANK NATIONAL ASSOCIATION
		By:	/s/  MICHAEL M. HOPKINS Michael M. Hopkins Vice President
By:	/s/  ELIZABETH C. HAMMER Elizabeth C. Hammer Vice President

4

Exhibit 6

CONSENT

        In accordance with Section 321(b) of the Trust Indenture Act of 1939, the undersigned, U.S. BANK NATIONAL ASSOCIATION hereby consents that reports of examination of the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor.

Dated: August 4, 2004

U.S. BANK NATIONAL ASSOCIATION
By:	/s/  MICHAEL M. HOPKINS Michael M. Hopkins Vice President

By:
/s/  ELIZABETH C. HAMMER Elizabeth C. Hammer
Vice President

5

Exhibit 7
U.S. Bank National Association
Statement of Financial Condition
As of 3/31/2004
($000's)

			3/31/2004
Assets
	Cash and Due From Depository Institutions		$	7,180,778
	Federal Reserve Stock			0
	Securities			45,038,794
	Federal Funds			2,593,702
	Loans & Lease Financing Receivables			116,474,594
	Fixed Assets			1,789,213
	Intangible Assets			10,532,022
	Other Assets			7,996,466
		Total Assets	$	191,605,569
Liabilities
	Deposits		$	126,605,087
	Fed Funds			5,698,785
	Treasury Demand Notes			3,981,328
	Trading Liabilities			252,912
	Other Borrowed Money			23,295,560
	Acceptances			148,067
	Subordinated Notes and Debentures			5,807,310
	Other Liabilities			5,587,914
		Total Liabilities	$	171,376,963
Equity
	Minority Interest in Subsidiaries		$	1,005,645
	Common and Preferred Stock			18,200
	Surplus			11,677,397
	Undivided Profits			7,527,364
		Total Equity Capital	$	20,228,606
Total Liabilities and Equity Capital			$	191,605,569
To the best of the undersigned's determination, as of the date hereof, the above financial information is true and correct.

U.S. Bank National Association

By: /s/  FRANK P. LESLIE III Vice President

Date: May 25, 2004

6

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Exhibit 25.1

FORM T-1
NOTE
SIGNATURE
Exhibit 6 CONSENT
Exhibit 7 U.S. Bank National Association Statement of Financial Condition As of 3/31/2004 ($000's)

EX-99.1

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Exhibit 99.1

LETTER OF TRANSMITTAL
OF

EQUINOX HOLDINGS, INC.

OFFER TO EXCHANGE ANY AND ALL OUTSTANDING 9% SENIOR NOTES DUE 2009 ISSUED ON DECEMBER 16, 2003 FOR AN EQUAL PRINCIPAL AMOUNT OF ITS 9% SENIOR NOTES DUE 2009 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO THE PROSPECTUS DATED             , 2004

THE EXCHANGE OFFER WILL EXPIRE AT .5:00 P.M., NEW YORK CITY TIME, ON                        , 2004 UNLESS THE EXCHANGE OFFER IS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. IF THE EXPIRATION DATE HAS BEEN EXTENDED, TENDERS PURSUANT TO THE EXCHANGE OFFER AS OF THE PREVIOUSLY SCHEDULED EXPIRATION DATE MAY NOT BE WITHDRAWN AFTER THE DATE OF THE PREVIOUSLY SCHEDULED EXPIRATION DATE.

The Exchange Agent for the Exchange Offer is:

U.S. Bank National Association

By Mail, Hand Delivery or Overnight Courier:
U.S. Bank National
Association
Corporate Trust Services
60 Livingston Avenue
St. Paul, Minnesota 55107
Attention: Specialized Finance For Information, Call:
(800) 934-6802


By Facsimile Transmission:
(Eligible Institutions only. See Instruction 4.)
(651) 495-8158To Confirm Facsimile Transmissions:
(Eligible Institutions only. See Instruction 4.)
(800) 934-6802

DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TO A NUMBER, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. YOU MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE PROVIDED THEREFOR, WITH SIGNATURE GUARANTEE IF REQUIRED, AND COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW. SEE INSTRUCTION 8.

DESCRIPTION OF OLD NOTES (See Instructions 2 and 3.)

Name(s) and address(es) of Registered Owner(s) (Please fill in, if blank, exactly as name(s) appear(s) on Old Note(s))	Notes Tendered (Attach additional list if necessary)
	Certificate Number(s)(*)	Aggregate Principal Amount of Old Notes(*)	Principal Amount Tendered(**)
Total:
(*)    Need not be completed if Old Notes are being transferred by book-entry transfer.
(**)  Unless otherwise indicated, it will be assumed that ALL Old Notes described above are being tendered. See Instruction 3.

        The undersigned acknowledges that he, she or it has received and reviewed this Letter of Transmittal (the "Letter"), of Equinox Holdings, Inc. (the "Company"), relating to its offer to exchange up to $160,000,000 aggregate principal amount of its 9% Senior Notes Due 2009 (the "New Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of its issued and outstanding 9% Senior Notes due 2009 (the "Old Notes") from the registered holders thereof (each, a "Holder" and together, the "Holders"). The Prospectus, dated                        , 2004 (the "Prospectus") and this Letter together constitute the Company's offer to exchange (the "Exchange Offer") its Old Notes for a like principal amount of its New Notes from the Holders.

        For each Old Note accepted for exchange, the Holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. The New Notes will accrue interest from the last interest payment date on which interest was paid on the Old Notes. Accordingly, registered Holders of New Notes on the relevant record date for the first interest payment date following the consummation of the Exchange Offer will receive interest accruing from the last interest payment date on which interest was paid. Old Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer. Holders of Old Notes whose Old Notes are accepted for exchange will not receive any payment in respect of accrued interest on such Old Notes otherwise payable on any interest payment date the record date for which occurs on or after consummation of the Exchange Offer.

        This Letter is to be completed by a Holder of Old Notes either if certificates are to be forwarded herewith or if a tender of certificates for Old Notes, if available, is to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company ("DTC") (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in "The Exchange Offer—Book-Entry Transfer" section of the Prospectus. Holders of Old Notes whose certificates are not immediately available or who are unable to deliver their certificates or confirmation of the book-entry tender of their Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and all other documents required by this Letter to the Exchange Agent on or prior to the Expiration Date, must tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer—Guaranteed Delivery Procedures" section of the Prospectus. See Instruction 1. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.

MUTILATED, LOST, STOLEN OR DESTROYED NOTES

o
CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING NOTES THAT YOU OWN HAVE BEEN MUTILATED, LOST, STOLEN OR DESTROYED AND SEE INSTRUCTION 9.

BOOK-ENTRY TRANSFER

o	CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER FACILITY MAY DELIVER NOTES BY BOOK-ENTRY TRANSFER):
	Name of Tendering Institution

Account Number

Transaction Code Number

2

GUARANTEED DELIVERY

o	CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING. (PLEASE ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY):
	Name(s) of Registered Holder(s)

Window Ticket Number (if any)

Date of Execution of Notice of Guaranteed Delivery

Name of Institution that Guaranteed Delivery

If delivered by book-entry transfer:

Account Number at Book-Entry Transfer Facility

Transaction Code Number

o	CHECK HERE IF YOU ARE A BROKER-DEALER ENTITLED, PURSUANT TO THE TERMS OF THE REGISTRATION RIGHTS AGREEMENT REFERRED TO IN THE PROSPECTUS, TO RECEIVE, AND WISH TO RECEIVE, 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO WITHIN 90 DAYS AFTER THE EXPIRATION DATE.
	Name

Address

        If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of New Notes. If the undersigned is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges and represents that it will deliver a prospectus meeting the requirements of the Securities Act, in connection with any resale of such New Notes; however, by so acknowledging and representing and by delivering such a prospectus the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. If the undersigned is a broker-dealer that will receive New Notes, it represents that the Old Notes to be exchanged for the New Notes were acquired as a result of market-making activities or other trading activities. In addition, such broker-dealer represents that it is not acting on behalf of any person who could not truthfully make the foregoing representations.

3

NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.

LADIES AND GENTLEMEN:

        Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the aggregate principal amount of Old Notes described above. Subject to, and effective upon, the acceptance for exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such Old Notes as are being tendered hereby and any and all Notes or other securities issued, paid or distributed or issuable, payable or distributable in respect of such Notes on or after            , 2004.

        The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the undersigned's true and lawful agent, attorney-in-fact and proxy with respect to Old Notes tendered hereby, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), among other things, to cause the Old Notes to be assigned, transferred and exchanged.

        The undersigned hereby represents and warrants (a) that the undersigned has full power and authority to tender, sell, assign and transfer the Old Notes, (b) that when such Old Notes are accepted for exchange, the Company will acquire good and unencumbered title to such notes, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim and such Old Notes will not have been transferred to the Company in violation of any contractual or other restriction on the transfer thereof, (c) that any New Notes acquired in exchange for Old Notes tendered hereby will have been acquired in the ordinary course of business of the person receiving such New Notes, whether or not such person is the undersigned, (d) that neither the Holder of such Old Notes nor any such other person is participating in, intends to participate in, or has an arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of Old Notes or New Notes, (e) that neither the Holder of such Old Notes nor any such other person is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company and (f) that neither the Holder of such Old Notes nor such other person is acting on behalf of any person who could not truthfully make the foregoing representations and warranties.

        The undersigned acknowledges that this Exchange Offer is being made in reliance on interpretations by the staff of the Securities and Exchange Commission (the "SEC"), as set forth in no-action letters issued to third parties, that the New Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be offered for resale, resold and otherwise transferred by Holders thereof (other than any such Holder that is a broker-dealer or an "affiliate" of the Company within the meaning of Rule 405 of the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such Holder's business, at the time of commencement of the Exchange Offer such Holder has no arrangement or understanding with any person to participate in a distribution of such New Notes, and such Holder is not engaged in, and does not intend to engage in, a distribution of such New Notes. However, the SEC has not considered the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the SEC would make a similar determination with respect to the Exchange Offer as in other circumstances. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in a distribution of New Notes and has no arrangement or understanding to participate in a distribution of New Notes. If the undersigned is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes, it represents that the Old Notes to be exchanged for the New Notes were acquired by it as a result of market-making activities or other trading activities and acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes; however, by so acknowledging and by delivering a prospectus meeting the requirements of the

4

Securities Act, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act.

        The SEC has taken the position that such broker-dealers may fulfill their prospectus delivery requirements with respect to the New Notes (other than a resale of New Notes received in exchange for an unsold allotment from the original sale of the Old Notes) with the Prospectus. The Prospectus, as it may be amended or supplemented from time to time, may be used by certain broker-dealers (as specified in the Registration Rights Agreement referenced in the Prospectus) ("Participating Broker-Dealers") for a period of time, starting on the Expiration Date and ending on the close of business 90 days after the Expiration Date in connection with the sale or transfer of such New Notes. The Company has agreed that, for such period of time, it will make the Prospectus (as it may be amended or supplemented) available to such a broker-dealer which elects to exchange Old Notes, acquired for its own account as a result of market making or other trading activities, for New Notes pursuant to the Exchange Offer for use in connection with any resale of such New Notes. By accepting the Exchange Offer, each broker-dealer that receives New Notes pursuant to the Exchange Offer acknowledges and agrees to notify the Company prior to using the Prospectus in connection with the sale or transfer of New Notes and agrees that, upon receipt of notice from the Company of the happening of any event which makes any statement in the Prospectus untrue in any material respect or which requires the making of any changes in the Prospectus in order to make the statements therein (in light of the circumstances under which they were made) not misleading, such broker-dealer will suspend use of the Prospectus until (i) the Company has amended or supplemented the Prospectus to correct such misstatement or omission and (ii) either the Company has furnished copies of the amended or supplemented Prospectus to such broker-dealer or, if the Company has not otherwise agreed to furnish such copies and declines to do so after such broker-dealer so requests, such broker-dealer has obtained a copy of such amended or supplemented Prospectus as filed with the SEC. Except as described above, the Prospectus may not be used for or in connection with an offer to resell, a resale or any other retransfer of New Notes. A broker dealer that would receive New Notes for its own account for its Old Notes, where such Old Notes were not acquired as a result of market-making activities or other trading activities, will not be able to participate in the Exchange Offer.

        The undersigned will, upon request, execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the sale, assignment and transfer of the Old Notes tendered hereby.

        All authority conferred or agreed to be conferred in this Letter and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned.

        Tenders of Old Notes made pursuant to the Exchange Offer are irrevocable, except that Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date (or such later date as may apply if the Exchange Offer is extended). See information described in "The Exchange Offer—Withdrawal of Tenders" section of the Prospectus.

        The undersigned understands that tender of Old Notes pursuant to any of the procedures described in the "Procedures for Tendering" section of the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions set forth in the Prospectus, including the undersigned's representation that the undersigned owns the Old Notes being tendered. The undersigned recognizes that, under certain circumstances set forth in the Prospectus, the Company may not be required to accept for exchange any of the Notes tendered hereby.

5

        Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, please deliver the New Notes (and, if applicable, substitute certificates representing Old Notes for any Old Notes not exchanged) in the name of the undersigned or, in the case of a book-entry delivery of Old Notes, please credit the account indicated above maintained at the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under the box entitled "Special Delivery Instructions" below, please send the New Notes (and, if applicable, substitute certificates representing Old Notes for any Old Notes not exchanged) to the undersigned at the address shown above in the box entitled "Description of Old Notes."

THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS SET FORTH IN SUCH BOX ABOVE.

PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)

SIGNATURE(S) OF OWNER

Area Code and Telephone Number

Dated:

, 2004

If a Holder is tendering an Old Note, this Letter must be signed by the registered Holder(s) exactly as the name(s) appear(s) on the certificate(s) for the Old Note or by any person(s) authorized to become registered Holder(s) by endorsements and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, please set forth full title. See Instruction 4.

Name(s): (Please Type or Print)

Capacity (full time):

Address:

(Zip Code)

Area Code and Telephone Number:

Tax Identification or Social Security Number:

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GUARANTEE OF SIGNATURE(S)
(IF REQUIRED BY INSTRUCTION 4)

SIGNATURE(S) GUARANTEED BY

AN ELIGIBLE INSTITUTION: (AUTHORIZED SIGNATURE)

Name: (Please Type or Print)

Capacity (full time):

Name of Firm:

Address:

(Zip Code)

Area Code and Telephone Number:

Dated:	, 2004
(PLEASE COMPLETE ACCOMPANYING IRS FORM W-9 HEREIN. SEE INSTRUCTION 8.)

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SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 4, 5 and 6)

            To be completed ONLY if certificates for Old Notes not exchanged and/or New Notes are to be issued in the name of and sent to someone other than the person or persons whose signature(s) appear(s) on this Letter above, or if Old Notes delivered by book-entry transfer which are not accepted for exchange are to be returned by credit to an account maintained at the Book-Entry Transfer Facility other than the account indicated above.

Issue: New Notes and/or Old Notes to:

Name(s):	(Please type or print)
	(Please type or print)
Address:
	(Zip Code)

	(Tax Identification or Social Security No.) (See Substitute Form W-9 Included Herein)
o	Credit unexchanged Old Notes delivered by book-entry transfer to the Book-Entry Facility account set forth below:
(Book-Entry Transfer Facility Account Number, if applicable)

SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4, 5 and 6)

            To be completed ONLY if certificates for Old Notes not exchanged and/or New Notes are to be sent to someone other than the person or persons whose signature(s) appear(s) on this Letter above or to such person or persons at an address other than shown in the box entitled "Description of Old Notes" on this Letter above.

Mail: New Notes and/or Old Notes to:

Name(s):	(Please type or print)
	(Please type or print)
Address:
	(Zip Code)

(Tax Identification or Social Security No.)
(See Substitute Form W-9 Included Herein)

IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTFICATES FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.

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INSTRUCTIONS

        FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER TO EXCHANGE ANY AND ALL OUTSTANDING 9% SENIOR NOTES DUE 2009 ISSUED ON DECEMBER 16, 2003 OF EQUINOX HOLDINGS, INC. FOR 9% SENIOR NOTES DUE 2009 OF EQUINOX HOLDINGS, INC., WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO THE PROSPECTUS DATED                         , 2004

1.     Delivery of this Letter and Notes; Guaranteed Delivery Procedures.

        This Letter is to be completed by Holders of Old Notes either if certificates are to be forwarded herewith or if tenders are to be made pursuant to the procedures for tender by book-entry transfer set forth in "The Exchange Offer—Procedures for Tendering" section of the Prospectus and an Agent's Message is not delivered. Certificates for all physically tendered Old Notes, or Book-Entry Confirmation (as defined below), as the case may be, as well as a properly completed and duly executed Letter (or manually signed facsimile hereof) and any other documents required by this Letter, must be received by the Exchange Agent at the address set forth herein on or prior to the Expiration Date, or the tendering Holder must comply with the guaranteed delivery procedures set forth below. Old Notes tendered hereby must be in denominations of principal amount of $1,000 and any integral multiple thereof. Tenders by book-entry transfer may also be made by delivering an Agent's Message in lieu of this Letter. "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility to, and received by, the Exchange Agent and forming a part of a Book-Entry Confirmation (as defined below), which message states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Old Notes which are the subject of the Book-Entry Confirmation that such participant has received and agrees to be bound by the Letter and that the Company may enforce the Letter against such participant. "Book-entry confirmation" means a timely confirmation of book-entry transfer of Notes into the Exchange Agent's account at the Book-Entry Transfer Facility.

        Holders whose certificates are not immediately available or who cannot deliver their certificates and all other required documents to the Exchange Agent prior to 5:00 P.M., New York City time, on the Expiration Date or who cannot complete the procedure for book-entry transfer prior to 5:00 P.M., New York City time, on the Expiration Date may tender their Old Notes by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer—Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to such procedures: (i) such tender must be made by or through an Eligible Institution (as defined below); (ii) prior to 5:00 P.M., New York City time, on the Expiration Date, the Exchange Agent must receive from such Eligible Institution a properly completed and duly executed Letter (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by facsimile transmission, mail or hand delivery), setting forth the name and address of the Holder of Old Notes and the amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that within three New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates for all physically-tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and any other documents required by this Letter will be deposited by the Eligible Institution with the Exchange Agent, and (iii) the certificates for all physically-tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by this Letter, are received by the Exchange Agent within three NYSE trading days after the date of execution of the Notice of Guaranteed Delivery.

        THE METHOD OF DELIVERY OF THIS LETTER, THE OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDERS, BUT THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY

9

RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF OLD NOTES ARE SENT BY MAIL, IT IS RECOMMENDED THAT THE MAILING BE BY REGISTERED OR CERTIFIED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.

        THE COMPANY WILL NOT ACCEPT ANY ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS. EACH TENDERING HOLDER, BY EXECUTION OF A LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF OR AGENT'S MESSAGE IN LIEU THEREOF), WAIVES ANY RIGHT TO RECEIVE ANY NOTICE OF THE ACCEPTANCE OF SUCH TENDER.

2.     Inadequate Space.

        If the space provided in the box captioned "Description of Notes Tendered" above is inadequate, the certificate number(s) and/or the principal amount of Notes and any other required information should be listed on a separate signed schedule and such schedule should be attached to this Letter.

3.     Partial Tenders (Not Applicable to Noteholders Who Tender by Book-Entry Transfer).

        If fewer than all of the Old Notes evidenced by a submitted certificate are to be tendered, the tendering Holder(s) should fill in the aggregate principal amount of Old Notes to be tendered in the box entitled "Description of Old Notes—Principal Amount of Notes Tendered." A reissued certificate representing the balance of nontendered Old Notes will be sent to such tendering Holder(s), unless otherwise provided in the appropriate box on this Letter, promptly after the Expiration Date. ALL OF THE OLD NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED.

4.     Signatures on this Letter; Bond Powers and Endorsements.

        If this Letter is signed by the registered Holder(s) of the Notes tendered hereby, the signature(s) must correspond exactly with the name(s) as written on the face of the certificate(s) without any change whatsoever.

        If any of the Old Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter.

        If any of the Old Notes are registered in different name(s) on several certificates, it will be necessary to complete, sign and submit as many separate Letters (or facsimiles thereof or Agent's Messages in lieu thereof) as there are different registrations of certificates.

        If this Letter is signed by the registered Holder(s) of the Old Notes specified herein and tendered hereby, no endorsements of certificates or separate bond powers are required. If, however, the New Notes are to be issued, or any untendered Old Notes are to be reissued, to a person other than the registered Holder, then endorsements of any certificates transmitted hereby or separate bond powers are required. Signatures on such certificate(s) must be guaranteed by an Eligible Institution (as defined below).

        If this Letter is signed by a person other than the registered Holder(s) of any certificate(s) specified herein, such certificate(s) must be endorsed or accompanied by appropriate bond powers, in either case signed exactly as the name or names of the registered Holder(s) appear(s) on the certificate(s) and the signatures on such certificate(s) must be guaranteed by an Eligible Institution.

        If this Letter or any certificates or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative

10

capacity, such persons should so indicate when signing and must submit proper evidence satisfactory to the Company of such persons' authority to so act, unless such submission is waived by the Company.

        ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON BOND POWERS REQUIRED BY THIS INSTRUCTION 4 MUST BE GUARANTEED BY A FIRM WHICH IS A BANK, BROKER, DEALER, CREDIT UNION, SAVINGS ASSOCIATION OR OTHER ENTITY WHICH IS A MEMBER IN GOOD STANDING OF A RECOGNIZED MEDALLION PROGRAM APPROVED BY THE SECURITITES TRANSFER ASSOCIATION INC., INCLUDING THE SECURITIES TRANSFER AGENTS MEDALLION PROGRAM (STAMP), THE STOCK EXCHANGE MEDALLION PROGRAM (SEMP) AND THE NEW YORK STOCK EXCHANGE MEDALLION SIGNATURE PROGRAM (MSP), OR ANY OTHER "ELIGIBLE GUARANTOR INSTITUTION" (AS DEFINED IN RULE 17AD-15 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED) (EACH OF THE FOREGOING, AN "ELIGIBLE INSTITUTION").

        SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE INSTITUTION, PROVIDED THE OLD NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF OLD NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A SECURITY POSITION LISTING AS THE HOLDER OF SUCH OLD NOTES) WHO HAS NOT COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY INSTRUCTIONS" IN THIS LETTER, OR (II) FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION.

5.     Special Issuance and Delivery Instructions.

        Tendering Holders of Old Notes should indicate in the applicable box the name and address to which New Notes issued pursuant to the Exchange Offer and/or substitute certificates evidencing Old Notes not exchanged are to be issued or sent, if different from the name or address of the person signing this Letter. In the case of issuance in a different name, the employer identification or social security number of the person named must also be indicated. Holders tendering Old Notes by book-entry transfer may request that Old Notes not exchanged be credited to such account maintained at the Book-Entry Transfer Facility as such Holder may designate herein. If no such instructions are given, such Old Notes not exchanged will be returned to the name and address of the person signing this Letter.

6.     Transfer Taxes.

        Except as otherwise provided in this Instruction 6, the Company will pay any transfer taxes with respect to the transfer of Old Notes to it or its order pursuant to the Exchange Offer. If, however, New Notes or substitute Old Notes not exchanged are to be delivered to or registered or issued in the name of, any person other than the registered Holder(s) of the Old Notes tendered hereby, or if tendered Old Notes are registered in the name of any person other than the person(s) signing this Letter, or if a transfer tax is imposed for any reason other than the transfer of Old Notes to the Company or its order pursuant to the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered Holder(s) or any other person) payable on account of the transfer to such person will be payable by the Holder(s) tendering hereby. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering Holder(s).

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7.     Waiver of Conditions.

        The Company reserves the absolute right to waive satisfaction of any or all conditions enumerated in the Prospectus.

8.     Taxpayer Identification Number; Backup Withholding; Substitute Form W-9.

        Under U.S. federal income tax law, a Holder whose tendered Notes are accepted for payment pursuant to the Exchange Offer may be subject to backup withholding at a rate of 28%. To prevent backup withholding on any payment made to a tendering Holder pursuant to the Exchange Offer, such Holder is required to notify the Exchange Agent of such Holder's current taxpayer identification number ("TIN") by completing the enclosed Substitute Form W-9, certifying that the TIN provided on that form is correct (or that such Holder is awaiting a TIN), and that (i) the tendering Holder has not been notified by the Internal Revenue Service that such Holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) after being so notified, the Internal Revenue Service has notified such Holder that such Holder is no longer subject to backup withholding. If the Exchange Agent is not provided with the correct TIN, such Holder may be subject to a $50 penalty imposed by the Internal Revenue Service and payments that are made to such Holder with respect to Notes tendered pursuant to the Exchange Offer may be subject to backup withholding (see below).

        Each tendering Holder is required to give the Exchange Agent the TIN (e.g., Social Security number or employer identification number) of the record Holder of the Notes. If the Notes are registered in more than one name or are not registered in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. A tendering Holder who does not have a TIN may check the box in Part 3 of the Substitute Form W-9 if such tendering Holder has applied for a number or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the tendering Holder must also complete the "Certificate of Awaiting Taxpayer Identification Number" below in order to avoid backup withholding. If the box is checked, payments made will be subject to backup withholding unless the tendering Holder has furnished the Exchange Agent with his or her TIN by the time payment is made. A tendering Holder who checks the box in Part 3 in lieu of furnishing such Holder's TIN should furnish the Exchange Agent with such Holder's TIN as soon as it is received.

        Certain Holders of Old Notes (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding requirements. To avoid possible erroneous backup withholding, a tendering Holder who is exempt from backup withholding should complete the Substitute Form W-9 by providing his or her correct TIN, signing and dating the form, and writing exempt on the face of the form. A tendering Holder who is a foreign individual or a foreign entity should also submit to the Exchange Agent a certification of foreign status on the appropriate IRS form (which the Exchange Agent will provide upon request), signed under penalty of perjury, attesting to the Holder's exempt status. Tendering Holders are urged to consult their own tax advisors to determine whether they are exempt from these backup withholding and reporting requirements.

        If backup withholding applies, the Exchange Agent is required to withhold 28% of any payments to be made to the Holder under the New Notes. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained by filing a tax return with the Internal Revenue Service. The Exchange Agent cannot refund amounts withheld by reason of backup withholding.

9.     Mutilated, Lost, Destroyed or Stolen Certificates.

        Any Holder whose certificate(s) representing Old Notes have been mutilated, lost, destroyed or stolen should promptly notify the Exchange Agent at the address included herein or at (800) 934-6802

12

for further instructions. This Letter and related documents cannot be processed until the procedures for replacing mutilated, lost, destroyed or stolen certificate(s) have been followed.

10.   Withdrawal Rights.

        Except as otherwise provided herein, tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. For a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Exchange Agent at the address set forth above prior to 5:00 p.m., New York City time, the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person who tendered the Old Notes to be withdrawn, (ii) identify the Old Notes to be withdrawn, including the aggregate principal amount of such Old Notes or, in the case of Notes transferred by book-entry transfer, specify the number of the account at the Book-Entry Transfer Facility from which the Old Notes were tendered and specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility; (iii) contain a statement that such Holder is withdrawing its election to have such Old Notes exchanged; (iv) be signed by the holder in the same manner as the original signature on the letter of transmittal by which such Old Notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer to have the trustee with respect to the Old Notes register the transfer of such Old Notes in the name of the person withdrawing the tender, and; (v) specify the name in which such Old Notes are registered, if different from that of the person who tendered the Old Notes.

        All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties.

        Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer and no New Notes will be issued with respect thereto unless the Old Notes so withdrawn are validly retendered. Properly withdrawn Old Notes may be retendered by following the procedures described above at any time on or prior to 5:00 p.m., New York City time, on the Expiration Date with respect to such Old Notes.

        Any Old Notes that have been tendered for exchange but which are not exchanged for any reason will be returned to the tendering Holder thereof without cost to such Holder (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures set forth in "The Exchange Offer—Book-Entry Transfer" section of the Prospectus, such Old Notes will be credited to an account maintained with the Book-Entry Transfer Facility for the Old Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer.

11.   Requests For Assistance and Additional Copies.

        Questions and requests for assistance regarding this Letter, as well as requests for additional copies of the Prospectus, this Letter, Notices of Guaranteed Delivery and other related documents may be directed to the Exchange Agent at its address and telephone number set forth on the front of this Letter.

        IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.

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TO BE COMPLETED BY ALL TENDERING NOTEHOLDERS
(See Instruction 9)

Payor's Name: U.S. Bank National Association
SUBSTITUTE FORM W-9 Department of the Treasury Internal Revenue Service Payer's Request for Taxpayer Identification Number ("TIN") and Certification	Name: Address: Check appropriate box: Individual    o                                Corporation     o Partnership    o                               Other (specify)     o
Part 1—Please provide your TIN on the line at right and certify by signing and dating below.		Social Security Number OR Employer Identification Number
Part 2—Certification—Under penalties of perjury, I certify that:
(1)    The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me) and
(2)    I am not subject to backup withholding because: (a) I am exempt from backup withholding; or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest on dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding and
(3)    I am a U.S. person (including a U.S. resident alien).

NAME
	(Please Print)

ADDRESS
	(Include Zip Code)

SIGNATURE

DATE

Certification Instructions—You must cross out Item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of under-reporting interest on dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS stating that you are no longer subject to backup withholding, do not cross out such item (2).

Part 3—Awaiting TIN o

YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE
BOX IN PART 3 OF SUBSTITUTE FORM W-9

CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER

        I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that, if I do not provide a taxpayer identification number by the time of payment, all reportable payments made to me will be subject to backup withholding but that such amounts will be refunded to me if I then provide a Taxpayer Identification Number within sixty (60) days.

Date 

NOTE:    FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 28% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.

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        Questions and requests for assistance may be directed to the Exchange Agent at its address and telephone number set forth below. Additional copies of the Prospectus, this Letter or other related Exchange Offer materials may be obtained from the Exchange Agent or from brokers, dealers, commercial banks or trust companies.

The Exchange Agent for the Offer is:
U.S. Bank National Association

By Mail, Hand Delivery or Overnight Courier:
U.S. Bank National Association
Corporate Trust Services
60 Livingston Avenue
St. Paul, Minnesota 55107
Attention: Specialized Finance By Facsimile Transmission:
(Eligible Institutions only)
(651) 495-8158

To Confirm Facsimile Transmissions:
(800) 934-6802

The Exchange Agent for the Offer is:
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Call: (800) 934-6802

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