Sports Club Co Inc – ‘424B1’ on 4/29/99

As of:  Thursday, 4/29/99   ·   Accession #:  950148-99-972   ·   File #:  333-76429

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Prospectus   —   Rule 424(b)(1)
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Document/Exhibit                   Description                      Pages   Size 

 1: 424B1       Prospectus                                           111    591K 

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                                             As filed pursuant to Rule 424(b)(1)
                                          under the Securities Act of 1933
                                    Registration No. 333-76429

[THE SPORTS CLUB COMPANY, INC. LOGO]

OFFER TO EXCHANGE 
11 3/8% SERIES B SENIOR SECURED NOTES DUE 2006
FOR ANY AND ALL 
OUTSTANDING 11 3/8% SENIOR SECURED NOTES DUE 2006 
OF THE SPORTS CLUB COMPANY, INC.
($100,000,000 AGGREGATE PRINCIPAL AMOUNT OUTSTANDING) 

THE 11 3/8% SENIOR SECURED NOTES DUE 2006 --                                    

- were originally offered and sold on April 1, 1999 pursuant to Rule 144A of the
Securities and Exchange Commission                                          

- will mature on March 15, 2006                                                 
- bear interest at the annual rate of 11 3/8%, payable semi-annually beginning  
on September 15, 1999                                                       
- are secured by certain real estate assets (and related fixtures and           
  equipment), our ownership interest in certain of our subsidiaries, and cash in
a cash disbursement account, subject to customary exceptions                
- are subject to redemption or repurchase by us under certain circumstances     
- are not listed on any securities exchange or admitted to trading on the       
National Association of Securities Dealers Automated Quotation System       

THE 11 3/8% SERIES B SENIOR SECURED NOTES DUE 2006 --                           

- are offered in exchange for an equal principal amount of our outstanding      
11 3/8% Senior Secured Notes                                                
- will evidence the same indebtedness as our outstanding 11 3/8% Senior Secured 
 Notes and will be entitled to the benefits of the indenture under which those
notes were issued                                                           
- are substantially identical in all material respects to our outstanding       
11 3/8% Senior Secured Notes, except for certain transfer restrictions and  
registration rights relating to the outstanding 11 3/8% Senior Secured Notes

THE EXCHANGE OFFER --                                                           

- expires at 5:00 P.M., New York City time, on May 31, 1999, unless extended    
- is our offer to exchange $1,000 principal amount of our 11 3/8% Series B      
Senior Secured Notes for each $1,000 principal amount of our outstanding    
11 3/8% Senior Secured Notes                                                
- is made to satisfy our obligations under a Registration Rights Agreement which
we entered into with the initial purchasers of our 11 3/8% Senior Secured   
Notes                                                                       
- will terminate the rights of most holders of any outstanding 11 3/8% Senior   
Secured Notes under the Registration Rights Agreement                       
- is not a taxable exchange for U.S. Federal income tax purposes                
- is not subject to any condition other than that the Exchange Offer not violate
  applicable law or any applicable interpretation of the Staff of the Securities
and Exchange Commission                                                     

    YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 9 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.                          

 NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE NOTES OR DETERMINED THAT THIS PROSPECTUS IS       
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 

The date of this Prospectus is April 29, 1999.

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FORWARD-LOOKING STATEMENTS

    Throughout this Prospectus we make "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities  
Exchange Act of 1934. Forward-looking statements include the words "may,"       
"will," "estimate," "continue," "believe," "expect" or "anticipate" and other   
similar words. The forward-looking statements contained in this Prospectus are  
generally located in the material set forth under the headings "Prospectus      
Summary," "Risk Factors," "Capitalization," "Management's Discussion and        
Analysis of Financial Condition and Results of Operations" and "Business" but   
may be found in other locations as well. These forward-looking statements       
generally relate to our plans and objectives for future operations and are based
upon management's reasonable estimates of future results or trends. Although we 
believe that our plans and objectives reflected in or suggested by such         
forward-looking statements are reasonable, such plans or objectives may not be  
achieved. Actual results may differ from projected results due to unforseen     
developments including developments relating to the following:                  

   - the availability and adequacy of our cash flow and financing facilities
    for our requirements, including payment of the Series B Senior Secured
Notes,                                                            

    - our ability to attract and retain members, which depends on competition,
market acceptance of new and existing sports and fitness clubs and
 services, demand for health and fitness club services generally and
competitive pricing trends in the health and fitness market,      

- our ability to successfully develop new sports and fitness clubs,   

- disputes or other problems arising with our development partners or 
landlords,                                                        

     - changes in economic, competitive, demographic and other conditions in the
    geographic areas in which we operate, including business interruptions
resulting from earthquakes or other causes,                       

- competition,                                                        

- changes in personnel or compensation, and                           

 - changes in statutes and regulations or legal proceedings and rulings.

 We will not update forward-looking statements even though our situation
will change in the future.                                                      

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PROSPECTUS SUMMARY

The following is qualified in its entirety by, and should be read in  
conjunction with, the more detailed information and financial data, including   
the consolidated financial statements and notes thereto, appearing elsewhere in 
this Prospectus. Prospective investors should carefully consider the information
set forth under "Risk Factors."                                                 

THE COMPANY 

  We currently operate twelve high-end sports and fitness clubs ("Clubs"),
under the "Sports Club" and "Spectrum Club" names, including The Sports Club/LA 
and Reebok Sports Club/NY. Our Clubs offer a wide range of fitness and          
recreation options and other amenities, and are marketed to affluent, health    
conscious individuals who desire a service oriented state-of-the-art club. We   
believe that there is opportunity for continued revenue and profit growth at our
existing Clubs and through the development of new Clubs.                        

Our Clubs are conveniently located in spacious, modern facilities that
typically include fitness centers, swimming pools and basketball courts. Our    
premier Clubs, Sports Clubs, are designed as "urban country clubs," offering a  
full range of services including private trainers, registered nutritionists,    
exercise classes, and various other amenities including physical therapy, spas, 
salons, activewear boutiques, restaurants, cafes, sports bars, childcare,       
laundry/dry cleaning services, valet parking and executive locker rooms. Sports 
Club facilities range in size from 90,000 to 140,000 square feet. We have four  
Sports Clubs located in Los Angeles and Irvine, California, New York, New York  
and Las Vegas, Nevada. The Spectrum Clubs are typically housed in 25,000 to     
65,000 square foot facilities and offer many of the amenities listed above. We  
have eight Spectrum Clubs that are all located in Southern California.          
Initiation fees and monthly membership dues at Sports Clubs are higher than     
those at Spectrum Clubs, and initiation fees and monthly membership dues at all 
Clubs are higher than those charged by most other sports and fitness clubs,     
which we believe do not provide comparable services. Income from ancillary      
services and products, including private training, food and beverages and sports
boutiques, also contribute a significant portion of our revenues. Our           
subsidiary, The SportsMed Company, Inc. ("SportsMed"), operates physical therapy
facilities in some Clubs.                                                       

   Our strategy is to expand the Sports Club franchise in major metropolitan
markets and to increase revenues and profitability at existing Clubs, through   
regular increases in monthly membership dues and expanded ancillary services and
products. There are currently six Sports Clubs under development in New York    
City (in Rockefeller Center and in the upper east side), Washington, D.C., San  
Francisco, Boston and Houston. We expect to open these Clubs from late 1999     
through 2001. We are currently developing three Spectrum Clubs in Southern      
California. We will continue to investigate other sites for new Club            
developments.                                                                   

 According to the International Health, Racquet & Sportsclub Association
("IHRSA"), the industry's leading trade organization, 20.8 million Americans    
were members of more than 13,000 sports and fitness clubs in 1998. Revenues     
generated by the United States sports and fitness club industry increased at a  
compound annual rate of 8.6% from $5.5 billion in 1991 to $9.0 billion in 1997. 
The industry has benefitted from the general public's increasing awareness of   
the importance of physical exercise. We target members age 35 and older who,    
according to IHRSA, represent 47% of all memberships and are the fastest growing
segment of the industry.                                                        

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COMPETITIVE STRENGTHS                                                           

We believe our competitive strengths include the following:           

     - Strong Market Position. We believe that the demand for diverse facilities
      with premium services, such as our Sports Clubs and Spectrum Clubs, will
      continue to grow as a result of the public's increasing awareness of the
 benefits of physical exercise as well as growth in the 35 and older
    segment of the population. We believe we are the only company actively
developing sports and fitness clubs for affluent, health conscious
     individuals who desire a premier club with a service focus and multiple
    amenities. Sports Club fees, which vary upon the location of the Club,
  are among the highest in the industry. Sports Clubs' initiation fees
     range from $400 to $2,500 and monthly membership dues range from $88 to
     $180. Spectrum Clubs' membership fees also vary by location. Initiation
     fees range from $150 to $325 and monthly membership dues range from $57
to $67. We believe our fees reflect the quality of our Clubs.     

 - Premier Development Sites. We currently have six Sports Club projects
      under development in prime locations in major metropolitan areas. Two of
     these are in Manhattan, in the Rockefeller Center and in the upper east
side. Three other Sports Club projects are under development with 
       Millennium Entertainment Partners L.P., and its affiliates (collectively,
"Millennium"), which own approximately 25% of our common stock.   
     Millennium has been significantly funded by funds managed by Soros Fund
    Management. Millennium is a real estate developer of premier multi-use
     projects, including the development encompassing Reebok Sports Club/NY.
  The three Millennium projects are expected to include upscale retail
space, a five star hotel and luxury residential units. We also own
       undeveloped land in Houston, which we intend to develop as a Sports Club.
       In addition, we are currently developing three Spectrum Clubs in Southern
California.                                                       

    - Proven Operating and Development Performance. From 1993 to 1998 revenues
  grew at a compound annual rate of 44.1%, from $13.2 million to $81.9
       million. During this period, the number of Clubs we operate has increased
  from 6 to 13 and our membership has increased from 32,279 to 73,335.

    - Experienced Management. Members of our senior management have an average
of 14 years of experience with us, and our senior management and  
directors own approximately 37% of our common stock as a group. We
      believe our experienced and highly motivated management team provides us
with an excellent platform for growth.                            

  - Broad and Stable Base of Recurring Revenues. At established Clubs, the
      average life of a Sports Club membership is four to five years while the
   average life of a Spectrum Club membership is three years. Due to our
       relatively low membership attrition rates and despite our relatively high
      initiation fees, only approximately 4% of our 1998 revenues were derived
       from initiation fees. Approximately 96% of our 1998 revenues were derived
    from monthly membership dues and ancillary services. We do not provide
     financing of initiation fees or monthly membership dues, reducing risks
      associated with collection. Approximately 70% of monthly membership dues
      are paid via electronic funds transfer ("EFT"), and the remaining 30% of
monthly membership dues are prepaid for twelve month periods.     

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BUSINESS STRATEGY                                                               

Key elements of our business strategy include the following:          

- Increase Income from Current Operations. As a result of strong      
 performance from established Clubs and recently opened and acquired
       Clubs, revenues increased $20.7 million to $81.9 million. We believe that
  our existing Clubs' operating performance can continue to improve as
follows:                                                          

       Established Clubs. Six of our Clubs have been open for more than five
    years. In 1998, these Clubs contributed $42.2 million to revenues.
     These Clubs contributed $3.0 million to the increase in revenues in
       1998 compared to 1997. This improvement was due to an increase in the
         number of members and prices at these Clubs and increased revenues from
    ancillary services. Our strategy is to continue to increase income
through price adjustments and additional ancillary services.  

    Recently Opened and Acquired Clubs. We have found that income from
       newer Clubs increases significantly until membership reaches a mature
     level. Since there is relatively little incremental cost associated
  with such increases in revenue, there is a greater proportionate
   increase in profitability. We expect Reebok Sports Club/NY, which
      opened in April 1995, to reach a mature membership level in 1999. In
 July 1997 we opened a Spectrum Club in Valencia, California and
      acquired a Club near Las Vegas, Nevada, and converted it to a Sports
    Club. In December 1997 we acquired four Racquetball World Clubs in
Southern California and converted them to Spectrum Clubs. We  
        subsequently disposed of one of these Clubs in January 1999 and closed
      another of the Clubs in April 1999. In 1998, these Clubs contributed
         $39.7 million to revenues. These Clubs contributed $17.8 million to the
    increase in revenues in 1998 compared to 1997. In January 1999, we
   opened a Spectrum Club in Thousand Oaks, California. Based on our
       experience, we believe that revenues from these Clubs should continue
to improve as membership reaches a mature level.              

 - Develop New Clubs. We are currently developing Clubs in the following
locations:                                                        

      Rockefeller Center, New York. This 89,000 square foot Sports Club is
         located at the Rockefeller Center in midtown Manhattan and we expect it
to open in late 1999. The preliminary estimated total cost of 
developing this Club is approximately $16.3 million, of which 
      approximately $1.8 million has been expended through April 16, 1999.
  Within one mile of this site, there are over 1.1 million persons
        employed and approximately 170,000 residents with an average age of 47
and average household income of approximately $110,000.       

    Upper East Side, New York. This 140,000 square foot Sports Club is
         located in the upper east side of Manhattan and we expect it to open in
    early 2000. This site is the location of the former Vertical Club,
         which we acquired in 1998 to renovate and convert to a Sports Club. The
preliminary estimated total cost of developing this Club is   
      approximately $33.6 million, of which approximately $9.5 million has
     been expended through April 16, 1999. Within one mile of this site,
    there are approximately 600,000 persons employed and approximately
   160,000 residents with an average age of 45 and average household
income of approximately $140,000.                             

       The demographics in the vicinity of our New York developments compare
     favorably to our existing Club in the upper west side of Manhattan,
         Reebok Sports Club/NY, whose membership has continued to grow since its
      opening in 1995. Within one mile of Reebok Sports Club/NY, there are
  approximately 300,000 persons employed and approximately 150,000
     residents with an average age of 47 and average household income of
$105,000.                                                     

Other Clubs. We have three Sports Clubs under development with
       Millennium. We expect that our aggregate expenditures for these three
       Clubs will be approximately $16.5 million. These Sports Clubs will be
         located in luxury complexes including commercial, retail, entertainment
      and residential space in Washington, D.C., Boston and San Francisco,
and are                                                       
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        expected to open in late 2000 and early 2001. In addition, we own land
in Houston where we have plans to develop a Sports Club at a  
        preliminary estimated total cost, including land, of $23.0 million, of
      which approximately $3.7 million has been expended through April 16,
         1999. We are also currently developing three Spectrum Clubs in Southern
California.                                                   

         The estimated funds needed to complete the two developments in New York
    City and the developments in Washington, D.C. and Boston have been
        deposited into a disbursement account (the "Disbursement Account") and
    will be disbursed in accordance with a disbursement agreement (the
"Disbursement Agreement"). See "Description of Notes --       
Security -- Disbursement Agreement."                          

------------------------- 

  Our executive offices are located at 11100 Santa Monica Boulevard, Suite
300, Los Angeles, California, 90025 and our telephone number is (310) 479-5200. 

THE INITIAL OFFERING

    Pursuant to a Purchase Agreement dated as of March 29, 1999 (the "Purchase
Agreement"), we sold our 11 3/8% Senior Secured Notes due 2006 (the "Old Notes")
in an aggregate principal amount of $100.0 million to the initial purchasers of 
the Old Notes on April 1, 1999. The initial purchasers of the Old Notes         
subsequently resold the Old Notes to qualified institutional buyers pursuant to 
Rule 144A under the Securities Act of 1933, as amended (the "Securities Act")   
and to certain institutional accredited investors (as defined in Rule 501(A)(1),
(2), (3) or (7) under the Securities Act). The net proceeds from the offering of
the Old Notes were and will be used to repay indebtedness, to develop additional
Clubs and for general corporate purposes.                                       

THE EXCHANGE OFFER

Securities Offered............   We are offering up to $100.0 million aggregate 
                                 principal amount of our 11 3/8% Series B Senior
                              Secured Notes due 2006 (the "New Notes," and
                                collectively with the Old Notes, the "Notes").
                              The terms of the New Notes and the Old Notes
                             are substantially identical in all material
                        respects, except that certain transfer
                       restrictions, registration rights and
                           liquidated damages for defaults under the
                                 Registration Rights Agreement, which we entered
                             into with the initial purchasers of the Old
                             Notes, will not apply to the New Notes. See
         "Description of Notes."

The Exchange Offer............   We will exchange $1,000 principal amount of New
                               Notes for each $1,000 principal amount of Old
                       Notes. See "The Exchange Offer" for a
                                 description of the procedures for tendering Old
                          Notes. This Exchange Offer satisfies our
                                 registration obligations under the Registration
                            Rights Agreement. Upon consummation of the
                                 Exchange Offer, if you were not prohibited from
                                 participating in the Exchange Offer and did not
                              tender your Old Notes, you will not have any
                            registration rights under the Registration
                       Rights Agreement with respect to your
                                nontendered Old Notes, and your Old Notes will
                               continue to be subject to the restrictions on
                           transfer contained in the legend thereon.
                      Holders of Old Notes do not have any
                                 dissenters' or appraisal rights under state law
                                 or under the indenture governing the Notes with
                respect to the Exchange Offer.

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Tenders, Expiration Date;                                                       
Withdrawal; Exchange Date.....   The Exchange Offer will expire at 5:00 p.m.,   
                              New York City time, on May 31, 1999, or such
                                later date and time to which we may extend it.
                                We will use our best efforts not to extend the
                                Exchange Offer more than 30 business days from
                               the date of this Prospectus. You may withdraw
                                your tender of Old Notes and retender your Old
                                 Notes at any time prior to the expiration date.
                              We will return any Old Notes which we do not
                               accept for exchange without expense to you as
                                 promptly as practicable after the expiration or
                           termination of the Exchange Offer. If you
                              properly tender and do not withdraw your Old
                             Notes, we will deem them to be accepted for
                              exchange on the first business day following
                               the expiration date or as soon as practicable
thereafter.   

Accrued Interest On the                                                         
New Notes.....................   Your New Notes will bear interest from the most
                               recent date to which we have paid interest on
                                your corresponding Old Note or, if no interest
                        has yet been paid, from April 1, 1999.

Federal Income Tax                                                              
Considerations................   The Exchange Offer will not result in any      
                               income, gain or loss to you or us for federal
                           income tax purposes. See "Certain Federal
             Income Tax Considerations."

Use of Proceeds...............   We will not receive any proceeds from the      
                         exchange of New Notes for the Old Notes
                 pursuant to the Exchange Offer.

Exchange Agent................   U.S. Bank Trust National Association, the      
                             trustee under the indenture relating to the
                             Notes, is serving as exchange agent for the
 Exchange Offer.

CONSEQUENCES OF EXCHANGING OR FAILURE TO
EXCHANGE OLD NOTES PURSUANT TO
THE EXCHANGE OFFER

  Generally, unless you are our "affiliate" within the meaning of Rule 405
under the Securities Act, if you exchange your Old Notes for New Notes pursuant 
to the Exchange Offer you may offer your New Notes for resale, resell your New  
Notes, and otherwise transfer your New Notes without compliance with the        
registration and prospectus delivery provisions of the Securities Act, so long  
as:                                                                             

- you acquired your New Notes in the ordinary course of your business;

    - you have no arrangement with any person to participate in a distribution
of your New Notes; and                                            

     - neither you nor any other person is engaging in or intends to engage in a
distribution of your New Notes.                                   

     A broker-dealer who acquired Old Notes directly from us cannot exchange its
Old Notes in the Exchange Offer. Each broker-dealer that receives New Notes for 
its own account in exchange for Old Notes must acknowledge that it will deliver 
a prospectus in connection with any resale of its New Notes. See "Plan of       
Distribution." To comply with the securities laws of certain jurisdictions, it  
may be necessary to qualify for sale or register the New Notes prior to offering
or selling such New Notes. Upon completion of the Exchange Offer, if you were   
not prohibited from participating in the Exchange Offer and did not tender your 
Old Notes, you will not have any registration rights under the Registration     
Rights Agreement with respect to your nontendered Old Notes. These Old Notes    
will continue to be subject to transfer restrictions. See "The Exchange         
Offer -- Consequences of Failure to Exchange."                                  
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SUMMARY DESCRIPTION OF NEW NOTES

Issuer........................   The Sports Club Company, Inc.                  

Securities Offered............   $100,000,000 principal amount of 11 3/8% Senior
                       Series B Secured Notes (the "Notes").

Maturity Date.................   March 15, 2006.                                

Interest Rate.................   We will pay an annual rate of interest equal to
11 3/8%.      

Interest Payment Dates........   Semi-annually, beginning on September 15, 1999.

Ranking.......................   The Notes will rank senior in right of payment 
                              to any of our subordinated indebtedness, and
                          will rank equally with any of our senior
                      indebtedness, including indebtedness
                        outstanding under our credit facility.

Security Interest.............   We have pledged as collateral, for the benefit 
                              of holders of the Notes, certain real assets
                           (and related fixtures and equipment), our
                      ownership interest in certain of our
                            subsidiaries, and cash in the Disbursement
                              Account, subject to customary exceptions for
                                 transactions of this type. The liens on certain
                                of the collateral are subordinated to liens on
                              such collateral securing up to $20.0 million
                             principal amount of other indebtedness. The
                               collateral does not include equipment that is
                 subject to equipment financing.

Optional Redemption...........   After March 15, 2003, all or some of the Notes 
                        may be redeemable at our option at the
                    following premiums, plus interest:

                                                                [Download Table]

             FOR THE PERIOD BELOW                PERCENTAGE
             --------------------                ----------
                                                           
On or after March 15, 2003.....................   105.688% 
On or after March 15, 2004.....................   102.844% 
March 15, 2005 and thereafter..................   100.000% 

                           Prior to March 15, 2002, up to 35% of the
                               principal amount of the Notes may be redeemed
                                at our option with the net proceeds of certain
                                 public equity offerings at 111.375% of the face
        amount, plus interest.

Guarantees....................   All of our current wholly-owned subsidiaries   
                         guarantee the Notes. Subject to certain
                         exceptions, if we create or acquire new
                           wholly-owned subsidiaries, they will also
      guarantee the Notes.

Change of Control Offer.......   If we go through a change of control, we must  
                              give holders of the Notes the opportunity to
                           sell us their Notes at 101% of their face
        amount, plus interest.

Asset Sale Proceeds...........   If we do not reinvest cash proceeds from the   
                                sale of assets in our business, we may have to
                                use such proceeds to offer to buy back some of
                                the Notes at their face amount, plus interest.

Certain Indenture                                                               
Provisions....................   The indenture governing the Notes (the         
                             "Indenture") will limit what we may do. The
                            provisions of the Indenture will limit our
ability to:   

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                                - incur more debt;
                                               - pay dividends, redeem stock, or
                                           make other distributions;
                                            - issue stock of subsidiaries;
                                         - make certain investments;
                             - create liens;
                                         - enter into sale/leaseback
                               transactions;
                                            - enter into transactions with
                             affiliates;
                                         - merge or consolidate; and
                                        - transfer or sell assets.

                            These covenants are subject to a number of
       important exceptions.

Disbursement Account..........   Approximately $54.4 million of the net proceeds
                                of the offering of the Old Notes was deposited
                                 in the Disbursement Account and, subject to the
                              terms of the Disbursement Agreement, will be
                                 used to pay the development costs of two Sports
                            Clubs in New York City and Sports Clubs in
                               Washington, D.C. and Boston. See "Description
                      of Notes -- Security -- Disbursement
Agreement."   

Use of Proceeds...............   We are using the money raised from the offering
                                 of the Old Notes to develop new Clubs, to repay
                                 existing indebtedness and for general corporate
                                purposes. See the "Use of Proceeds" section of
                     this Prospectus for a more detailed
description.  

For more complete information about the Notes, see the "Description of
Notes" section of this Prospectus.                                              

RISK FACTORS

    Before making an investment, you should consider carefully the information
included in the "Risk Factors" section, as well as all other information set    
forth in this Prospectus.                                                       

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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA 

   The following table presents our summary financial and operating data for
the fiscal years ended December 31, 1994 through 1998 and have been derived from
our consolidated financial statements, which have been audited by KPMG LLP,     
independent certified public accountants. The summary financial and operating   
data should be read in conjunction with, and is qualified in its entirety by    
reference to, "Management's Discussion and Analysis of Financial Condition and  
Results of Operations" and our consolidated financial statements and the notes  
thereto appearing elsewhere in this Prospectus.                                 

                                                        [Enlarge/Download Table]

                                                           FISCAL YEAR ENDED DECEMBER 31,          
                                                   ----------------------------------------------- 
                                                   1994(a)    1995      1996      1997      1998   
                                                   -------   -------   -------   -------   ------- 
                                                               (DOLLARS IN THOUSANDS)              
                                                                                                   
STATEMENT OF OPERATIONS DATA:                                                                      
  Revenues.......................................  $18,846   $34,659   $36,918   $61,154   $81,923 
  Operating expenses.............................   15,201    29,991    31,531    54,043    70,584 
  Income from operations.........................    3,645     4,668     5,387     7,111    11,339 
  Other income(b)................................      612       710       481       674       730 
  Net income before extraordinary charge.........    1,800     1,639     1,703     1,540     6,155 
OTHER FINANCIAL DATA:                                                                              
  Depreciation and amortization..................    1,510     2,775     2,490     3,919     5,282 
  Capital expenditures(c)........................   28,287     2,184     4,906    15,677    28,623 
  Ratio of earnings to fixed charges(d)..........     2.0x      1.5x      1.6x      1.2x      1.9x 
OPERATING DATA(E):                                                                                 
  Number of Clubs................................        8         8         8        10        13 
  Number of members..............................   39,870    44,114    45,220    56,940    73,335 
PRO FORMA DATA(D):                                                                                 
  Ratio of earnings to fixed charges(d).................................................       1.1x

                                                        [Enlarge/Download Table]

                                                                AT DECEMBER 31, 1998   
                                                             --------------------------
                                                              ACTUAL     AS ADJUSTED(d)
                                                             --------    --------------
                                                               (DOLLARS IN THOUSANDS)  
                                                                                       
BALANCE SHEET DATA:                                                                    
  Cash and cash equivalents................................. $  2,233      $  67,984(f)
  Total assets..............................................  163,757        235,008   
  Long-term debt including current installments.............   37,441        109,875   
  Stockholders' equity......................................  104,539        104,539   

-------------------------                                                       
(a) Prior to October 24, 1994, we operated through various partnerships and     
 corporations. Historical data for the period through October 24, 1994 has
been adjusted to reflect compensation and tax provisions as if we had   
operated as a corporation during such period.                           

(b) Includes minority interest and equity interest in net income of             
unconsolidated subsidiaries.                                            

(c)  Includes business acquisitions, net of cash acquired.                      

(d) Fixed charges include interest charges, amortization of debt expense and    
   discounts, and the estimated interest within rental expense. Pro Forma Data
 has been adjusted to give effect to the offering of the Old Notes and the
 use of proceeds therefrom as if the offering of the Old Notes occurred on
 January 1, 1998. As Adjusted Balance Sheet Data has been adjusted to give
    effect to the offering of the Old Notes and the use of proceeds therefrom as
    if the offering of the Old Notes occurred on December 31, 1998. In 1999, our
Board of Directors authorized the use of $8.4 million to repurchase our 
 common stock, of which we have spent $6.8 million through April 26, 1999.

(e)  Represents the number of Clubs operated and the number of members at the   
end of each period. 1997 operating data excludes the Clubs, and the   
associated members, acquired on December 31, 1997 as their operating  
 results were not included in our 1997 operating results. 1998 operating
    data excludes pre-opening memberships at the Spectrum Club - Thousand Oaks
and the Spectrum Club - Puente Hills.                                 

(f)  As Adjusted cash and cash equivalents include amounts deposited in the     
Disbursement Account pending disbursement in accordance with the      
Disbursement Agreement.                                               

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RISK FACTORS

    You should consider carefully the following risk factors before purchasing
the Notes. These risks could, individually or in the aggregate, have a material 
adverse effect on us.                                                           

FAILURE TO EXCHANGE -- YOUR ABILITY TO SELL THE OLD NOTES IS LIMITED BY         
SECURITIES LAWS.                                                                

  In general, you may not offer or sell your Old Notes unless the offering
and sale is registered under the Securities Act and applicable state securities 
laws, or the offering and sale is not subject to or is exempt from, the         
Securities Act and applicable state securities laws. We do not intend to        
register the Old Notes under the Securities Act. Upon the completion of the     
Exchange Offer, if you were not prohibited from participating in the Exchange   
Offer and you did not tender your Old Notes, you will not have any registration 
rights under the Registration Rights Agreement with respect to your nontendered 
Old Notes. Therefore, your nontendered Old Notes will continue to be subject to 
transfer restrictions.                                                          

Based on interpretations by the staff of the Securities and Exchange  
Commission with respect to similar transactions, we believe that, unless you are
our "affiliate" within the meaning of Rule 405 under the Securities Act, you may
offer for resale, resell and otherwise transfer the New Notes issued pursuant to
the Exchange Offer without compliance with the registration and prospectus      
delivery provisions of the Securities Act, if:                                  

- you acquired your New Notes in the ordinary course of your business;

   - you have no arrangement or understanding with any person to participate
in the distribution of your New Notes; and                        

     - neither you nor any other person is engaging in or intends to engage in a
distribution of your New Notes.                                   

 A broker-dealer who acquired Old Notes directly from us cannot exchange
those Old Notes in the Exchange Offer. Each broker-dealer that receives New     
Notes for its own account in exchange for Old Notes must acknowledge that it    
will deliver a prospectus in connection with any resale of its New Notes. The   
Letter of Transmittal states that by so acknowledging and by delivering a       
prospectus, a broker-dealer will not be deemed to admit 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 the Old Notes acquired by the
broker-dealer as a result of market-making activities or other trading          
activities. We have agreed that we will make this Prospectus available to any   
broker-dealer for use in connection with any such resale. See "Plan of          
Distribution." You may not offer or sell your New Notes unless they have been   
registered or qualified for sale under applicable state securities laws or an   
exemption from registration or qualification is available and is complied with. 

SUBSTANTIAL LEVERAGE -- OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR 
FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.

We have now and, after the Exchange Offer, will continue to have a    
significant amount of indebtedness. The following table shows certain important 
credit statistics and is presented assuming we                                  

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completed the offering of the Old Notes as of the date or at the beginning of   
the period set forth below and applied the net proceeds as intended:            

                                                                [Download Table]

                                                          AT DECEMBER 31, 1998
                                                          --------------------
                                                                              
Total debt..............................................     $109.9 million   
Stockholders' equity....................................     $104.5 million   
Debt to equity ratio....................................               1.1x   

                                                                [Download Table]

                                                           FOR THE YEAR ENDED
                                                           DECEMBER 31, 1998 
                                                           ------------------
                                                                             
Ratio of earnings to fixed charges.......................         1.1x       

    Our substantial indebtedness could have important consequences to you. For
example, it could:                                                              

    - make it more difficult for us to satisfy our obligations with respect to
the Notes,                                                        

   - increase our vulnerability to adverse economic and industry conditions,

  - limit our ability to fund future working capital, capital expenditures
and other general corporate requirements,                         

- limit our ability to fund a change of control offer,                

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

   - place us at a competitive disadvantage compared to our competitors that
have less debt,                                                   

- limit our ability to borrow additional funds, and                   

     - result in an event of default if we fail to comply with the financial and
   other restrictive covenants in the Indenture and our credit facility.

See "Description of Credit Facility," "Description of Notes" and      
"Prospectus Summary -- Summary Consolidated Financial and Operating Data."      

ADDITIONAL BORROWINGS AVAILABLE -- WE MAY STILL BE ABLE TO INCUR SUBSTANTIALLY  
MORE DEBT, WHICH COULD FURTHER INCREASE THE RISKS DESCRIBED ABOVE.              

    We may be able to incur substantial additional indebtedness in the future.
The Indenture permits borrowings of up to $20.0 million principal amount that   
are secured by certain of the collateral securing the Notes. Our credit facility
is secured by a first lien on the assets of The Sports Club/Irvine, The Sports  
Club/Las Vegas, the Spectrum Club - Agoura Hills and the Spectrum Club - Canoga 
Park. See "Description of Intercreditor Agreement." In addition, the Indenture  
allows us to borrow up to $10.0 million through equipment financing. At December
31, 1998, we had $7.2 million in equipment financing outstanding. If new debt is
added to our current debt levels, the related risks that we now face will       
increase.                                                                       

 See "Capitalization," "Selected Financial Data," "Description of Credit
Facility" and "Description of Notes."                                           

ABILITY TO SERVICE DEBT -- TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A       
SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS
BEYOND OUR CONTROL.                                                             

Our ability to fund operations, to make payments on or refinance our  
indebtedness, including the Notes, and to fund planned capital expenditures will
depend on our ability to generate cash in the future. This ability, to a certain
extent, is subject to general economic, financial, competitive, legislative,    
regulatory and other factors that are beyond our control.                       

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Based on our current level of operations and anticipated operating    
activities, we believe the proceeds of the offering of the Old Notes, our cash  
flow from operations, available cash and available borrowings under our credit  
facility will be adequate to meet our future liquidity needs for at least the   
next two years.                                                                 

   We cannot assure you, however, that our business will generate sufficient
cash flow from operations to enable us to pay our indebtedness, including the   
Notes, or to fund our other liquidity needs. We may need to refinance all or a  
portion of our indebtedness, including the Notes, on or before maturity. We may 
not be able to refinance any of our indebtedness on acceptable terms or at all. 

EFFECTIVE SUBORDINATION -- YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS       
EFFECTIVELY SUBORDINATED TO OUR CREDIT FACILITY AND EQUIPMENT FINANCING TO THE  
EXTENT OF THE COLLATERAL SECURING OUR CREDIT FACILITY AND EQUIPMENT FINANCING.  

    The Notes and the subsidiary guarantees are effectively subordinated to up
to $20.0 million principal amount of other indebtedness to the extent of the    
assets securing such indebtedness. See "Description of Intercreditor Agreement."
Our credit facility is secured by a first lien on the assets of The Sports Club/
Irvine, The Sports Club/Las Vegas, the Spectrum Club - Agoura Hills and the     
Spectrum Club - Canoga Park. The Notes and the subsidiary guarantees are also   
effectively subordinated to our equipment financing to the extent of the assets 
covered by such equipment financing. As a result, upon any distribution to our  
creditors or the creditors of the subsidiary guarantors in bankruptcy,          
liquidation, reorganization or similar proceedings, our commercial lenders and  
equipment lessors will be entitled to be repaid in full before any payment is   
made to you from the proceeds of the assets securing this indebtedness, or the  
sale of equipment subject to equipment financing.                               

NOT ALL OPERATING COMPANIES ARE GUARANTORS -- YOUR RIGHT TO RECEIVE PAYMENTS ON 
THE NOTES COULD BE ADVERSELY AFFECTED IF ANY OF OUR NON-GUARANTOR OPERATING     
COMPANIES DECLARES BANKRUPTCY, LIQUIDATES OR REORGANIZES.                       

    Reebok Sports Club/NY and the Spectrum Club - Manhattan Beach are operated
through partnerships with minority owners. Although they are restricted         
subsidiaries for purposes of the Indenture, these partnerships have not         
guaranteed the Notes. In the event of a bankruptcy, liquidation or              
reorganization of any of these partnerships, holders of their indebtedness and  
their trade creditors will generally be entitled to payment of their claims from
partnership assets before any assets are made available for distribution to us. 
Assuming we had completed the offering of the Old Notes on December 31, 1998,   
the Notes would have been effectively subordinated to $7.5 million of equipment 
financing and other liabilities (including trade payables and prepaid           
memberships) of these partnerships. Reebok Sports Club/NY, which is consolidated
in our financial statements, generated approximately 26% of our consolidated    
revenues in the twelve-month period ended December 31, 1998 and held            
approximately 9% of our consolidated assets as of December 31, 1998. Our        
interest in the Spectrum Club - Manhattan Beach generated approximately 9% of   
our net income before income taxes and extraordinary charge in the twelve-month 
period ended December 31, 1998.                                                 

FRAUDULENT TRANSFER MATTERS -- IF ANY GUARANTOR BECOMES THE DEBTOR IN A         
BANKRUPTCY CASE OR HAS OTHER FINANCIAL DIFFICULTY, A COURT MAY AVOID ITS        
GUARANTEE.                                                                      

Under the fraudulent transfer provisions of federal bankruptcy law and
corresponding state laws, a court may avoid (i.e., cancel) a guarantee if (a)   
the guarantor received less than fair consideration or reasonably equivalent    
value for its guarantee and (b) when it entered into its guarantee (or in some  
jurisdictions, when payments became due thereunder), it either (i) was or was   
rendered insolvent, (ii) was engaged in a business or transaction for which its 
remaining unencumbered assets constituted unreasonably small capital or (iii)   
intended to incur or believed (or should have believed) that it would incur     
debts beyond its ability to pay.                                                

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The court could also subordinate the claims of the guarantee's        
beneficiaries to the claims of the guarantor's other creditors. If the court    
avoided or subordinated a guarantee in this manner, it could order the return of
any payments made by the guarantor to the guarantor or to a fund for the benefit
of its creditors.                                                               

     The measure of insolvency for the above purposes will vary depending on the
law of the jurisdiction being applied. Generally, an entity will be considered  
insolvent if the sum of its debts (including contingent or unliquidated debts)  
is greater than the fair value of its property or if the present fair salable   
value of its assets is less than the amount that will be required to pay its    
probable liability on its existing debts as they become absolute and matured.   

A court would likely conclude that a guarantor did not receive fair   
consideration or reasonably equivalent value except to the extent that it       
received direct or indirect benefits from the Notes' issuance.                  

    On the basis of historical financial information, recent operating history
and other factors, we believe that each guarantor, after giving effect to its   
guarantee, was not insolvent, did not have unreasonably small capital for the   
business in which it is engaged and had not incurred debts beyond its ability to
pay such debts as they mature. There can be no assurance, however, as to what   
standard a court would apply in making such determinations or that a court would
agree with our conclusions in this regard.                                      

LIQUIDATION OF COLLATERAL -- THE PROCEEDS OF THE COLLATERAL MAY NOT BE          
SUFFICIENT TO REPAY THE NOTES.                                                  

     If an Event of Default (as defined in the Indenture) occurs with respect to
the Notes, the liquidation of the assets securing the Notes may not result in   
proceeds in an amount sufficient to pay the principal of, premium, if any, and  
interest on the Notes. The ability of the Trustee (as defined in the Indenture) 
to foreclose on any assets will be subject to the provisions of the security    
documents covering those assets. In addition, the ability of holders of Notes to
foreclose on the assets securing the Notes will be subject to certain           
limitations arising under applicable bankruptcy and insolvency laws. See        
"Description of Intercreditor Agreement" and "Description of Notes -- Security."

RESTRICTIONS IMPOSED BY INDEBTEDNESS -- WE MAY BE PROHIBITED FROM ENGAGING IN   
CERTAIN TRANSACTIONS.                                                           

 Our credit facility requires us to maintain specified financial ratios,
including interest coverage and total leverage ratios. In addition, the         
Indenture and our credit facility restrict, among other things, our ability to  
incur additional indebtedness and our ability to dispose of assets, incur       
additional indebtedness, incur guarantee obligations, repay indebtedness or     
amend debt instruments, pay dividends, create liens on assets, make investments,
make acquisitions, engage in mergers or consolidations, make capital            
expenditures and engage in certain transactions with subsidiaries or affiliates.
A failure to comply with the restrictions contained in the Indenture or our     
credit facility could lead to an event of default under both the Indenture and  
our credit facility which could result in an acceleration of substantially all  
of our indebtedness. See "Management's Discussion and Analysis of Financial     
Condition and Results of Operation - Liquidity and Capital Resources," and      
"Description of Credit Facility."                                               

MEMBERSHIP -- OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO ATTRACT AND RETAIN     
MEMBERS.                                                                        

     Our success is dependent on our ability to attract members to our new Clubs
and maintain membership levels at our existing Clubs. We may not be successful  
in these efforts, and membership levels at one or more of our Clubs may decline.
There are numerous factors that could lead to a decline in membership levels or 
that could prevent us from increasing membership at our Clubs. These factors    
include:                                                                        

- the public image of our Clubs,                                      

- our ability to deliver quality service at a competitive cost,       

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     - the presence of direct and indirect competition in the areas in which our
Clubs are located,                                                

- the public's interest in sports and fitness clubs in general, and   

- general economic conditions.                                        

    In addition, from time to time we may close a Club and attempt to move its
members to a different Club or may have to temporarily relocate members if a    
Club is closed for remodeling or due to fire, earthquake or other casualty. In  
such cases, our inability to successfully transfer and retain members could lead
to an overall membership decline. Competitive and other conditions in the       
markets in which we operate may also limit our ability to maintain or increase  
membership fees without a material loss in membership. As a result of these     
factors, membership levels may not be adequate to maintain or permit the        
maintenance or expansion of our operations.                                     

NEW CLUBS -- THE SUCCESSFUL DEVELOPMENT OR ACQUISITION OF CLUBS IS DEPENDENT ON 
OUR ABILITY TO LOCATE SUITABLE SITES, MEET CONSTRUCTION SCHEDULES AND BUDGETS,  
NEGOTIATE SATISFACTORY LEASES, OBTAIN ADDITIONAL FINANCING AND RETAIN EXISTING  
MEMBERS OF ACQUIRED CLUBS.                                                      

    Our strategy is to develop premier Clubs to respond to the public's demand
for a wide variety of sports, fitness and social activities. However, the       
successful development of Clubs will depend on various factors, including:      

- our ability to attract members to newly developed Clubs, which will 
depend upon how receptive potential members are to our policies,  
including our membership fees, and                                

- our ability to successfully negotiate satisfactory leases and other 
contracts and to meet construction schedules and budgets.         

     To the extent that we develop or acquire additional Clubs, our success will
also depend on the following factors:                                           

- our ability to obtain additional financing,                         

    - our ability to locate suitable sites for acquisition or development, and

- our ability to retain existing members at acquired Clubs.           

    We may not be able to develop or otherwise acquire any particular Club, or
be able to expand into areas which we have targeted. Additionally, recently     
opened Clubs generally operate at a loss or at only a slight profit as a result 
of fixed expenses which, together with variable operating expenses, approximate 
or exceed membership fees and other revenues.                                   

DEPENDENCE UPON LIMITED GEOGRAPHIC AREA -- OUR OPERATING RESULTS ARE VULNERABLE 
TO ADVERSE CONDITIONS AFFECTING SOUTHERN CALIFORNIA AND NEW YORK CITY.          

  All currently operating Clubs, other than The Sports Club/Las Vegas, are
located in Southern California and New York, and we are currently developing two
additional Sports Clubs in New York. Thus, our operating results are vulnerable 
to natural disasters or other casualties and to negative economic, competitive, 
demographic and other conditions affecting these areas. We believe that our     
insurance coverage is in accordance with industry standards. However, insurance 
proceeds may not adequately compensate for all economic consequences of any     
loss. Should a loss occur, we could lose both our invested capital and          
anticipated profits from affected Clubs.                                        

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COMPETITION -- THE SPORTS AND FITNESS INDUSTRY IS HIGHLY COMPETITIVE.           

The sports and fitness industry is highly competitive. Some of our    
competitors are significantly larger and have greater financial and operating   
resources than us. In addition, a number of individual and regional operators   
compete with us in our existing and targeted markets. We also compete with      
recreational facilities established by governments and businesses, the YMCA and 
YWCA, country clubs and weight-reducing salons. It is possible that additional  
sports and fitness competitors will emerge in the future, some of which may be  
larger and have greater financial and operating resources than we do. Such      
competition may have a material adverse effect on us. We may be unable to       
maintain our membership fees or membership levels in areas where another sports 
and fitness club offers competitive facilities and services at a lower cost to  
members.                                                                        

PARTNERSHIPS -- OUR RELATIONSHIPS WITH OUR PARTNERS MAY RESTRICT OUR ABILITY TO 
OPERATE OUR BUSINESS.                                                           

   We own interests in the Spectrum Club - Manhattan Beach and Reebok Sports
Club/NY in partnership with other investors, and we may enter into similar      
partnership or joint venture arrangements in the future. Partnership            
relationships present certain risks, including the following:                   

- such partners might become bankrupt,                                

     - such partners may have economic or other business interests or objectives
     that are inconsistent with our interests or objectives, and may be in a
position to take actions contrary to our interests and objectives,

    - such partners may have the right, under certain circumstances, to assert
       control over the day-to-day operations of the partnership's business, and

- we may agree with our partners to restrict our other operations.    

     Leases for our leased Clubs generally contain certain provisions similar to
partnership and joint venture agreements and may also present the risks         
described above.                                                                

RELATIONSHIP WITH MILLENNIUM -- MILLENNIUM'S ECONOMIC INTERESTS MAY CONFLICT    
WITH OUR INTERESTS AND OBJECTIVES.                                              

    Millennium is our largest shareholder, and currently owns 4,620,963 shares
or approximately 25% of our outstanding common stock. In addition, we have      
entered into numerous development and other transactions with Millennium.       
Through its rights under various agreements with us, Millennium may have the    
ability to advance its economic or business interests and objectives in conflict
with our interests and objectives or cause delays which would not be in our best
interest. See "Certain Relationships and Related Transactions."                 

MANAGEMENT -- OUR SUCCESS IS DEPENDENT ON THE RETENTION OF OUR EXISTING         
EXECUTIVE OFFICERS AND OUR ABILITY TO ATTRACT ADDITIONAL EXPERIENCED MANAGEMENT.

     We are dependent upon the efforts and skills of our executive officers, who
have substantial experience in the sports and fitness club industry. The loss of
one or more of such officers could have a material adverse impact on us. In     
addition, the development and expansion of our business will require additional 
experienced management and operations personnel. We may not be able to attract  
and retain qualified employees.                                                 

LABOR COSTS -- AN INCREASE IN LABOR COSTS COULD REDUCE OUR INCOME FROM          
OPERATIONS.                                                                     

We are dependent upon the available labor pool of unskilled and       
semi-skilled employees. We are also subject to the Fair Labor Standards Act,    
which governs such matters as minimum wage, overtime and                        
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other working conditions. Numerous proposals have been made on state and federal
levels to increase minimum wages. A shortage in the labor pool or other general 
inflationary pressures or changes in applicable laws and regulations could      
increase labor costs, which could have a material adverse effect on our income  
from operations.                                                                

ENVIRONMENTAL RISKS -- WE COULD HAVE LIABILITY FOR ENVIRONMENTAL CONTAMINATION  
DISCOVERED ON OUR PROPERTIES.                                                   

   Under various federal, state and local laws, an owner or operator of real
estate may be liable for cleanup and other costs and damages resulting from past
or present spills or other releases of hazardous or toxic substances on or from 
a property. Liability under these laws may be imposed without regard to whether 
the owner knew of, or was responsible for, the presence of such substances on   
its property, and, in some cases, may not be limited to the value of the        
property. The presence of contamination, or the failure to properly clean it up,
also may adversely affect our ability to sell, lease or operate its property or 
to borrow using our property as collateral. We have reviewed preliminary        
environmental liabilities. Such assessments generally consist of an             
investigation of environmental conditions at the subject property (not including
soil or groundwater analysis), as well as a review of government and other      
records and information pertaining to the subject site and sites in the         
surrounding area. We are not currently aware of any environmental conditions on 
its properties that would be material to us; however, at one of our properties, 
an environmental assessment conducted by a third party has recommended further  
investigation. Although there can be no assurance, based on past remedial       
activities at this property, and including a closure letter from the local      
agency for the remediation, we do not believe that we will incur material       
liability to clean up contamination on this property.                           

REGULATIONS -- CHANGES IN GOVERNMENTAL RULES AND REGULATIONS COULD HAVE A       
MATERIAL ADVERSE EFFECT ON OUR OPERATIONS.                                      

     Our operations and business practices are subject to regulation at federal,
state and, in some cases, local levels. General rules and regulations of the    
Federal Trade Commission and state and local consumer protection agencies, and  
state statutes apply to our advertising, sales and other trade practices,       
including the sale of memberships and the financing and collection of membership
fees. In addition, the provision of rehabilitative and physical therapy services
and payments for such services are subject to government regulation. See        
"Business -- Government Regulation." We are not aware of any proposed material  
changes in any such statutes, rules or regulations, but any such changes could  
have a material adverse effect on us.                                           

CHANGE OF CONTROL OFFER -- WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS       
NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE.     

Upon certain change of control events, we will be required to offer to
repurchase all outstanding Notes. It is possible that we will not have          
sufficient funds at the time of a change of control to make the required        
repurchase of Notes or that restrictions in our credit facility will not allow  
such repurchases. See "Description of Notes -- Repurchase Upon Change of        
Control."                                                                       

LIQUIDITY OF THE NOTES -- THERE IS CURRENTLY NO PUBLIC MARKET FOR THE NOTES.    

     There is currently no public market for the Notes. We do not intend to list
the Notes on any national securities exchange or to seek the admission thereof  
to trading in the National Association of Securities Dealers Automated Quotation
System. The initial purchasers of the Notes have advised us that they currently 
intend to make a market in the Notes, but they are not obligated to do so and,  
if they do make a market in the Notes, they may stop at any time. We will seek  
to have the New Notes designated for trading in the PORTAL Market, the National 
Association of Securities Dealers' screenbased, automated market for trading of 
securities eligible for resale in compliance with Rule 144A. However, market    
liquidity may not develop. If an active public market does not develop, the     
market, price and liquidity of                                                  
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the Notes may be adversely affected. If any of the Notes are traded after their 
initial issuance, they may trade at a discount from their initial offering      
price, depending on prevailing interest rates, the market for similar securities
and other factors, including general economic conditions and our financial      
condition and performance. Prospective investors in the Notes should be aware   
that they may be required to bear the financial risks of such investment for an 
indefinite period of time. See "Description of Notes" and "Notice to Investors."

YEAR 2000 COMPLIANCE -- YEAR 2000 FAILURES COULD HAVE A MATERIAL ADVERSE IMPACT 
ON US.                                                                          

   We have completed an assessment of our systems and those of third parties
which could materially and adversely affect our operations if such systems fail 
to function properly with respect to dates in 2000 and later. We believe we will
be able to replace or modify all of our material systems which are not year 2000
compliant prior to the fourth quarter of 1999, and we do not anticipate that    
year 2000 problems with our systems will have a material effect on us. We       
believe that the only third parties whose year 2000 problems could have a       
material effect on us are financial institutions that process our EFT and credit
card transactions. We believe that these institutions have completed or will    
complete, prior to year 2000, modifications to their systems to insure year 2000
compliance. However, the failure to correct a material year 2000 problem could  
interrupt our business and materially and adversely affect us. A contingency    
plan has not yet been developed for dealing with an interruption of a critical  
system. We plan to develop and implement such a plan by the fourth quarter of   
1999. Due to the general uncertainty inherent in the year 2000 problem,         
resulting in part from the uncertainty of the year 2000 readiness of third-party
suppliers, we are unable to determine at this time whether year 2000 failures   
will have a material impact on us.                                              

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THE EXCHANGE OFFER

PURPOSE AND EFFECT OF THE EXCHANGE OFFER                                        

  On April 1, 1999, we issued $100.0 million aggregate principal amount of
Old Notes to Jefferies & Company, Inc. and CIBC Oppenheimer Corp. (the "Initial 
Purchasers"). The issuance was not registered under the Securities Act in       
reliance upon the exemption under Rule 144A and Section 4(2) of the Securities  
Act. In connection with the issuance and sale of the Old Notes, we entered into 
a Registration Rights Agreement with the Initial Purchasers, dated April 1, 1999
(the "Registration Rights Agreement"), which required us to file with the       
Securities and Exchange Commission (the "Commission") a registration statement  
under the Securities Act with respect to notes identical in all material        
respects to the Old Notes. Upon the effectiveness of that registration          
statement, we are required to offer to the holders of the Old Notes the         
opportunity to exchange their Old Notes for a like principal amount of New      
Notes, which will be issued without a restrictive legend and may be reoffered   
and resold by the holder without restrictions or limitations under the          
Securities Act (the "Exchange Offer"). In the event that applicable             
interpretations of the staff of the Commission do not permit us to effect the   
Exchange Offer and under certain other circumstances, we will, at our cost, file
with the Commission a shelf registration (the "Shelf Registration Statement") to
cover resales of Notes by the holders thereof who satisfy certain conditions    
relating to the provision of information in connection with the Shelf           
Registration Statement. A copy of the Registration Rights Agreement has been    
filed as an exhibit to the Registration Statement of which this Prospectus is a 
part. The Exchange Offer is being made pursuant to the Registration Rights      
Agreement to satisfy our obligations thereunder.                                

   Based on no-action letters issued by the staff of the Commission to third
parties, we believe that the New Notes issued pursuant to the Exchange Offer in 
exchange for Old Notes may be offered for resale, resold and otherwise          
transferred by any holder of such New Notes (other than any such holder which is
our "affiliate" 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 such holder's business, such holder has no arrangement or understanding with 
any person to participate in the distribution of such New Notes and neither the 
holder nor any other person is engaging in or intends to engage in a            
distribution of the New Notes. However, we have not sought a no-action letter   
with respect to the Exchange Offer and there can be no assurance that the staff 
of the Commission would make a similar determination with respect to the        
Exchange Offer. A broker-dealer who acquired Old Notes directly from us can not 
exchange such Old Notes in the Exchange Offer. Any holder who tenders in the    
Exchange Offer for the purpose of participating in a distribution of the New    
Notes cannot rely on such interpretations by the staff of the Commission and    
must comply with the registration and prospectus delivery requirements of the   
Securities Act in connection with any resale transaction. Each broker-dealer    
that receives New Notes for its own account 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, must acknowledge that it will deliver a 
prospectus in connection with any resale of such New Notes. See "Plan of        
Distribution."                                                                  

TERMS OF THE EXCHANGE OFFER                                                     

   Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the    
Exchange Offer), we will accept any and all Old Notes validly tendered and not  
withdrawn prior to 5:00 p.m., New York City time, on May 31, 1999, or such later
date and time to which it is extended (as it may be so extended, the "Expiration
Date").We will issue a principal amount of New Notes in exchange for an equal   
principal amount of outstanding Old Notes tendered and accepted in the Exchange 
Offer. Holders may tender some or all of their Old Notes pursuant to the        
Exchange Offer. The date of acceptance for exchange of the Old Notes for the New
Notes (the "Exchange Date") will be the first business day following the        
Expiration Date or as soon as practicable thereafter.                           

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     The terms of the New Notes and the Old Notes are substantially identical in
all material respects, except for certain transfer restrictions, registration   
rights and liquidated damages for defaults under the Registration Rights        
Agreement ("Registration Defaults") relating to the Old Notes which will not    
apply to the New Notes. See "Description of Notes." The New Notes will evidence 
the same debt as the Old Notes. The New Notes will be issued under and entitled 
to the benefits of the Indenture.                                               

As of the date of this Prospectus, $100.0 million aggregate principal 
amount of the Old Notes are outstanding. This Prospectus, together with the     
Letter of Transmittal, is being sent to all registered holders of Old Notes.    
Holders of Old Notes do not have any appraisal or dissenters' rights under state
law or the Indenture in connection with the Exchange Offer. We intend to conduct
the Exchange Offer in accordance with the provisions of the Registration Rights 
Agreement and the applicable requirements of the Securities Exchange Act of     
1934, as amended (the "Exchange Act"), and the rules and regulations of the     
Commission thereunder. Old Notes which are not tendered and were not prohibited 
from being tendered for exchange in the Exchange Offer will remain outstanding  
and continue to accrue interest and be subject to transfer restrictions, but    
will not be entitled to any rights or benefits under the Registration Rights    
Agreement.                                                                      

     Upon satisfaction or waiver of all the conditions to the Exchange Offer, on
the Exchange Date we will accept all Old Notes properly tendered and not        
withdrawn and will issue New Notes in exchange therefor. For purposes of the    
Exchange Offer, we shall be deemed to have accepted properly tendered Old Notes 
for exchange when, as and if we have given oral or written notice thereof to    
U.S. Bank Trust National Association, the trustee under the Indenture and the   
exchange agent for the Exchange Offer (the "Exchange Agent"). The Exchange Agent
will act as agent for the tendering holders for the purposes of receiving the   
New Notes from us.                                                              

 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 such Old Notes, a properly completed and duly executed 
Letter of Transmittal and all other required documents; provided, however, that 
we reserve the absolute right to waive any defects or irregularities in the     
tender or conditions of the Exchange Offer. If any tendered Old Notes are not   
accepted for any reason set forth in the terms and conditions of the Exchange   
Offer or if Old Notes are submitted for a greater principal amount than the     
holder desires to exchange, such nonexchanged Old Notes or substitute Old Notes 
evidencing the nonexchanged portion, as appropriate, will be returned without   
expense to the tendering holder thereof as promptly as practicable after the    
expiration or termination of the Exchange Offer.                                

    Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter 
of Transmittal, transfer taxes with respect to the exchange of Old Notes        
pursuant to the Exchange Offer. We will pay all charges and expenses, other than
certain applicable taxes described below, in connection with the Exchange Offer.
See "Fees and Expenses."                                                        

EXTENSION OF EXPIRATION DATE; AMENDMENTS                                        

   In order to extend the Expiration Date, we will notify the Exchange Agent
of any extension by oral or written notice and will mail to the registered      
holders an announcement thereof, prior to 9:00 a.m., New York City time, on the 
next business day after the then Expiration Date.                               

  We reserve the right, in our sole discretion, (i) to delay accepting any
Old Notes, to extend the Exchange Offer or to terminate the Exchange Offer if   
any of the conditions set forth below under "Conditions" shall not have been    
satisfied, by giving oral or written notice of such delay, extension or         
termination to the Exchange Agent or (ii) to amend the terms of the Exchange    
Offer. Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof. If the   
Exchange Offer is amended in a manner determined by us to constitute a          

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material change, we will promptly disclose such amendment in a manner reasonably
calculated to inform the holder of Old Notes of such amendment.                 

Without limiting the manner in which we may choose to make a public   
announcement of any delay, extension, amendment or termination of the Exchange  
Offer, we shall have no obligation 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                                                       

    The New Notes will bear interest at the rate of 11 3/8% per annum, payable
semi-annually, in cash, on March 15 and September 15 of each year, from the most
recent date to which interest has been paid on the Old Notes or, if no such     
payment has been made, from April 1, 1999.                                      

CONDITIONS                                                                      

Notwithstanding any other term of the Exchange Offer, we will not be  
required to exchange any new Notes for any Old Notes, and may terminate or amend
the Exchange Offer before the acceptance of any Old Notes for exchange, if:     

         (a) any action or proceeding is instituted or threatened in any court
    or by or before any governmental agency with respect to the Exchange Offer
     which seeks to restrain or prohibit the Exchange Offer or, in our judgment,
    would materially impair our ability to proceed with the Exchange Offer; or

    (b) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule, order or regulation is   
interpreted, by any government or governmental authority which, in our
    judgment, would materially impair our ability to proceed with the Exchange
Offer; or                                                             

      (c) the Exchange Offer or the consummation thereof would otherwise
violate or be prohibited by applicable law.                           

    If we determine in our sole discretion that any of these conditions is not
satisfied, we may (i) refuse to accept any Old Notes and return all tendered Old
Notes to the tendering holders, (ii) extend the Exchange Offer and retain all   
Old Notes tendered prior to the expiration of the Exchange Offer, subject,      
however, to the rights of holders who tendered such Old Notes to withdraw their 
tendered Old Notes, or (iii) waive such unsatisfied conditions with respect to  
the Exchange Offer and accept all properly tendered Old Notes which have not    
been withdrawn. If such waiver constitutes a material change to the Exchange    
Offer, we will promptly disclose such waiver by means of a prospectus supplement
that will be distributed to the registered holders, and we will extend the      
Exchange Offer for a period of five to ten business days, depending upon the    
significance of the waiver and the manner of disclosure to the registered       
holders, if the Exchange Offer would otherwise expire during such five to ten   
business day period.                                                            

     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 any time and from time to time in our sole  
discretion. Our failure at any time to exercise any of the foregoing rights     
shall not be deemed a waiver of any such right, and each such right shall be    
deemed an ongoing right which may be asserted at any time and from time to time.
Any determination by us concerning the events described above shall be final and
binding on all parties.                                                         

     In the event that applicable interpretations of the staff of the Commission
do not permit us to effect the Exchange Offer and under certain other           
circumstances, we will, at our cost, file with the Commission a Shelf           
Registration Statement to cover resales of Notes by the holders thereof who     
satisfy certain conditions relating to the provision of information in          
connection with the Shelf Registration Statement.                               

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PROCEDURES FOR TENDERING                                                        

The tender of Old Notes by a holder as set forth below (including the 
tender of Old Notes by book-entry delivery pursuant to the procedures of the    
Depository Trust Company ("DTC")) and the acceptance thereof by us 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 Letter of 
Transmittal.                                                                    

     Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must (i) complete, sign and date the  
Letter of Transmittal, or a facsimile thereof, have the signatures thereon      
guaranteed if required by the Letter of Transmittal, and mail or otherwise      
deliver such Letter of Transmittal or such facsimile, together with the Old     
Notes (unless such tender is being effected pursuant to the procedure for       
book-entry transfer described below) and any other required documents, to the   
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date,  
or (ii) comply with the guaranteed delivery procedures described below. Delivery
of all documents must be made to the Exchange Agent at its address set forth    
herein.                                                                         

   THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF   
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN  
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE     
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO 
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO US. BENEFICIAL OWNERS OF   
OLD NOTES MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.        

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 the registered holder promptly and instruct such       
registered holder to tender on such beneficial owner's behalf. If such          
beneficial owner wishes to tender on such owners' own behalf, such owner must,  
prior to completing and executing the Letter of Transmittal and delivering of   
such owner's Old Notes, either make appropriate arrangements to register        
ownership of the Old Notes in such owner's name or obtain a properly completed  
bond power from the registered holder. The transfer of registered ownership may 
take considerable time.                                                         

 Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by any Eligible Institution (as defined) unless 
the Old Notes tendered pursuant thereto are tendered (i) by a registered holder 
who has not completed the box entitled "Special Payment Instructions" or        
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the    
account of an Eligible Institution. In the event that signatures on a Letter of 
Transmittal or a notice of withdrawal, as the case may be, are required to be   
guaranteed, such guarantee must be by a 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 Exchange Act (an "Eligible Institution").                     

If the Letter of Transmittal is signed by a person other than the     
registered holder of any Old Notes listed therein, such Old Notes must be       
endorsed or accompanied by a properly completed bond power, signed by such      
registered holder as such registered holder's name appears on such Old Notes,   
with the signature thereon guaranteed by an Eligible Institution. If the Letter 
of Transmittal or any Old Notes or bond powers are signed by trustees,          
executors, administrators, guardians, attorneys-in-fact, officers of            
corporations or others acting in a fiduciary or representative capacity, such   
persons should so indicate when signing, and unless waived by us, evidence      
satisfactory to us of their authority to so act must be submitted with the      
Letter of Transmittal.                                                          

    Any financial institution that is a participant in the book-entry transfer
facility for the Old Notes, DTC, may make book-entry delivery of Old Notes by   
causing DTC to transfer such Old Notes into the Exchange Agent's account with   
respect to the Old Notes in accordance with DTC's procedures for such           

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transfer, including if applicable the procedures under the Automated Tender     
Offer Program ("ATOP"). Although delivery of Old Notes may be effected through  
book-entry transfer into the Exchange Agent's account at DTC, an appropriate    
Letter of Transmittal with any required signature guarantee and all other       
required documents must in each case be, or be deemed to be, transmitted to and 
received and confirmed by the Exchange Agent at its address set forth below on  
or prior to the Expiration Date, or, if the guaranteed delivery procedures      
described below are complied with, within the time period provided under such   
procedures.                                                                     

All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of 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 our acceptance of which would, in the    
opinion of our legal counsel, be unlawful. We also reserve the right to waive   
any defects, irregularities or conditions of tender as to particular 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. Although we  
intend to notify holders of defects or irregularities with respect to tenders of
Old Notes, neither we, the Exchange Agent nor any other person shall incur any  
liability for failure to give such notification. Tenders of Old Notes will not  
be deemed to have been made until such defects or 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 by the Exchange Agent to the tendering holders, unless  
otherwise provided in the Letter of Transmittal, as soon as practicable         
following the Expiration Date.                                                  

 In addition, we reserve the right in our sole discretion to purchase or
make offers for any Old Notes that remain outstanding subsequent to the         
Expiration Date or, as set forth below under "Conditions," to terminate the     
Exchange Offer and, to the extent permitted by applicable law, 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.                                                                 

    By tendering, each holder will also represent to us (i) that the New Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary      
course of business of the person receiving such New Notes, whether or not such  
person is the holder, (ii) that neither the holder nor any such person has an   
arrangement or understanding with any person to participate in the distribution 
of such New Notes and (iii) that neither the holder nor any such other person is
our "affiliate," as defined in Rule 405 under the Securities Act, or that if it 
is our "affiliate," it will comply with the registration and prospective        
delivery requirements of the Securities Act to the extent applicable.           

GUARANTEED DELIVERY PROCEDURES                                                  

    Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of   
Transmittal or any other required documents to the Exchange Agent prior to the  
Expiration Date, or (iii) who cannot complete the procedures for book-entry     
transfer of Old Notes to the Exchange Agent's account with DTC prior to the     
Expiration Date, may effect a tender if:                                        

(a) The tender is made through an Eligible Institution;               

  (b) On or prior to the Expiration Date, the Exchange Agent receives from
         such Eligible Institution a properly completed and duly executed Notice
 of Guaranteed Delivery (by facsimile transmission, mail or hand
 delivery) setting forth the name and address of the holder, the
         certificate number(s) of such Old Notes (if possible) and the principal
     amount of Old Notes tendered, stating that the tender is being made
        thereby and guaranteeing that, within five business trading days after
  the Expiration Date, (i) the Letter of Transmittal (or facsimile
      thereof) together with the certificate(s) representing the Old Notes
       and any other documents required by the Letter of Transmittal will be
        deposited by the Eligible Institution with the Exchange Agent, or (ii)
      that book-entry transfer of such Old Notes into the Exchange Agent's
account at DTC will be                                        
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         effected and confirmation of such book-entry transfer will be delivered
to the Exchange Agent; and                                    

(c) Such properly completed and executed Letter of Transmittal (or    
    facsimile thereof), as well as the certificate(s) representing all
        tendered Old Notes in proper form for transfer and all other documents
      required by the Letter of Transmittal, or confirmation of book-entry
         transfer of the Old Notes into the Exchange Agent's account at DTC, are
        received by the Exchange Agent within five business trading days after
      the Expiration Date. Upon request to the Exchange Agent, a Notice of
      Guaranteed Delivery will be sent to holders who wish to tender their
     Old Notes according to the guaranteed delivery procedures set forth
above.                                                        

TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL                               

     The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer:                           

 The holder tendering Old Notes exchanges, assigns and transfers the Old
Notes to us and irrevocably constitutes and appoints the Exchange Agent as the  
holder's agent and attorney-in-fact to cause the Old Notes to be assigned,      
transferred and exchanged. The holder represents and warrants to us and the     
Exchange Agent that (i) it has full power and authority to tender, exchange,    
assign and transfer the Old Notes and to acquire the New Notes in exchange for  
the Old Notes, (ii) when the Old Notes are accepted for exchange, we will       
acquire good and unencumbered title to the Old Notes, free and clear of all     
liens, restrictions, charges and encumbrances and not subject to any adverse    
claim, (iii) it will, upon request, execute and deliver any additional documents
deemed by us to be necessary or desirable to complete the exchange, assignment  
and transfer of tendered Old Notes and (iv) acceptance of any tendered Old Notes
by us and the issuance of New Notes in exchange therefor will constitute        
performance in full by us of our obligations under the Registration Rights      
Agreement and we will have no further obligations or liabilities thereunder to  
such holders (except with respect to broker-dealers and with respect to accrued 
and unpaid Liquidated Damages, if any). All authority conferred by the holder   
will survive the death or incapacity of the holder and every obligation of the  
holder will be binding upon the heirs, legal representatives, successors,       
assigns, executors and administrators of the holder.                            

     Each holder will also certify that it (i) is not our "affiliate" within the
meaning of Rule 405 under the Securities Act or that, if it is an "affiliate,"  
it will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, (ii) is acquiring the New Notes in the 
ordinary course of its business and (iii) has no arrangement with any person or 
intent to participate in, and is not participating in, the distribution of the  
New Notes.                                                                      

WITHDRAWAL OF TENDERS                                                           

    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.     

    To withdraw a tender of Old Notes in the Exchange Offer, a telegram telex,
facsimile transmission or letter indicating notice of withdrawal must be        
received by the Exchange Agent at its address set forth herein prior to 5:00    
p.m., New York City time, on the Expiration Date. Any such notice of withdrawal 
must (i) specify the name of the person having tendered the Old Notes to be     
withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn        
(including the certificate number or numbers and principal amount of such Old   
Notes), (iii) 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 sufficient to have the Trustee with respect to the Old Notes register  
the transfer of such Old Notes into the name of the person withdrawing the      
tender and (iv) specify the name in which any such Old Notes are to be          
registered, if different from that of the Depositor. If Old Notes have been     
tendered pursuant to the procedure for book-entry transfer, any notice of       
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawn Old Notes or otherwise comply with DTC's procedures. All     
questions as to the validity, form and eligibility (including time of receipt)  
of such notices will be determined by us, and our                               

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determination shall be final and binding on all parties. Any Old Notes so       
withdrawn will be deemed not to have been validly tendered 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. Any Old Notes which have been    
tendered but which are not accepted for payment will be returned to the holder  
thereof without cost to such holder 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 above under
"Procedures for Tendering" at any time prior to the Expiration Date.            

NONTENDERED OLD NOTES                                                           

   Holders of Old Notes whose Old Notes are not tendered or are tendered but
not accepted in the Exchange Offer will continue to hold such Old Notes and will
be entitled to all the rights and preferences and subject to the limitations    
applicable thereto under the Indenture. Following consummation of the Exchange  
Offer, the holders of Old Notes will continue to be subject to the existing     
restrictions upon transfer thereof and we will have no further obligations to   
such holders, to provide for the registration under the Securities Act of the   
Old Notes held by them. To the extent that Old Notes are tendered and accepted  
in the Exchange Offer, the trading market for nontendered and tendered but      
unaccepted Old Notes could be adversely affected.                               

EXCHANGE AGENT                                                                  

    U.S. Bank Trust National Association, the Trustee under the Indenture, has
been appointed as Exchange Agent of the Exchange Offer. Questions and requests  
for assistance, requests for additional copies of this Prospectus or of the     
Letter of Transmittal and requests for Notices of Guaranteed Delivery should be 
directed to the Exchange Agent addressed as follows:                            

By Registered or Certified Mail, by hand                                        
or by Overnight Courier:                                                        

U.S. Bank Trust National Association                                            
100 Wall Street, Suite 2000                                                     
New York, New York 10005                                                        
Attention: Specialized Finance Department                                       

or

U.S. Bank Trust National Association                                            
180 East Fifth Street                                                           
St. Paul, Minnesota 55101                                                       
Attention: Corporate Trust Administration                                       
SPFT 020                                                                        
By Facsimile:                                                                   

U.S. Bank Trust National Association                                            
Attention: Corporate Trust Administration                                       
SPFT 020                                                                        
(651) 244-1537                                                                  
Confirm by Telephone:                                                           
(800) 934-6802                                                                  

DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF         
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A  
VALID DELIVERY.                                                                 

FEES AND EXPENSES                                                               

The expenses of soliciting tenders will be borne by us. The principal 
solicitation is being made by mail; however, additional solicitation may be made
by telegraph, telephone or in person by officers, regular employees or agents.  

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 We have not retained any dealer-manager in connection with the Exchange
Offer and will not make any payments to brokers, dealers or others soliciting   
acceptances of the Exchange Offer. We will, however, pay the Exchange Agent     
reasonable and customary fees for its services and will reimburse it for its    
reasonable out-of-pocket expenses in connection therewith and will pay the      
reasonable fees and expenses of holders in delivering their Old Notes to the    
Exchange Agent.                                                                 

 Our cash expenses to be incurred in connection with our performance and
completion of the Exchange Offer will be paid by us. Such expenses include fees 
and expenses of the Exchange Agent and Trustee, accounting and legal fees and   
printing costs, among others.                                                   

   We will pay all transfer taxes, if any, applicable to the exchange of Old
Notes pursuant to the Exchange Offer. If, however, certificates representing New
Notes or Old Notes for principal amounts not tendered or accepted for exchange  
are to be delivered to, or are to be 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 (whether 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                                             

     Upon consummation of the Exchange Offer, holders of Old Notes that were not
prohibited from participating in the Exchange Offer and did not tender their Old
Notes will not have any registration rights under the Registration Rights       
Agreement with respect to such nontendered Old Notes and, accordingly, such Old 
Notes will continue to be subject to the restrictions on transfer contained in  
the legend thereon. In general, the Old Notes may not be offered or sold, unless
registered under the Securities Act and applicable state securities laws, except
pursuant to an exemption from, or in a transaction not subject to, the          
Securities Act and applicable state securities laws. We do not intend to        
register the Old Notes under the Securities Act. Based on interpretations by the
staff of the Commission with respect to similar transactions, we believe that   
the New Notes issued pursuant to the Exchange Offer in exchange for Old Notes   
may be offered for resale, resold and otherwise transferred by any holder of    
such New Notes (other than any such holder which is our "affiliate" 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 such holder's        
business, such holder has no arrangement or understanding with any person to    
participate in the distribution of such New Notes and neither the holder nor any
other person is engaging in or intends to engage in a distribution of the New   
Notes. If any holder has any arrangement or understanding with respect to the   
distribution of the New Notes to be acquired pursuant to the Exchange Offer, the
holder (i) could not rely on the applicable interpretations of the staff of the 
Commission and (ii) must comply with the registration and prospectus delivery   
requirements of the Securities Act in connection with any resale transaction.   
Each broker-dealer that receives New Notes for its own account in exchange for  
Old Notes must acknowledge that it will deliver a prospectus in connection with 
any resale of its New Notes. See "Plan of Distribution." The New Notes may not  
be offered or sold unless they have been registered or qualified for sale under 
applicable state securities laws or an exemption from registration or           
qualification is available and is complied with. We are required, under the     
Registration Rights Agreement, to register the New Notes in any jurisdiction    
requested by the holders, subject to certain limitations.                       

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OTHER                                                                           

Participation in the Exchange Offer is voluntary and holders should   
carefully consider whether to accept. Holders of the Old Notes are urged to     
consult their financial and tax advisors in making their own decisions on what  
action to take.                                                                 

     Upon consummation of the Exchange Offer, holders of the Old Notes that were
not prohibited from participating in the Exchange Offer and did not tender their
Old Notes will not have any registration rights under the Registration Rights   
Agreement with respect to such nontendered Old Notes and, accordingly, such Old 
Notes will continue to be subject to the restrictions on transfer contained in  
the legend thereon. However, in the event we fail to consummate the Exchange    
Offer or a holder of Old Notes notifies us in accordance with the Registration  
Rights Agreement that it will be unable to participate in the Exchange Offer due
to circumstances delineated in the Registration Rights Agreement, then the      
holder of the Old Notes will have certain rights to have such Old Notes         
registered under the Securities Act pursuant to the Registration Rights         
Agreement and subject to conditions contained therein.                          

   We have not entered into any arrangement or understanding with any person
to distribute the New Notes to be received in the Exchange Offer, and to the    
best of our information and belief, each person participating in the Exchange   
Offer is acquiring the New Notes in its ordinary course of business and has no  
arrangement or understanding with any person to participate in the distribution 
of the New Notes to be received in the Exchange Offer. In this regard, we will  
make each person participating in the Exchange Offer aware (through this        
Prospectus or otherwise) that if the Exchange Offer is being registered for the 
purpose of secondary resale, any holder using the Exchange Offer to participate 
in a distribution of New Notes to be acquired in the registered Exchange Offer  
(i) may not rely on the staff position enunciated in Morgan Stanley and Co.     
Incorporated (available June 5, 1991) and Exxon Capital Holdings Corporation    
(available May 13, 1988) or similar letters and (ii) must comply with           
registration and prospectus delivery requirements of the Securities Act in      
connection with a secondary resale transaction.                                 

ACCOUNTING TREATMENT                                                            

    The New Notes will be recorded at the same carrying value as the Old Notes
as reflected in our accounting records on the Exchange Date. Accordingly, no    
gain or loss for accounting purposes will be recognized by us. The expenses of  
the Exchange Offer will be expensed over the term of the New Notes.             

USE OF PROCEEDS 

 The net proceeds received by us from the offering of the Old Notes were
approximately $93.8 million (after deducting discounts to the Initial Purchasers
and offering expenses). We will not receive any proceeds from the Exchange      
Offer. The net proceeds from the offering of the Old Notes is being used to (i) 
develop new Clubs, (ii) repay existing indebtedness and (iii) for general       
corporate purposes.                                                             

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CAPITALIZATION

   The following table sets forth our capitalization as of December 31, 1998
and as adjusted to give effect to the consummation of the offering of the Old   
Notes and the application of the net proceeds therefrom as set forth under "Use 
of Proceeds" as if the offering of the Old Notes had occurred on December 31,   
1998. The following table should be read in conjunction with "Management's      
Discussion and Analysis of Financial Condition and Results of Operations" and   
our financial statements and the notes thereto appearing elsewhere in this      
Prospectus.                                                                     

                                                                [Download Table]

                                                             AS OF DECEMBER 31, 1998
                                                             -----------------------
                                                              ACTUAL     AS ADJUSTED
                                                             --------    -----------
                                                             (DOLLARS IN THOUSANDS) 
                                                                                    
Cash and cash equivalents(a)................................ $  2,233     $ 67,984  
                                                             ========     ========  
Total debt:                                                                         
  Senior Secured Notes due 2006............................. $     --     $100,000  
  The Sports Club/Irvine Note...............................    4,375           --  
  Spectrum Club - Agoura Hills Note.........................    2,506           --  
  Spectrum Clubs - Fullerton and Santa Ana Lease............    9,745           --  
  Note payable(b)...........................................    2,667        2,667  
  Equipment financing and capitalized lease obligations.....    7,208        7,208  
  Credit facility(c)........................................   10,940           --  
                                                             --------     --------  
          Total debt........................................   37,441      109,875  
Stockholders' equity(d).....................................  104,539      104,539  
                                                             --------     --------  
          Total capitalization.............................. $141,980     $214,414  
                                                             ========     ========  

-------------------------                                                       
(a) As Adjusted cash and cash equivalents include approximately $54.4 million   
deposited in the Disbursement Account pending disbursement in accordance
 with the Disbursement Agreement. Based on debt outstanding as of February
28, 1999, As Adjusted cash and cash equivalents would be $62.1 million. 

(b) This note was issued in April 1998 in connection with the development of our
  Club in the upper east side of Manhattan, bears no interest and is payable
in two equal installments in April 1999 and April 2000.                 

(c) As of February 28, 1999, there was $17.0 million outstanding under our      
    credit facility. We repaid all amounts outstanding under the credit facility
 with the proceeds from the offering of the Old Notes. We currently have a
$20.0 million credit facility. See "Description of Credit Facility."    

(d) In 1999, our Board of Directors authorized the use of $8.4 million to       
repurchase our common stock, of which we have spent $6.8 million through
April 26, 1999.                                                         

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SELECTED CONSOLIDATED FINANCIAL INFORMATION 

   The following table presents our summary financial and operating data for
the fiscal years ended December 31, 1994 through 1998 and have been derived from
our consolidated financial statements, which have been audited by KPMG LLP,     
independent certified public accountants. The summary financial and operating   
data should be read in conjunction with, and is qualified in its entirety by    
reference to, "Management's Discussion and Analysis of Financial Condition and  
Results of Operations" and our consolidated financial statements and the notes  
thereto appearing elsewhere in this Prospectus.                                 

                                                        [Enlarge/Download Table]

                                                                      FISCAL YEAR ENDED DECEMBER 31,           
                                                             ------------------------------------------------- 
                                                             1994(1)    1995      1996       1997       1998   
                                                             -------   -------   -------   --------   -------- 
                                                                          (DOLLARS IN THOUSANDS)               
                                                                                                               
STATEMENT OF INCOME DATA:                                                                                      
  Revenues.................................................. $18,846   $34,659   $36,918   $ 61,154   $ 81,923 
  Operating expenses:                                                                                          
    Direct..................................................  10,525    21,730    22,989     43,517     56,746 
    Selling, general and administrative.....................   3,166     5,486     6,052      6,607      8,556 
    Depreciation and amortization...........................   1,510     2,775     2,490      3,919      5,282 
                                                             -------   -------   -------   --------   -------- 
         Total operating expenses...........................  15,201    29,991    31,531     54,043     70,584 
                                                             -------   -------   -------   --------   -------- 
         Income from operations.............................   3,645     4,668     5,387      7,111     11,339 
  Other income (expense):                                                                                      
    Interest................................................  (1,213)   (2,600)   (2,682)    (3,206)    (1,629)
    Minority interests......................................     (29)     (150)     (150)       (22)      (150)
    Equity interest in net income of unconsolidated                                                            
      subsidiaries..........................................     641       860       631        696        880 
    Non-recurring items.....................................      --        --      (300)    (2,025)      (314)
                                                             -------   -------   -------   --------   -------- 
         Total other income (expense).......................    (601)   (1,890)   (2,501)    (4,557)    (1,213)
                                                             -------   -------   -------   --------   -------- 
         Income before income taxes and extraordinary                                                          
           charge...........................................   3,044     2,778     2,886      2,554     10,126 
  Provision for income taxes................................   1,244     1,139     1,183      1,014      3,971 
                                                             -------   -------   -------   --------   -------- 
         Net income before extraordinary charge.............   1,800     1,639     1,703      1,540      6,155 
  Extraordinary charge from early extinguishment of debt,                                                      
    net of income tax effect of $1,331......................      --        --        --         --      2,173 
                                                             -------   -------   -------   --------   -------- 
         Net income......................................... $ 1,800   $ 1,639   $ 1,703   $  1,540   $  3,982 
                                                             =======   =======   =======   ========   ======== 
  Net income per share:                                                                                        
    Basic................................................... $  0.23   $  0.14   $  0.15   $   0.12   $   0.21 
                                                             =======   =======   =======   ========   ======== 
    Diluted................................................. $  0.23   $  0.14   $  0.15   $   0.12   $   0.21 
                                                             =======   =======   =======   ========   ======== 
  Net income per share before non-recurring items and                                                          
    extraordinary charge:                                                                                      
    Basic................................................... $  0.23   $  0.14   $  0.17   $   0.22   $   0.35 
                                                             =======   =======   =======   ========   ======== 
    Diluted................................................. $  0.23   $  0.14   $  0.17   $   0.22   $   0.34 
                                                             =======   =======   =======   ========   ======== 
  Weighted average number of common shares outstanding:                                                        
    Basic...................................................   7,836    11,353    11,355     12,524     18,603 
                                                             =======   =======   =======   ========   ======== 
    Diluted(2)..............................................   7,836    11,357    11,360     12,683     18,829 
                                                             =======   =======   =======   ========   ======== 
  Ratio of earnings to fixed charges(3).....................    2.0x      1.5x      1.6x       1.2x       1.9x 

                                                        [Enlarge/Download Table]

                                                                              AT DECEMBER 31,                 
                                                             -------------------------------------------------
                                                             1994(1)    1995      1996       1997       1998  
                                                             -------   -------   -------   --------   --------
                                                                          (DOLLARS IN THOUSANDS)              
                                                                                                              
BALANCE SHEET DATA:                                                                                           
  Cash and cash equivalents................................. $ 5,042   $ 1,545   $ 4,146   $  1,581   $  2,233
  Current assets............................................   7,398     7,147     7,341      4,926      7,043
  Property and equipment, net...............................  59,811    59,956    72,736    106,791    135,269
  Total assets..............................................  81,676    83,161    95,697    131,561    163,757
  Deferred membership revenue...............................   5,878     5,614     7,481      9,936      9,953
  Current liabilities.......................................  11,194    11,355    14,159     26,844     26,199
  Long-term debt including current installments.............  33,489    32,913    38,497     50,798     37,441
  Stockholders' equity......................................  37,823    39,492    41,202     58,477    104,539

-------------------------                                                       
(1) Prior to October 20, 1994, we operated through various partnerships and     
    corporations. Historical data for periods through October 20, 1994 have been
    adjusted to reflect compensation and tax provisions as if we had operated as
a C corporation during such period.                                     

(2) Does not include up to 159,081 shares to be issued in 1999 as consideration 
for the acquisition of Spectrum Clubs acquired from Racquetball World.  

(3) Fixed charges include interest charges, amortization of debt expenses and   
discounts, and the estimated interest within rental expense.            

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

OVERVIEW                                                                        

The following discussion should be read in conjunction with our       
consolidated financial statements and notes thereto appearing elsewhere herein. 
The operations of Reebok Sports Club/NY were accounted for under the equity     
method of accounting until December 30, 1996, at which time we acquired a       
majority interest in the Club. Following such date, we have consolidated the    
operations of Reebok Sports Club/NY with our other consolidated operations. The 
Spectrum Club - Manhattan Beach is accounted for under the equity method of     
accounting.                                                                     

  In July 1997, we opened the Spectrum Club - Valencia. In August 1997, we
acquired a sports and fitness club in Henderson, Nevada which we converted to   
The Sports Club/Las Vegas in a transaction accounted for as a purchase. On      
December 31, 1997, we acquired four Clubs in Southern California in a           
transaction accounted for as a purchase; one of these Clubs was leased to       
another health and fitness operator in January 1999; the other three Clubs are  
now operated as Spectrum Clubs. In November 1998 we closed the Spectrum         
Club - Santa Monica. Seasonal factors have not had a significant effect on our  
operating results.                                                              

RESULTS OF OPERATIONS                                                           

    Fiscal 1998. Our revenues for the year ended December 31, 1998, were $81.9
million, compared to $61.2 million for 1997, an increase of $20.7 million or    
33.8%. An increase of $14.6 million resulted from revenue at our new Clubs      
acquired and/or opened during the last six months of 1997. Revenue growth of    
$6.1 million resulted from the remaining Clubs and SportsMed.                   

     Our direct operating expenses increased to $56.7 million for the year ended
December 31, 1998, compared to $43.5 million for 1997. The increase resulted    
primarily from the Clubs acquired and/or opened during the last six months of   
1997. Direct operating expenses as a percentage of revenues decreased to 69.3%  
for 1998 compared 71.2% for 1997. Operating margins continued to improve at     
Reebok Sports Club/NY as membership levels at this Club continued to mature.    
Lower operating margins at the recently acquired Clubs partially offset this    
increase.                                                                       

     Selling, general and administrative expenses were $8.6 million for the year
ended December 31, 1998, compared to $6.6 million for 1997. Selling costs       
increased approximately $900,000 primarily due to Clubs acquired and/or opened  
during the last six months of 1997. General and administrative costs increased  
by approximately $1.1 million as we added corporate overhead to support the six 
new Clubs and the growth of SportsMed. Selling, general and administrative costs
decreased as a percentage of revenue from 10.8% for 1997 to 10.4% for 1998. We  
believe these costs should continue to decrease as a percentage of future       
revenues as we expand and achieve economies of scale. There is no assurance,    
however, that said expansion or economies of scale will be achieved.            

     Depreciation and amortization expenses were $5.3 million for the year ended
December 31, 1998, compared to $3.9 million for 1997. The increase is primarily 
due to the addition of depreciation and amortization at the Clubs acquired      
and/or opened during the last six months of 1997. Interest expense was $1.6     
million for the year ended December 31, 1998, compared to $3.2 million for 1997.
Interest expense decreased due to the payoff of the note secured by The Sports  
Club/LA in April 1998 with the proceeds of a common stock offering.             

     Equity interest in net income of unconsolidated subsidiary was $880,000 for
the year ended December 31, 1998, compared to $696,000 for 1997, an increase of 
$184,000 or 26.4%. These amounts are associated with improved profits at the    
Spectrum Club - Manhattan Beach operations.                                     

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Costs reported as non-recurring items were $314,000 for the year ended
December 31, 1998, compared to $2,025,000 for 1997. The non-recurring expense in
1998 is associated with our closing of the Spectrum Club - Santa Monica and     
moving its members to the Spectrum Club - Water Garden. The non-recurring loss  
in 1997 was the result of a litigation settlement.                              

   Our net income before income taxes, non-recurring items and extraordinary
charge was $10.4 million for the year ended December 31, 1998, compared to $4.6 
million for 1997. In 1998, we incurred a loss from the early extinguishment of  
debt, net of applicable taxes, of $2.2 million, which was recorded as an        
extraordinary charge.                                                           

     Our estimated income tax rate was 38% for the years ended December 31, 1998
and 1997, resulting in net income of $4.0 million for 1998 and $1.5 million for 
1997. Basic and diluted earnings per share, before non-recurring items and      
extraordinary charge, was $.35 and $.34 in 1998 and $.22 and $.22 in 1997,      
respectively. Basic and diluted net income per share was $.21 in 1998 and $.12  
in 1997.                                                                        

    Fiscal 1997. Our revenues for the year ended December 31, 1997, were $61.2
million, compared to $36.9 million for 1996, an increase of $24.3 million or    
65.9%. The increase resulted from the following revenue sources: Reebok Sports  
Club/NY, which was consolidated following the acquisition of a majority interest
in the Club on December 30, 1996, contributed revenues of $18.1 million; the    
Spectrum Club - Valencia contributed revenues of $1.6 million; SportsMed        
contributed revenues of $1.5 million; and growth at the remaining Clubs         
contributed revenues of $900,000.                                               

     Our direct operating expenses increased to $43.5 million for the year ended
December 31, 1997, compared to $23.0 million for 1996. The increase resulted    
primarily from the inclusion of operating expenses at Reebok Sports Club/NY, the
opening of the Spectrum Club - Valencia and the acquisition of The Sports       
Club/Las Vegas. Direct operating expenses as a percentage of revenues increased 
to 71.2% for 1997 compared to 62.3% for 1996 due to lower margins at Reebok     
Sports Club/NY and the Spectrum Club - Valencia. Newly developed Clubs          
historically operate at lower margins due to various fixed expenses such as     
rent, utilities and certain payroll costs until the membership reaches a mature 
level. Similarly, newly acquired Clubs may also perform at lower margins prior  
to and during implementation of new policies and programs.                      

     Selling, general and administrative expenses were $6.6 million for the year
ended December 31, 1997, compared to $6.1 million for 1996. Selling costs       
increased approximately $211,000 due to the consolidation of direct selling     
expenses incurred at Reebok Sports Club/NY, the opening of the Spectrum Club -  
Valencia and the acquisition of The Sports Club/Las Vegas. General and          
administrative costs increased by approximately $300,000 due to increases in    
corporate overhead and the addition of personnel to accommodate new Clubs.      
Selling, general and administrative costs decreased as a percentage of revenue  
from 16.4% for 1996 to 10.8% for 1997. This percentage decrease resulted from   
the consolidation of Reebok Sports Club/NY revenues. The consolidation of       
revenues from Reebok Sports Club/NY did not increase general and administrative 
costs because we managed the Club and accrued these costs prior to the          
consolidation.                                                                  

     Depreciation and amortization expenses were $3.9 million for the year ended
December 31, 1997, compared to $2.5 million for 1996. The increase was due      
primarily to the consolidation of Reebok Sports Club/NY, the opening of the     
Spectrum Club - Valencia and the acquisition of The Sports Club/Las Vegas.      
Interest expense was $3.2 million in the year ended December 31, 1997, compared 
to $2.7 million for 1996. Interest expense of $340,000 at Reebok Sports Club/NY 
and interest on new equipment financings was partially offset by increased      
interest income due to more available cash for investment and lower principal   
balances as other indebtedness matured.                                         

     Equity interest in net income of unconsolidated subsidiary was $696,000 for
1997 compared to $631,000 for 1996. These amounts are associated with the       
Spectrum Club - Manhattan Beach's operations and the increase reflects our share
of the improved profitability at that Club. Equity in the operations of Reebok  
Sports Club/NY was not significant for 1996.                                    

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     Our net income before income taxes and non-recurring items was $4.6 million
for the year ended December 31, 1997 compared to $3.2 million for 1996.         
Non-recurring items for 1997 consisted of litigation settlement costs of $2.0   
million relating to the closing of the Spectrum Club - Century City in July     
1995. Non-recurring items for 1996 were $300,000.                               

   Our income tax rate was 38% for the year ended December 31, 1997, and 41%
for 1996, resulting in net income of $1.5 million for the year ended December   
31, 1997, compared to net income of $1.7 million in 1996. After tax net income  
before non-recurring items was $2.8 million for 1997, compared to $1.9 million  
for 1996. The lower tax rate for 1997 resulted from the reduction of valuation  
allowances on certain deferred income tax assets. Basic and diluted earnings per
share were $.12 and $.15 for the years ended December 31, 1997 and 1996,        
respectively. Basic and diluted earnings per share excluding non-recurring items
were $.22 and $.17 for the years ended December 31, 1997 and 1996, respectively.

LIQUIDITY AND CAPITAL RESOURCES                                                 

     During the year ended December 31, 1998, we generated $10.0 million of cash
from operating activities, compared to $4.5 million in fiscal 1997. At December 
31, 1998, we had a cash balance of $2.2 million available for general corporate 
purposes.                                                                       

    During 1998, we generated $26.1 million of cash from financing activities.
In April 1998, we completed the sale of 6,500,000 shares of our common stock and
realized net proceeds of $48.7 million. A portion of these funds was used to    
repay indebtedness. During 1998 we reduced our long-term debt by $13.4 million. 

Cash flows used in investing activities were $35.4 million in 1998. We
invested $28.6 million in capital expenditures for both existing Clubs and new  
Club developments and we repurchased $6.8 million of our common stock at an     
average price of $6.14 per share. In 1999, we authorized the repurchase of an   
additional $4.0 million of our common stock, $3.4 million of which has been     
repurchased to date.                                                            

Transactions with Millennium. We currently own a 60% interest in the  
Reebok-Sports Club/NY partnership. The Reebok-Sports Club/NY partnership makes  
monthly payments of $75,000 to repay the equipment loan and $167,000 to         
Millennium as rent. Available cash flows of the Reebok-Sports Club/NY           
partnership are applied as follows: (1) $3.0 million per year is used to pay a  
priority distribution to Millennium which is accounted for as additional rent   
expense; and (2) remaining cash is distributed to us as accrued management fees,
to satisfy the $3.0 million note payable and as a priority distribution, which  
at December 31, 1998 aggregated $11.0 million. After these amounts plus interest
thereon are paid, we are entitled to 60% of future cash distributions.          

   In December 1997, we acquired four Clubs from Racquetball World. Three of
these Clubs are now operated as Spectrum Clubs, and one Club was leased to      
another health and fitness operator in January 1999. Millennium acquired        
properties underlying two of the Clubs for $10.0 million and is leasing these   
properties to us under a financing lease agreement which is reflected as a      
capital lease obligation on our consolidated balance sheet. We have the right   
until December 2000 to purchase the leased property from Millennium for a       
purchase price determined pursuant to the lease (currently estimated to be      
approximately $10.2 million). Millennium has the right under certain            
circumstances to require us to acquire its interest in the property. See        
"Certain Relationships and Related Transactions." We have entered into an       
agreement to sell one of these Clubs and intend to purchase Millennium's        
interest in these properties with the sale proceeds and a portion of the        
proceeds of the offering of the Old Notes. See "Use of Proceeds."               

  We are also developing three Clubs with Millennium as described below in
"New Club Development."                                                         

   New Club Development. In February 1998, we signed a lease with respect to
the development of a Sports Club at Rockefeller Center in New York City. We have
begun to renovate the space and expect to                                       

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commence pre-sale activities in late 1999 and to open the Club in the last      
quarter of 1999. We delivered a $4.0 million letter of credit to the landlord to
secure our performance under the lease agreement. Based on preliminary          
estimates, we expect to spend approximately $15.4 million to complete           
development of this Club.                                                       

   In April 1998, we acquired rights to develop a Sports Club on the site of
the former Vertical Club in New York City. We issued a non-interest bearing note
for $2.7 million to the seller of the Club, and are required to pay principal in
two equal installments in April 1999 and April 2000. Based on preliminary       
estimates, we expect to spend approximately $25.6 million to complete           
development of this Club.                                                       

   We have entered into lease agreements with Millennium with respect to the
development of Sports Clubs in San Francisco and Washington, D.C. and are       
negotiating a lease with Millennium for a Sports Club in Boston. Millennium     
began construction on each of these projects in 1998. Our portion of the        
aggregate development costs for these Clubs is currently estimated to be        
approximately $16.5 million.                                                    

In June 1998, we acquired undeveloped land in Houston, Texas, for     
approximately $3.1 million, on which we intend to develop a Sports Club. Based  
on preliminary estimates, we expect to spend approximately $19.3 million to     
complete development of this Club.                                              

We are developing three Spectrum Clubs on leased sites in Southern    
California which are expected to open in late 1999 and early 2000. Based on     
preliminary estimates, we expect to spend approximately $4.3 million to complete
development of these Clubs.                                                     

 Financing Activities. We currently have a $20.0 million credit facility
($12.0 million pending the satisfaction of certain conditions) with a maturity  
date of May 31, 2001. Advances under our credit facility bear interest at a     
variable rate not expected to exceed LIBOR plus 2 1/2% or the agent's prime     
rate. At December 31, 1998, the amount outstanding under our credit facility was
approximately $10.9 million which accrued interest at the weighted-average rate 
of 7.75% per annum. See "Description of Credit Facility" and "Use of Proceeds." 

   The net proceeds of the offering of the Old Notes are being used to repay
approximately $34.0 million of debt, to provide funds for future developments   
and for general corporate purposes. The following debt, other than the capital  
leases payable to Millennium, were repaid with the proceeds of the offering of  
the Old Notes. We expect to repay the capital leases payable to Millennium      
within 60 days:                                                                 

                                                                [Download Table]

                                                             (DOLLARS IN MILLIONS)
                                                             ---------------------
                                                                                  
- The Sports Club/Irvine note...............................         $ 4.3        
- the Spectrum Club - Agoura Hills note.....................           2.5        
- capital leases payable to Millennium related to Spectrum                        
  Clubs in Fullerton and Santa Ana..........................          10.2        
- outstanding borrowing under our credit facility...........          17.0        
                                                                     -----        
                                                                     $34.0        
                                                                     =====        

    Future Capital Requirements. Other than as described herein and for normal
replacement of fitness equipment and remodeling of Clubs, we have no commitments
for capital expenditures. We expect to spend approximately $1.2 million during  
the next 12 months to upgrade our management information systems. Equipment     
financing has generally been available. We had equipment financing of $7.2      
million outstanding at December 31, 1998. Amounts borrowed pursuant to equipment
financing arrangements are generally repayable in monthly installments over five
years, with effective interest rates between 8% and 10% per annum. While capital
expenditures may fluctuate from time to time, generally we expect to spend      
approximately 4% of revenues on facility and equipment upgrades and             
replacements. In 1998, we invested $16.7 million in capital expenditures at     
existing Clubs, which included $11.7 million of major renovations at the five   
Clubs we acquired in 1997. Equipping new Clubs requires expenditures above this 
level.                                                                          

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Our long-term capital needs are to provide funds for the developments 
described above, for additional development and acquisition projects and for    
general corporate purposes. We estimate that the net proceeds of the offering of
the Old Notes, operating cash flows, and credit to be available under our credit
facility will be sufficient to fund our capital expenditures in fiscal 1999 and 
2000 on the projects currently under development. Acquiring and developing      
additional Clubs will require additional capital. Pursuant to the terms of the  
Indenture, we may borrow up to $20.0 million under our credit facility and up to
$10.0 million through equipment financing. In addition, if certain conditions   
are met, the terms of the Indenture and our credit facility may permit us to    
incur additional indebtedness. We may also consider entering into joint venture 
and partnership agreements for the purpose of developing new Clubs, subject to  
the terms of the Indenture and our credit facility.                             

RECENT ACCOUNTING PRONOUNCEMENTS                                                

  In April 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-up    
Activities." SOP 98-5 requires that costs of start-up activities, including     
organization costs and Club openings, be expensed as incurred. SOP 98-5 is      
applicable to financial statements for fiscal years beginning after December 15,
1998. Restatement of previously issued financial statements is not permitted. In
the fiscal year for which SOP 98-5 is first adopted, the application should be  
reported as a cumulative effect of a change in accounting principle. We will    
adopt SOP 98-5 effective January 1, 1999, and, accordingly, will record a       
one-time cumulative effect of a change in accounting principle, net of related  
income taxes. The amount of this charge is currently expected to be             
approximately $1.0 million.                                                     

YEAR 2000 READINESS                                                             

    Until recently, computer programs were written to store only two digits of
date-related information in order to more efficiently handle and store data, and
thus are unable to distinguish between the year 1900 and the year 2000. This    
problem is frequently referred to as the "year 2000 problem." We have initiated 
a Year 2000 Project to bring all of our information technology ("IT") systems   
and non-IT systems into year 2000 compliance. Utilizing internal resources, we  
are in the process of defining, assessing and converting, or replacing, various 
programs, hardware and instrumentation systems to make them year 2000 compliant.

Our IT systems include our computer equipment and software relating to
membership, financial accounting and sales of products and services. Non-IT     
systems include our communications systems, alarm and security systems,         
elevators and fitness equipment. Our Year 2000 Project focuses on three IT      
component systems as well as non-IT systems.                                    

Membership Systems. The software programs we currently use to store   
membership and fee collection data and to process EFT and credit card           
transactions are not year 2000 compliant. We are installing a new system which  
is year 2000 compliant, which we expect to be in service at The Sports Club/LA  
and several other Clubs during the fourth quarter of 1999, and to be in service 
in all Clubs by the end of the first quarter of the year 2000. Because we do not
anticipate installing the new membership system in all Clubs prior to the year  
2000, we are also modifying our current membership systems to be year 2000      
compliant. We expect these modified systems to be operational during the third  
quarter of 1999.                                                                

    Financial Accounting Systems. The supplier of the installed version of our
financial accounting system has orally represented to us that the system is year
2000 compliant. In addition, we are purchasing a newer version of this system   
which we expect to have in place by the end of the second quarter of 1999. This 
newer version is certified in writing to be year 2000 compliant.                

    Other IT Systems. We are currently reviewing all other IT systems for year
2000 compliance. Our food and beverage, sports boutique sales, private training 
and most other services and products systems are not year 2000 compliant, but we
expect to replace or modify these systems to be year 2000 compliant during the  
third quarter of 1999.                                                          

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   Non-IT Systems. We have requested vendors of our non-IT systems to advise
us if such systems are year 2000 compliant where we believe such assurance to be
necessary. We have received such assurances from vendors of certain systems,    
such as elevators, and we do not believe that the failure of other non-IT       
systems would have a material impact on us. We believe that we will be able to  
replace or modify all significant non-IT systems which are not year 2000        
compliant by December 1999.                                                     

 Expense of Year 2000 Project. We currently estimate that we will expend
approximately $2.9 million to acquire new hardware and other equipment, acquire 
new membership software, upgrade our existing membership software, update our   
financial accounting software and make the other modifications to our IT systems
described above. Most of these expenses would be incurred in order to upgrade   
our membership and accounting systems in the ordinary course of business. Of    
this amount, $800,000 has been expended to date. This expenditure will include  
new hardware and other equipment and software programs. We have not determined  
what amounts we will expend to replace non-IT systems, but we do not expect such
costs to be material.                                                           

     Third Party Systems. We believe that the only third parties whose year 2000
problems could have a material effect on us are financial institutions that     
process our EFT and credit card transactions. We believe that these institutions
have completed, or will complete prior to year 2000, modifications to their     
systems to insure year 2000 compliance; however, we are unable to test third    
party systems.                                                                  

  Risks of Year 2000 Problems. The failure to correct a material year 2000
problem could interrupt our normal business activities or operations. We believe
that failures in our membership, financial accounting and food and beverage     
systems, or performance by third parties with respect to EFT and credit card    
transactions, could materially and adversely affect us. While we intend to test 
systems supplied by third parties, such testing may not reveal all year 2000    
problems. With the exception of certain critical non-IT systems which we have   
been assured are year 2000 compliant, we do not believe that a failure of other 
systems would have a material impact on us. Due to the general uncertainty      
inherent in the year 2000 problem, resulting in part from the uncertainty of the
year 2000 readiness of third parties and the performance of systems represented 
to us by vendors to be year 2000 compliant, we are unable to determine at this  
time whether year 2000 failures will have a material impact on us. Although our 
Year 2000 Project is not expected to significantly reduce our level of          
uncertainty about year 2000 problems, including the year 2000 readiness of third
parties, we believe that completion of the Year 2000 Project will reduce the    
possibility of significant interruptions of normal operations. A contingency    
plan has not yet been developed for dealing with an interruption of a critical  
system. We plan to develop and implement such a plan by the fourth quarter of   
1999.                                                                           

 The costs of our Year 2000 Project and the dates on which we believe we
will complete the various phases of our Year 2000 Project are based upon our    
management's best estimates, which were derived using numerous assumptions      
regarding future events, including the continued availability of certain        
resources, third party remediation plans and other factors. There can be no     
assurance that these estimates will prove to be accurate, and actual results    
could differ materially from those currently anticipated. Specific factors that 
could cause such material differences include, but are not limited to, the      
availability and cost of personnel trained in year 2000 issues, the ability to  
identify, assess, remediate and test all relevant computer code and imbedded    
technology, performance of new systems and equipment, the reduction of          
productivity pending completion of employee training, the need to remediate     
problems caused by failures in year 2000 compliance by third parties, and       
similar uncertainties.                                                          

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BUSINESS

  We currently operate twelve Clubs, under the "Sports Club" and "Spectrum
Club" names, including The Sports Club/LA and Reebok Sports Club/NY. Our Clubs  
offer a wide range of fitness and recreation options and other amenities, and   
are marketed to affluent, health conscious individuals who desire a service     
oriented state-of-the-art club. We believe that there is opportunity for        
continued revenue and profit growth at our existing Clubs and through the       
development of new Clubs.                                                       

Our Clubs are conveniently located in spacious, modern facilities that
typically include fitness centers, swimming pools and basketball courts. Our    
premier Clubs, Sports Clubs, are designed as "urban country clubs," offering a  
full range of services including private trainers, registered nutritionists,    
exercise classes, and various other amenities including physical therapy, spas, 
salons, activewear boutiques, restaurants, cafes, sports bars, childcare,       
laundry/dry cleaning services, valet parking and executive locker rooms. Sports 
Club facilities range in size from 90,000 to 140,000 square feet. We have four  
Sports Clubs located in Los Angeles and Irvine, California, New York, New York  
and Las Vegas, Nevada. The Spectrum Clubs are typically housed in 25,000 to     
65,000 square foot facilities and offer many of the amenities listed above. We  
have eight Spectrum Clubs that are all located in Southern California.          
Initiation fees and monthly membership dues at Sports Clubs are higher than     
those at Spectrum Clubs, and initiation fees and monthly membership dues at all 
Clubs are higher than those charged by most other sports and fitness clubs,     
which we believe do not provide comparable services. Income from ancillary      
services and products, including private training, food and beverages and sports
boutiques, also contribute a significant portion of our revenues. Our SportsMed 
subsidiary operates physical therapy facilities in some Clubs.                  

   Our strategy is to expand the Sports Club franchise in major metropolitan
markets and to increase revenues and profitability at existing Clubs, through   
regular increases in monthly membership dues and expanded ancillary services and
products. There are currently six Sports Clubs under development in New York    
City (in Rockefeller Center and in the upper east side), Washington, D.C., San  
Francisco, Boston and Houston. We expect to open these Clubs from late 1999     
through 2001. We are currently developing three Spectrum Clubs in Southern      
California. We will continue to investigate other sites for new Club            
developments.                                                                   

     According to IHRSA, the industry's leading trade organization, 20.8 million
Americans were members of more than 13,000 sports and fitness clubs in 1998.    
Revenues generated by the United States sports and fitness club industry        
increased at a compound annual rate of 8.6% from $5.5 billion in 1991 to $9.0   
billion in 1997. The industry has benefitted from the general public's          
increasing awareness of the importance of physical exercise. We target members  
age 35 and older who, according to IHRSA, represent 47% of all memberships and  
are the fastest growing segment of the industry.                                

THE SPORTS CLUBS                                                                

  Sports Clubs are 90,000 to 140,000 square foot multi-purpose facilities,
which generally include the following features:                                 

- large, fully equipped gyms with state-of-the-art fitness equipment, 
including weight training and cardio-vascular equipment,          

     - basketball, volleyball, racquetball, squash and paddle tennis courts and,
in the case of The Sports Club/Las Vegas, indoor tennis courts,   

     - aerobics/exercise rooms featuring classes throughout the day and evening,
 seven days a week, including aerobics, dance, Step Reebok, yoga and
karate,                                                           

 - stationary bicycles used in an aerobic class environment, and, in the
case of Reebok Sports Club/ NY, climbing walls,                   

- swimming pools, golf practice nets and running tracks,              

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- men's and women's locker rooms featuring wood lockers,              

  - complete spa areas with steam rooms, saunas, jacuzzis and professional
massage,                                                          

    - restaurants, sports bars, private dining/conference rooms, media centers
and sundecks,                                                     

- valet parking, pro shops, hair salons and childcare services,       

- sports medicine and physical therapy facilities,                    

  - personal trainers to develop and supervise members' exercise routines,

- PTS Private Training System nutritional programs and products,      

     - interactive children's classes, as well as supervised age-specific junior
recreational rooms and junior programs such as gymnastics,        

- instruction in racquet sports, golf and swimming,                   

  - full-time activities directors responsible for social and media events
   for members, including organizing trips, lectures and charity events,

  - full-time sports coordinators who organize sports tournaments, leagues
and classes, and                                                  

     - wellness protocols such as exercise regimens designed for specific groups
of members.                                                       

     We currently have four Sports Clubs in operation. The Sports Club/LA opened
in 1987 in west Los Angeles, California, near the affluent communities of Santa 
Monica, Brentwood, Beverly Hills, Westwood and Century City. The Sports         
Club/Irvine opened in 1990 near Newport Beach in Orange County, California.     
Reebok Sports Club/NY opened in 1995 in Manhattan's upper west side, and was    
developed in partnership with a subsidiary of Reebok International, Ltd.        
("Reebok") and Millennium. We manage the operations of this Club and own a      
controlling 60% interest in the partnership that owns this Club. Reebok and     
Millennium have each retained an interest in the partnership. We acquired a club
in Henderson, Nevada and converted it to The Sports Club/Las Vegas in August    
1997. The Sports Club/Las Vegas services the rapidly growing Las Vegas market   
and is situated approximately three miles east of the Las Vegas airport.        

THE SPECTRUM CLUBS                                                              

We currently operate Spectrum Clubs at eight locations in Southern    
California. While more limited in size and offering fewer social and            
recreational options than Sports Clubs, Spectrum Clubs are generally housed in  
relatively large facilities containing modern equipment and offer members       
personalized training and instruction.                                          

     - Spectrum Clubs typically range in size from 25,000 to 65,000 square feet,
  include full coed weight training rooms, computerized cardiovascular
centers, aerobics and exercise classrooms, locker rooms, private  
training, child care, juice bars and towel service.               

   - Certain of the Spectrum Clubs also offer swimming pools, childcare, pro
    shops, basketball courts, racquetball courts, spa facilities, physical
    therapy facilities, volleyball, martial arts, dance and children's and
seniors' programs.                                                

  - We own 100% of seven of the currently operating Spectrum Clubs. We are
       the sole general partner and manager and receive, as our equity interest,
46.1% of the net income generated by the operation of the Spectrum
Club - Manhattan Beach.                                           

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THE SPORTSMED COMPANY, INC.                                                     

  Our SportsMed subsidiary operates physical therapy facilities within The
Sports Club/LA, The Sports Club/Irvine, the Spectrum Club - Agoura Hills, and   
the Spectrum Club - Valencia. SportsMed also operates in a stand alone facility 
in Calabasas, California. The clinics are staffed by exercise physiologists,    
physical therapists and nutritionists who provide services to members and       
others. A physician-owned company provides medical services and pays a          
management fee to SportsMed. We believe that SportsMed provides valuable        
services which are complementary to the other services provided by the Clubs,   
and are considering expanding the SportsMed concept to other Clubs in the       
future.                                                                         

DEVELOPMENT OF ADDITIONAL CLUBS                                                 

Current Sports Club Developments. The following outlines our current  
development plans for Sports Clubs.                                             

  Rockefeller Center, New York. This 89,000 square foot Club is located at
the Rockefeller Center Commercial Complex in midtown Manhattan and is expected  
to be opened in late 1999. Within one mile of this site there are over 1.1      
million persons employed and approximately 170,000 residents, with an average   
age of 47 and average household income of $110,000.                             

    Upper East Side, New York. This 140,000 square foot Club is located in the
upper east side of Manhattan and is expected to be open in early 2000. This site
is the location of the former Vertical Club, which was closed in February for   
major renovation and conversion to a Sports Club. Within one mile of this site  
there are approximately 600,000 persons employed and approximately 160,000      
residents, with an average age of 45 and average household income of $140,000.  

The demographics in the vicinity of our New York developments compare 
favorably to the demographics of our existing Club in the upper west side of    
Manhattan, Reebok Sports Club/NY. Within one mile of Reebok Sports Club/NY,     
there are approximately 300,000 persons employed and approximately 150,000      
residents with an average age of 47 and average household income of $105,000.   

     The funds we estimate are needed to complete our New York developments will
be deposited into the Disbursement Account and disbursed in accordance with the 
terms of the Disbursement Agreement.                                            

Millennium Developments. We are developing Sports Clubs in Boston,    
Washington, D.C. and San Francisco with Millennium, with whom we developed      
Reebok Sports Club/NY. Millennium is a developer of premier multi-use projects, 
and is significantly funded by Quantum Realty Fund, a member of the Quantum     
Group of Funds, which are off-shore investment funds managed by Soros Fund      
Management, a management firm headed by George Soros. These Clubs will be       
located in projects developed by Millennium in prime, metropolitan locations    
which, like Reebok Sports Club/NY, include commercial, retail, entertainment and
residential space. In addition, each of these developments is expected to       
include a five star hotel. These Clubs will be in the 80,000 to 100,000 square  
foot size range and will offer services typically found at our other Sports Club
sites. We expect to open these Clubs in late 2000 and 2001. We believe that such
projects offer ideal locations for Sports Clubs and intend to investigate       
additional Sports Club developments with Millennium or other developers in other
major metropolitan areas.                                                       

    The Sports Club/Houston. In June 1998, we acquired approximately 3.5 acres
of undeveloped land in Houston, Texas, on which we expect to develop an         
approximately 85,000 square foot Sports Club.                                   

Current Spectrum Club Developments. We have entered into leases with  
respect to three Spectrum Clubs in Southern California. Each Club would be      
approximately 55,000 square feet. We currently expect that these Clubs will open
in late 1999 and early 2000. In January 1999, we acquired the membership rights 
of a sports and fitness club located near Thousand Oaks, California, for        
$650,000. We have moved most members of this club, which closed in January 1999,
to the Spectrum Club - Thousand Oaks.                                           

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 Other Developments. We currently believe that our resources can be best
used to develop new Sports Clubs, but we may consider the acquisition and       
conversion of an existing sports and fitness club to a Sports Club or Spectrum  
Club or the development of additional Spectrum Clubs if a suitable opportunity  
arises. We believe that, because of our established reputation and the prestige 
associated with the Sports Clubs and the Spectrum Clubs, developers view our    
Clubs as valuable components of multi-use developments.                         

     Performance of Newly Developed and Acquired Clubs. Based on our experience,
a newly developed Club tends to achieve significant increases in revenues until 
a mature membership level is reached. Recently opened Clubs which have not yet  
achieved mature membership levels have operated at a loss or at only a slight   
profit during this period as a result of fixed expenses which, together with    
variable operating expenses, approximate or exceed membership fees and other    
revenues. While we anticipate that these types of losses will be incurred in the
future as a normal part of our operations, we believe that our income from newer
Clubs will significantly increase as membership levels mature. See "Risk        
Factors -- New Clubs."                                                          

 The physical layout, decor, age of equipment, staff training, marketing
programs, membership fees, ancillary services offered and other characteristics 
of Clubs we acquire may vary, and, as a result, acquired Clubs may have lower   
operating income than a typical Club. We generally will renovate an acquired    
Club, upgrade equipment, fitness programs and exercise protocols, install       
experienced employees, implement marketing and training programs, and introduce 
new services and products to enhance ancillary revenues. We will also implement 
membership fees consistent with other Clubs. Newly acquired Clubs undergoing    
such improvements may perform at lower margins during the period of             
implementation of new policies and programs.                                    

Disposition of Spectrum Clubs. From time to time, we have disposed of 
Spectrum Clubs. The Spectrum Club - Santa Monica was closed in November 1998,   
upon expiration of the lease for the property, and many of its members were     
moved to the Spectrum Club - Water Garden. We subleased the Spectrum            
Club - Fountain Valley to another health and fitness club operator in January   
1999. In February 1999 we entered into an agreement to sell the Spectrum        
Club - Santa Ana.                                                               

SALES AND MARKETING                                                             

   Strategy. The Sports Clubs are marketed as "urban country clubs" offering
personalized attention and multiple amenities and services. We believe that the 
image of these Clubs as leaders in the sports and fitness industry justifies    
charging a premium. Our members include professionals, sports and entertainment 
personalities and business people. The Spectrum Clubs emphasize personalized    
service and instruction and the creation of an "urban country club" atmosphere  
in which members can relax and socialize. The cost of Spectrum Club membership  
(in terms of both initiation fees and monthly membership dues) is less than     
membership at Sports Clubs and, within the Southern California market, we       
believe the Spectrum Clubs offer as many services and are as luxurious and      
aesthetically-pleasing as any other sports and fitness club with which they     
compete.                                                                        

   Our marketing efforts at older, more seasoned Clubs emphasize maintaining
existing members, replacing members who leave with new members and increasing   
ancillary revenues such as private training and retail sales. Our focus at the  
newer Clubs is on attracting additional members. See "Risk Factors -            
Membership."                                                                    

Referrals, Endorsements and Advertising. Word-of-mouth referrals and  
endorsements by existing members are the Clubs' most important source of new    
members. In addition, all Clubs utilize targeted marketing programs which       
include advertisements, promotions, public relations and community events. The  
principal marketing media for the Clubs are direct mail with some use of print  
advertisements. The print advertisements are supplemented by special events and 
special membership programs. The Clubs host corporate parties and charity       
benefits and often donate free or discounted memberships to charitable          

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organizations. We also conduct periodic membership drives whereby referring     
members are entitled to receive special gifts and other incentives. We believe  
that we will be able to continue to utilize these marketing strategies in the   
promotion of new Clubs.                                                         

    Targeted Members. The largest segment of the membership base for the Clubs
consists of health-conscious individuals. We target five other groups in order  
to expand membership: corporate members, "shape-over" members, medical          
referrals, families, and seniors. Each of these groups requires specialized     
exercise/fitness programs, and we have developed specific programs to attract   
members of these groups.                                                        

     Corporate Programs. We believe the corporate market is a significant source
of new members, due to the proximity of the Clubs to business centers and the   
use of the Clubs to conduct business and to develop and maintain business       
contacts. We target the corporate membership market primarily through the Sports
Clubs. Sports Clubs employ several Corporate Membership Directors whose         
principal responsibilities are to solicit corporate memberships from businesses 
operating in the vicinity of Sports Clubs. Sports Clubs offer corporate         
group-discounted initiation fees depending upon the number of new members       
involved. Our SportsMed subsidiary has developed several corporate wellness     
programs to fit the needs of this particular market. We believe that            
corporations are favorably disposed to Sports Clubs and the SportsMed programs  
because of the positive impact regular exercise and overall fitness can have on 
employee absenteeism, morale and productivity.                                  

Shape-Over Programs. We believe that the image of the Clubs as        
multiple-amenity facilities which offer members numerous social and             
less-rigorous exercise options will help us attract prospective members who do  
not currently exercise regularly. Our shape-over program is intended to attract 
those people who are "out of shape" but who are interested in pursuing a regular
exercise regimen. Prospective members are given a free, introductory fitness    
consultation with Club instructors, which covers nutritional and dietary        
suggestions, personalized fitness programs and home exercise plans. In addition,
the Clubs have group aerobics classes that are specially designed for this      
target group.                                                                   

Medical Referrals. We target members from the medical referral market 
through our SportsMed subsidiary by offering specific rehabilitation and        
exercise protocols to complement other forms of physical therapy recommended by 
a physician or medical group.                                                   

Family Programs. We believe that the children/family market has       
considerable potential, as younger members grow older, marry and have children, 
and seek recreational activities in which the entire family can participate. To 
target the family market, we have implemented "KidFit" and "TeenFit" programs   
which target children between the ages of 5 and 17 and involve both one-on-one  
private training and a six-week fitness training program. The Clubs'            
weight-training facilities are made available to children 13 and older at       
off-peak hours, and specially-designed movement classes utilizing a variety of  
fitness equipment are offered to younger children. The Clubs offer a summer     
sports camp, provide individualized sports instruction and offer multiple       
fitness activities such as gymnastics, martial arts and dance that are age      
appropriate.                                                                    

  Senior Programs. We anticipate that as the current core membership group
ages, we will meet the changing fitness needs of seniors and attract additional 
members from the senior population. We maintain training and exercise protocol  
manuals for the senior market (which we generally define as members who are over
60 years old) which include a description of exercise and fitness programs      
specifically designed for seniors. These manuals also contain discussions of the
biological, psychological and medical aspects of aging and the benefits of      
regular exercise. We believe this market will expand as the "baby boomers"      
mature.                                                                         

EMPLOYEE TRAINING                                                               

     We believe that a key component of our operating strategy is a well-trained
and knowledgeable staff. We have comprehensive training programs to enhance the 
effectiveness of our personnel. All newly-hired employees are required to attend
an orientation seminar, which is led by members of our management and           

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a personnel instructor. Topics include member service and member interaction    
skills, our history and philosophy, and safety issues. These orientation        
seminars are held throughout the year.                                          

     To aid in the development and continuing education of management employees,
we offer a workshop entitled "Introduction to Management," for newly-hired      
management personnel and other employees demonstrating management skills. The   
workshop is intended to educate participants in the areas of people and time    
management; hiring, developing, training and evaluating employees; sales and    
marketing strategies; and safety concerns. Topics are added periodically to     
reflect new management techniques or operating issues. These seminars, generally
consisting of five three-hour sessions, are held six times a year or as needed  
for new employees, and our management personnel are required to attend          
periodically to maintain their skills.                                          

    We provide additional seminars specifically designed for targeted employee
groups. Seminars providing specialized instruction for program directors,       
private trainers, aerobics teachers and sales/marketing personnel are offered at
various times during the year, for which attendance on the part of newly-hired  
personnel within the applicable employee group is mandatory. We place particular
emphasis on sales/marketing training seminars, which are given once every two   
months by a personnel instructor and in which all new membership directors      
complete 20 hours of participation and all other membership directors are       
expected to complete four hours of participation every two months. Our fitness  
instructors are trained to assist in the sales function and to implement fitness
testing and individually-tailored exercise programs. Most instructors are       
college-educated. Our aerobics instructors must have at least one year of       
teaching experience before they are permitted to teach at the Clubs, and are    
required to participate in ongoing training and periodic re-evaluation.         

MEMBERSHIP PROGRAMS                                                             

    Club memberships require a one-time initiation fee plus monthly membership
dues. Unlike many other clubs, we do not offer financing for memberships.       
Members electing to pay their Club dues on a monthly basis must pay by EFT, by  
which each member is automatically debited each month for dues either through a 
checking account or credit card. Prepaid memberships for an entire year entitle 
the member to a discount equal to one month of membership dues. Approximately   
70% of monthly membership dues are paid via EFT and the remaining 30% of monthly
membership dues are prepaid for twelve months. At established Clubs, the average
life of a Sports Club membership is four to five years while the average life of
a Spectrum Club membership is approximately three years.                        

 Sports Club Memberships. Sports Clubs offer three types of memberships:
executive, health and racquet. Sports Club initiation fees and monthly          
membership dues vary depending on the location of the Club. The Sports Clubs'   
initiation fees range from $400 to $2,500 and monthly membership dues range from
$88 to $180. Corporate memberships are also available.                          

  Executive Membership. Executive membership offers the greatest number of
amenities and services, including unlimited use of all facilities, racquet      
sports privileges, personal locker assignments within an executive locker room, 
laundry service, free valet parking and charge privileges for dining and other  
Club services. Executive membership entitles a member to use all Sports Clubs.  

Health Membership. Health membership is the basic membership offering 
unlimited use of all facilities excluding those privileges associated with a    
racquet membership; courts are available to holders of health memberships for an
additional fee.                                                                 

 Racquet Membership. Racquet membership is currently only offered at The
Sports Club/Irvine and The Sports Club/Las Vegas and, in addition to use of the 
Club's facilities, includes the unlimited use of racquetball, squash and paddle 
tennis courts at The Sports Club/Irvine, and tennis at The Sports Club/ Las     
Vegas.                                                                          

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Spectrum Club Memberships. Spectrum Clubs generally offer racquet and 
health memberships. The Spectrum Club - Fullerton currently offers executive    
memberships. At some Spectrum Clubs, lockers may be rented by members on a      
monthly basis for an additional charge. As members of the IHRSA, Spectrum Clubs 
extend guest membership privileges to out-of-town visitors who are members of   
IHRSA clubs in their hometown, and Spectrum Club members may use IHRSA clubs in 
cities to which they travel. Spectrum Club initiation fees are generally $325.  
Monthly membership dues are generally $57 for health membership, $67 for racquet
membership and $62 for an all club membership allowing members unlimited use of 
all Spectrum Clubs.                                                             

COMPETITION                                                                     

    Although the sports and fitness industry is still fragmented, the industry
has experienced significant consolidation in recent years and certain of our    
competitors are significantly larger and have greater financial and operating   
resources than we do. In addition, a number of individual and regional operators
compete with us in our existing and targeted markets. Many of these sports and  
fitness clubs attract the same types of members targeted by Spectrum Clubs and  
Sports Clubs. We also compete with recreational facilities established by       
governments and businesses, the YMCA and YWCA, country clubs and weight-        
reducing salons, as well as products and services that can be used in the home. 
As the general public becomes increasingly aware of the benefits of regular     
exercise, it is anticipated that additional sports and fitness businesses will  
emerge. We believe that there will continue to exist a market for our Clubs and 
that our operating experience, our highly visible image, the professionalism of 
our staff and our state-of-the-art equipment and exercise facilities afford us  
an advantage over our competitors. However, we may be unable to maintain our    
membership fees or membership levels in areas where another sports and fitness  
club offers competitive facilities and services at a lower cost to members. See 
"Risk Factors -- Competition."                                                  

TRADEMARKS AND TRADENAMES                                                       

    The "Sports Club" name is generally not protectable under federal or state
trademark laws. We have registered our "flying lady" logo as a stand-alone      
design and in combination with "The Sports Club/LA" and "The Sports Club/Irvine"
names under federal trademark laws. We have also registered "The Sports Club/LA"
name and logo in France, Germany, the United Kingdom and Japan and we are       
awaiting final trademark approval in Australia. We hold a federal trademark for 
the "Spectrum Club" name.                                                       

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
or proposed in California, New York and Nevada, the states in which we currently
operate Clubs. Many other states into which we may expand have or likely will   
adopt similar legislation. Typically, these statutes and regulations prescribe  
certain forms and provisions of membership contracts, afford members the right  
to cancel the contract within a specified time period after signing, require an 
escrow of funds received from pre-opening sales or the posting of a bond or     
proof of financial responsibility, and may impose numerous limitations on the   
terms of membership contracts. In addition, we are subject to numerous 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 state
and federal enforcement agencies and 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 to 10 days (depending on the 
applicable state law) and, in such event, is entitled to a                      

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refund of any down payment. In addition, our membership contracts provide that a
member may cancel his or her membership at any time for medical reasons or upon 
relocation of a certain distance from the nearest Club. The specific 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. Furthermore, where permitted by law, a cancellation fee is due to us upon 
cancellation and we may offset such amount against any refunds owed.            

PROPERTIES                                                                      

  We own The Sports Club/Irvine, The Sports Club/LA (subject to a minority
interest held by D. Michael Talla), The Sports Club/Las Vegas and the Spectrum  
Clubs in Agoura Hills, Thousand Oaks, Canoga Park and Fountain Valley including 
all underlying real estate. The building and real property at the Spectrum      
Club - Santa Ana and the building at the Spectrum Club - Fullerton are leased   
with a purchase option from Millennium. See "Certain Relationships and Related  
Transactions." We also own land in Houston, Texas on which we plan to develop a 
Sports Club. All other structures in which the Clubs are located are leased.    

The following table provides certain information concerning our Clubs:

                                                        [Enlarge/Download Table]

                                                      YEAR OPENED                                          
                                                       ("O") OR                                            
                                         APPROXIMATE   ACQUIRED      OWN OR LEASE                          
                  CLUB                   SQUARE FEET     ("A")      EXPIRATION DATE      RENEWAL OPTION    
                  ----                   -----------  -----------  -----------------  ---------------------
                                                                                                           
The Sports Club/LA(1)...................   100,000      1994 A     Own                         N/A         
The Sports Club/Irvine..................   130,000      1994 A     Own                         N/A         
Reebok Sports Club/NY(2)................   140,000      1995 O     4/17/15            Three 14-year options
The Sports Club/Las Vegas...............   136,000      1997 A     Own                         N/A         
Spectrum Club - Manhattan Beach(3)......    65,000      1987 O     2/28/02            Three 5-year options 
Spectrum Club - Water Garden............    25,000      1993 O     6/30/08                5-year option    
Spectrum Club - Agoura Hills............    30,000      1994 A     Own                         N/A         
Spectrum Club - Howard Hughes Center....    36,000      1994 A     9/14/08             Two 5-year options  
Spectrum Club - Valencia................    57,000      1997 O     7/1/12              Two 5-year options  
Spectrum Club - Fullerton(4)............   121,000      1997 A     Building 12/31/17   Two 10-year options 
                                                                   Land 4/11/35                N/A         
Spectrum Club - Santa Ana(5)............    75,000      1997 A     12/31/17            Two 10-year options 
Spectrum Club - Canoga Park.............    85,000      1997 A     Own                         N/A         
Spectrum Club - Thousand Oaks(6)........    54,000      1999 O     Own                         N/A         
Spectrum Club - Fountain Valley(7)......    42,000      1997 A     Own                         N/A         

-------------------------                                                       
(1) D. Michael Talla, our Chairman and CEO, has the right to 49.9% of the first 
$300,000 of annual operating income from the partnership which owns The 
Sports Club/LA. See "Certain Relationships and Related Transactions."   

(2) We are entitled to certain priority distributions from the partnership which
owns this Club. After payment of such priority distributions, we are    
   entitled to 60% of all additional profits. See "Management's Discussion and
  Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."                                                     

(3) We own a 46.1% interest in the Spectrum Club - Manhattan Beach.             

(4) We lease the building and land from different parties. We intend to use a   
    portion of the proceeds of the Offering to acquire ownership of the building
from Millennium. See "Use of Proceeds."                                 

(5) We have entered into an agreement to sell this Club. This sale is expected  
  to close in the second quarter of 1999. We intend to use the sale proceeds
and a portion of the proceeds of the Offering to acquire ownership of   
Millennium's interest in this Club and in the Spectrum Club - Fullerton.

(6) We expect to enter into a sale-leaseback agreement with respect to this     
Club, which is expected to close in the second quarter of 1999.         

(7) We have leased this Club to another sports and fitness club operator.       

  All of the Clubs maintain comprehensive casualty, liability and business
interruption insurance and Clubs located in California maintain a blanket $30.0 
million earthquake insurance policy. We believe that our insurance coverage is  
in accordance with industry standards. There are, however, certain types of     
losses which may be either uninsurable or not economically insurable, and       
insurance proceeds may not                                                      

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adequately compensate for all economic consequences of any loss. Should a loss  
occur, we could lose both our invested capital and our anticipated profits from 
the affected Clubs. Any such event could have a material adverse effect on our  
operations.                                                                     

EMPLOYEES                                                                       

     At January 31, 1999, we had approximately 2,250 employees, most of whom are
employed on a part-time basis in Club operating activities such as aerobics,    
private training and food and beverage services. At January 31, we employed     
approximately 800 full-time employees, approximately 250 of whom were sales     
personnel or supervisory personnel involved in Club operations, and             
approximately 50 of whom were in general and administrative functions. We are   
not a party to any collective bargaining agreement with our employees. Although 
we experience high turnover of non-management personnel, we have never          
experienced any labor shortages nor had any difficulty in obtaining adequate    
replacements for departing employees. We consider our relations with our        
employees to be good.                                                           

LEGAL PROCEEDINGS                                                               

    MKDG/Rhodes SC Partnership and Sports Club, Inc. v. Agricultural Insurance
Company (Los Angeles Superior Court). At the time of the Northridge earthquake  
on January 17, 1994, Agricultural Insurance Company ("Agricultural") provided   
certain excess earthquake coverage for The Sports Club/LA. Certain of our       
predecessors (the "SCLA Parties") were named insureds under the policy. The     
Partners assigned to MKDG/Rhodes SC Partnership ("MKDG") all of their rights to 
payments under the policy and retained no interest in any amounts paid by       
Agricultural. A dispute arose under the policy and MKDG filed a complaint       
against Agricultural, and Agricultural filed a cross-complaint against MKDG and 
the SCLA Parties, alleging intentional misrepresentation (fraud), negligent     
misrepresentation, breach of contract, breach of implied covenant of good faith 
and fair dealing, rescission, money had and received, declaratory judgment and  
indemnity. Agricultural seeks the return of amounts paid (approximately $3.0    
million) plus punitive damages and attorneys fees. A demurrer was sustained     
without leave to amend as to the claims for fraud and misrepresentation.        
Agricultural has appealed the decision and the parties are awaiting a decision  
before further proceedings are held in the trial court. An appraisal hearing    
found that the loss suffered was less than the policy proceeds but greater than 
the amount paid by Agricultural to date. Agricultural contends that portions of 
the appraised loss are not covered by the policy, an issue to be determined by  
the trial court. We will seek to be indemnified by MKDG for all damages and     
costs incurred in this action, although no assurance can be made that MKDG will 
indemnify us.                                                                   

  OTR v. Spectrum Club Liquidation, Inc. and The Sports Club Company, Inc.
(Orange County Superior Court). OTR and Spectrum Club Liquidation, Inc. ("SCLI")
entered into a lease with respect to a proposed development site in Anaheim     
Hills, California, and we guaranteed SCLI's obligations under the lease. SCLI   
sought to rescind the lease, and OTR brought this action for damages against    
SCLI for breach of the lease and against us on the guarantee, seeking specific  
damages in excess of $1.0 million and unspecified general damages. We believe   
the claim is without merit and have filed a cross-complaint seeking rescission  
of the lease on the basis of fraud, mistake and negligent misrepresentation.    

Other Matters. We are also involved in various claims and lawsuits    
incidental to our business, including claims arising from accidents and disputes
with landlords. However, in the opinion of management, we are adequately insured
against such claims and lawsuits involving personal injuries, and any ultimate  
liability arising out of any such proceedings will not have a material adverse  
effect on our financial condition, cash flow or operations.                     

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS                                                

The following provides certain information regarding our directors and
executive officers:                                                             

                                                        [Enlarge/Download Table]

               NAME                AGE                          POSITION                 
               ----                ---                          --------                 
                                                                                         
D. Michael Talla.................. 52   Chairman of the Board and Chief Executive Officer
John M. Gibbons................... 50   President, Chief Operating Officer and Director  
Nanette Pattee Francini........... 50   Executive Vice President and Director            
Timothy M. O'Brien................ 47   Chief Financial Officer and Assistant Secretary  
Philip J. Swain................... 41   Vice President Operations                        
Mark S. Spino..................... 44   Vice President Development                       
Brian J. Collins.................. 38   Director                                         
Rex A. Licklider.................. 55   Vice Chairman of the Board                       
Andrew L. Turner.................. 52   Director                                         
Dennison T. Veru.................. 38   Director                                         

The following information summarizes the business experience during at
least the past five years of each of our directors and executive officers.      

    D. Michael Talla began developing sports and fitness clubs in 1977 and has
served as our Chief Executive Officer and Chairman of the Board since our       
inception in 1994. He has been in the sports and fitness industry for more than 
20 years and has developed or participated in the development of more than 20   
sports and fitness clubs in the United States, including all Clubs developed by 
The Sports Club Company. Mr. Talla holds a Bachelor of Arts Degree in Business  
Administration from the University of Arizona.                                  

  John M. Gibbons was hired to serve as our Chief Financial Officer in May
1994 and became Executive Vice President in February 1995 and President and     
Chief Operating Officer in July 1995. He has been one of our Directors since    
1995. From September 1993 until May 1994, Mr. Gibbons was a self-employed       
financial and business consultant whose clients included us. From February 1990 
until September 1993, Mr. Gibbons was employed as a Vice President by Com       
Systems, Inc., a publicly traded long-distance telecommunications company       
located in Westlake Village, California, serving as General Manager and Senior  
Vice President from December 1992 to September 1993, and as Chief Financial     
Officer from August 1991 through December 1992. He holds a Bachelor of Business 
Administration from Notre Dame and a Masters of Business Administration from the
University of Southern California. Mr. Gibbons is a Certified Public Accountant.

   Nanette Pattee Francini began developing sports and fitness clubs in 1977
and has served as our Executive Vice President and has been principally         
responsible for overseeing all marketing activities since our inception in 1994.
Ms. Pattee Francini has been in the sports and fitness industry for more than 20
years and has developed or participated in the development of more than 20      
sports and fitness clubs, including all the Clubs developed by The Sports Club  
Company. She has been one of our Directors since 1994. Ms. Pattee Francini holds
a Bachelor of Arts Degree from the University of Arizona.                       

 Timothy M. O'Brien was hired as our Chief Financial Officer in February
1995 and since June 1995 has also served as Assistant Secretary. From July 1993 
until February 1995, he was employed as Vice President/Controller of WCT        
Communications, Inc., a publicly traded long-distance telecommunications        
company. From May 1989 until July 1993, Mr. O'Brien was Controller for Com      
Systems, Inc., a publicly traded long-distance telecommunications company       
located in Westlake Village, California. Mr. O'Brien has a Bachelor of Business 
Administration degree from the University of Wisconsin-Madison and is a         
Certified Public Accountant.                                                    

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Philip J. Swain has served as Vice President Operations since our     
inception. Mr. Swain has been in the sports and fitness industry for more than  
20 years and has developed or participated in the development of more than 15   
sports and fitness clubs in the United States, including many of our current    
Clubs.                                                                          

Mark S. Spino has served as our Vice President Development since our  
inception. Mr. Spino has been in the sports and fitness industry for more than  
15 years and has developed or participated in the development of more than 15   
sports and fitness clubs in the United States, including many of our current    
Clubs. Mr. Spino holds a Bachelor of Arts and a Master of Arts degree in        
physical education from the University of Southern California.                  

   Brian J. Collins has been one of our Directors since 1997. Since December
1996 Mr. Collins has served as Vice President and Chief Financial Officer of    
Millennium Partners Management LLC, an affiliate of Millennium Entertainment    
Partners L.P., which is a real estate developer of mixed use urban entertainment
projects. Beginning in June 1997, he has been a principal of Millennium Partners
Management LLC. From March 1993 to November 1996, Mr. Collins was Senior Vice   
President at Carol Management Corp., an owner and operator of real estate and   
hotel properties. Mr. Collins holds a Bachelor of Arts Degree from Colgate      
University and a Masters of Science from New York Graduate School of Business.  
For so long as Millennium maintains at least a 12% interest in our equity       
securities, we and certain of our stockholders have agreed with Millennium to   
cause a nominee of Millennium to be appointed or elected to our Board of        
Directors. Mr. Collins is currently serving as Millennium's nominee pursuant to 
this agreement. See "Certain Relationships and Related Transactions."           

  Rex A. Licklider has been the Vice Chairman of the Board since 1994. Mr.
Licklider has been a consultant to us for strategic and financial planning since
our inception. He founded Com Systems, Inc., a publicly traded long-distance    
telecommunications company, and at various times between 1975 and April 1992    
served as its Chairman, President and Chief Executive Officer. Mr. Licklider is 
a founder and director of Pentium Investments, Inc. and a director of Deckers   
Outdoor Corporation. He also serves on the Board of Directors of The Children's 
Bureau of Southern California, Los Angeles Youth Programs, Inc. and Marymount   
High School in Los Angeles, California. Mr. Licklider holds a Bachelor of Arts  
Degree in Business Administration from the University of Arizona and a Masters  
in Business Administration from the University of California at Los Angeles.    

    Andrew L. Turner has been a Director since 1994. He has also been Chairman
of the Board of Directors and Chief Executive Officer of Sun Healthcare Group,  
Inc., a publicly traded long-term health care services provider, since its      
formation in 1989. From 1986 to 1989, Mr. Turner served as Chief Operating      
Officer of Horizon Health Care Corporation, a publicly traded health care       
services provider. Mr. Turner is also a director of Watson Pharmaceuticals,     
Inc., a publicly traded pharmaceutical manufacturing company.                   

  Dennison T. Veru has been a Director since 1996. Since November 1992, he
has been President of Awad & Associates, a money management division of Raymond 
James Financial. From November 1990 to November 1992, Mr. Veru served as        
Executive Vice President, Investments of Smith Barney, Inc., specializing in    
small and medium capitalization stocks. Mr. Veru also serves as a director of   
Lois USA, Inc., a publicly traded company. He is a graduate of Franklin and     
Marshall College.                                                               

Directors who are not employees of The Sports Club Company receive an 
annual retainer fee of $12,000, a fee of $1,000 for each Board and committee    
meeting attended and reimbursement of expenses of attending Board and committee 
meetings. They also receive an annual award of 1,000 shares of our common stock 
pursuant to our 1994 Stock Compensation Plan, which has been increased to 2,000 
shares for 1999, subject to receipt of stockholder approval of an amendment to  
the 1994 Stock Compensation Plan.                                               

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EXECUTIVE COMPENSATION                                                          

The table below shows, for the last three fiscal years, the amount of 
compensation earned by the Chief Executive Officer and the next five most highly
compensated executive officers (the "Named Executive Officers"). The current    
salaries of such executive officers are described below under "Employment       
Agreements."                                                                    

SUMMARY COMPENSATION TABLE

                                                        [Enlarge/Download Table]

                                                                               LONG-TERM                  
                                                                             COMPENSATION                 
                                                                                SHARES         ALL OTHER  
                                                   ANNUAL COMPENSATION        UNDERLYING      COMPENSATION
             NAME & POSITION               YEAR  SALARY($)(a)    BONUS($)  OPTIONS AWARDS(#)     ($)(b)   
             ---------------               ----  ------------    --------  -----------------  ------------
                                                                                                          
D. Michael Talla.......................... 1998    $243,000(c)   $45,000         30,000          $3,168   
  Chief Executive Officer                  1997     239,250(c)        --             --           3,135   
  and Chairman of the Board                1996     218,000(c)        --             --              --   
Nanette Pattee Francini................... 1998     154,800       35,000         30,000             825   
  Executive Vice President                 1997     145,100       10,000         15,000              --   
  and Director                             1996     124,175           --         15,000              --   
John M. Gibbons........................... 1998     264,108(d)    42,000         30,000           2,534   
  President, Chief Operating               1997     245,883(d)    25,000             --           2,637   
  Officer and Director                     1996     232,800(d)    25,000        225,000           2,256   
Mark S. Spino............................. 1998     145,000       35,000         30,000           2,775   
  Vice President of                        1997     134,125       10,000         15,000              --   
  Development                              1996     116,795           --         15,000              --   
Philip J. Swain........................... 1998     155,000       35,000         30,000           2,063   
  Vice President of                        1997     146,031       15,000         15,000             908   
  Operations                               1996     131,375           --         25,000              --   
Timothy M. O'Brien........................ 1998     146,300       35,000         30,000           3,168   
  Chief Financial Officer                  1997     137,667       10,000         15,000           2,807   
  and Assistant Secretary                  1996     122,175        5,000         20,000           1,791   

-------------------------                                                       
(a) Includes automobile allowance.                                              

(b) Represents value of our common stock contributed for the benefit of the     
    Named Executive Officer, under the 401-K Profit Sharing Plan, based upon the
December 31, 1998 closing market price of $3 15/16 per share, on the    
American Stock Exchange.                                                

(c) Mr. Talla also receives, on an annual basis, 49.9% of the first $300,000 of 
The Sports Club/LA's net cash flow. This amount is not included in Mr.  
   Talla's compensation. See "Certain Relationships and Related Transactions."

(d) Includes an allowance for living expenses paid to Mr. Gibbons under the     
terms of his employment agreement.                                      

EMPLOYMENT AGREEMENTS                                                           

In August 1994, we entered into employment agreements with D. Michael 
Talla, as Chief Executive Officer, and Nanette Pattee Francini, as Executive    
Vice President, each of which expire on December 31, 2000. Certain terms of Mr. 
Talla's employment agreement were amended by the Board of Directors as of       
February 27, 1995. The agreements provide for annual compensation of $200,000   
payable to Mr. Talla, and $115,000 payable to Ms. Pattee Francini, subject to   
upward adjustment at the discretion of the Board of Directors. In 1997, the     
Compensation Committee of the Board of Directors increased Mr. Talla's annual   
salary to $225,000 and in 1998 Ms. Pattee Francini's annual salary was increased
to $155,000. We may terminate either employment agreement for cause without     
penalty.                                                                        

  The employment agreements with Mr. Talla and Ms. Pattee Francini entitle
each employee to annual performance bonuses in the discretion of the Board of   
Directors. The employment agreements also include severance provisions which    
entitle each executive officer to severance pay if his or her employment is     
terminated by us without cause; if the employee dies or is disabled; or if the  
employee terminates the agreement as a result of our material breach of our     
obligations thereunder (up to six months' pay for                               

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Ms. Pattee Francini and up to twelve months' pay for Mr. Talla). In addition,   
the employment agreements provide Mr. Talla and Ms. Pattee Francini with        
additional severance benefits upon termination of employment following the      
occurrence of any one of the following events (each, a "Change in Control")     
without the approval of a majority of the Board of Directors: (i) the           
consolidation or merger of us with any other corporation or other entity; (ii)  
the sale or other transfer of all or substantially all of our the assets; (iii) 
the approval by our stockholders of a plan of liquidation or dissolution of us; 
(iv) any person becomes the beneficial owner directly or indirectly of 25% or   
more of our outstanding common stock; or (v) a change occurs in the composition 
of a majority of our Board of Directors (unless approved by two-thirds of our   
Board of Directors). If at any time within two years after the occurrence of any
one of the foregoing events Mr. Talla's or Ms. Pattee Francini's employment is  
terminated (other than for cause, incapacity or death), or Mr. Talla or Ms.     
Pattee Francini elects to terminate his or her employment for "good reason" (as 
that term is defined in the agreements), he or she is entitled to receive       
severance compensation equal to the lesser of: (i) the maximum amount which does
not constitute a "parachute payment" as defined in Section 28OG of the Internal 
Revenue Code of 1986, as amended; or (ii) an amount equal to three times the    
aggregate of (A) his or her base annual salary then in effect, (B) the car      
allowance, Club memberships and insurance benefits paid for the employee during 
the one-year period immediately prior to termination, and (C) bonuses accrued   
but unpaid through the date of termination of employment. Under the agreements, 
"good reason" includes the relocation of the executive officer's place of       
employment, the assignment of any duties inconsistent with the employee's       
position or any other action which diminishes the employee's position, authority
or duties, which determination shall be made in good faith by the employee. If  
the employment of Mr. Talla or Ms. Pattee Francini were terminated within two   
years following a Change in Control as a result of the occurrence of any of the 
foregoing events (assuming that neither would be entitled to any performance    
bonus), the aggregate approximate amounts payable to Mr. Talla and Ms. Pattee   
Francini would be $757,046 and $486,173, respectively.                          

  Effective June 1, 1998, we entered into an employment agreement with Mr.
Gibbons which will remain in effect until terminated as described below. The    
agreement provides for an annual base salary of $250,000, subject to annual     
review and upward adjustment at the discretion of the Board of Directors, and   
entitles Mr. Gibbons to participate in any management bonus program the Board of
Directors may implement from time to time. Additionally, Mr. Gibbons receives   
$40,000 for living expenses each year, and a car allowance. The Board, in its   
discretion, may also award him a bonus of up to twenty percent (20%) of his     
annual gross base salary. Pursuant to the agreement, effective April 15, 1998,  
the Compensation Committee of the Board of Directors granted Mr. Gibbons an     
incentive stock option to purchase 30,000 shares of our common stock at an      
exercise price of $8.00 per share, vesting in three equal installments on April 
15 of 1999, 2000 and 2001 or earlier, upon a change of control (as defined in   
the agreement).                                                                 

We may terminate the agreement without cause, if Mr. Gibbons dies or  
becomes disabled and may also terminate it with "cause," if Mr. Gibbons         
participates in conduct materially harmful to us, is adjudged guilty of a       
felony, demonstrates gross inattention to his duties, breaches any fiduciary    
duty to us or violates any material term of the agreement. Mr. Gibbons may also 
terminate the agreement without cause at any time. If Mr. Gibbons is terminated 
by us other than for "cause," he will be entitled to receive one year of        
severance pay at his base salary in effect on the date of termination.          

    We do not have written employment agreements with Messrs. Spino, Swain and
O'Brien, who currently receive annual base salaries of $150,000, $160,000 and   
$150,000, respectively.                                                         

EMPLOYEE BENEFIT PLANS                                                          

 1994 Stock Incentive Plan. A total of 1,800,000 shares are reserved for
issuance upon exercise of options granted under the 1994 Stock Incentive Plan,  
as currently in effect (the "Plan"). As of February 10, 1999, options to        
purchase an aggregate of 1,182,498 shares of our common stock were outstanding, 
at a weighted-average exercise price of $5.01 per share. No stock options may be
granted under the Plan after December 31, 2002.                                 

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The Plan authorizes us to grant stock options ("Options"), rights to  
purchase shares of our common stock ("Purchase Rights") and stock appreciation  
rights ("SARs"). The Options, Purchase Rights and SARs are collectively referred
to as "Rights."                                                                 

The Plan is administered by our Compensation Committee (the           
"Administrator"). The Administrator has sole discretion and authority,          
consistent with the provisions of the Plan, to select the participants to whom  
Rights will be granted under the Plan, the number of shares which will be       
covered by each Right and the form and terms of agreements to be used to        
represent the Rights. All of our employees, consultants, officers and directors 
or of any subsidiary or parent corporation, other than the members of the       
Administrator, are eligible to participate in the Plan.                         

    Options. The Administrator is empowered to determine the exercise price of
Options granted under the Plan, but the exercise price of incentive stock       
options must be equal to the fair market value of a share of our common stock on
the date the option is granted (110% with respect to optionees who own at least 
10% of our outstanding common stock) and non-statutory options must have an     
exercise price equal to at least 85% of the fair market value of a share of our 
common stock on the date the option is granted. Incentive stock options may only
be granted to our employees and directors, or of any subsidiary. No incentive   
stock options may be granted to any optionee which first become exercisable     
during any calendar year with respect to shares having an aggregate fair market 
value, measured at the time of the grant of such options, in excess of $100,000.
Options granted under the Plan may, in the discretion of the Administrator,     
become exercisable in installments, however, upon any merger, acquisition or    
other reorganization in which we are not the surviving corporation, or upon a   
change in control of us, all Options will be fully exercisable. All Options     
which have not previously been exercised or terminated will expire on the tenth 
anniversary of the date of grant.                                               

 Options terminate on the ninetieth day following the termination of the
employment or position of the Option holder with us. If the Option holder dies, 
becomes disabled or retires during the term of the Option, the Option may be    
exercised following such date by the Option holder or by the Option holder's    
estate or by a person who acquired the right to exercise the Option by reason of
the death or disability of the Option holder for a period of one year. However, 
a person who retires from us may exercise an incentive stock option only during 
the ninety-day period following the date of retirement or termination of        
employment. An Option will be exercisable following termination of employment or
services only to the extent it was exercisable on the date of such termination, 
but no Option may be exercised after the expiration of its term.                

   Options granted under the Plan are not transferable other than by will or
by the laws of descent and distribution, and Options may be exercised, during   
the lifetime of the Option holder, only by the Option holder or by the Option   
holder's guardian or legal representative.                                      

     Payment of the exercise price may be made in cash, or, at the discretion of
the Administrator, in shares of our common stock already owned by the Option    
holder valued at their fair market value on the date of exercise, or by way of a
promissory note from the optionee. The Plan also provides that as a condition of
delivery of shares purchased under the Plan, we may require the Option holder to
deposit with us an amount sufficient to satisfy any withholding tax requirements
relating to the delivery of the shares. Under certain conditions, including the 
consent of the Administrator, the Option holder may elect to satisfy his or her 
withholding obligations with a portion of the shares otherwise deliverable by   
us.                                                                             

Purchase Rights. Rights to purchase shares of our common stock to be  
offered for direct sale under the Plan must be at a purchase price of at least  
85% of the fair market value of the shares on the day preceding the date of     
grant. Purchase Rights are generally exercisable for a period of thirty days    
following the date of grant. Shares purchased upon exercise of a Purchase Right 
may be paid for, in the discretion of the Administrator, by cash or cash        
equivalent, by delivery of a promissory note or by transfer to us of shares of  
our common stock which had been held by the Purchase Right holder for a period  
of at least six calendar months preceding the date of surrender and which have a
fair market value equal to the purchase price at the time of the transfer. The  
agreements relating to Purchase Rights may contain such other                   

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provisions as the Administrator may from time to time determine to be           
appropriate, including "vesting" provisions granting to us the right to         
repurchase the shares subject to a Purchase Right at the initial exercise price 
upon the termination of the employment or position of the holder of such shares 
prior to the vesting date or dates provided in the agreement. Generally, the    
provisions applicable to Options regarding transfer and exercise upon           
termination, death, disability or retirement will also apply to Purchase Rights.
To date, no Purchase Rights have been granted pursuant to the Plan.             

 Stock Appreciation Rights. SARs allow their holders to benefit from the
appreciation in the value of their shares of our common stock subject to the    
SARs, without the necessity of the investment of any funds by the holders. Under
the Plan, the Administrator may grant SARs in combination with Options or on a  
stand-alone basis. SARs granted with respect to an Option (the "Related SAR     
Option") will grant to the holder the right to elect to receive on exercise of  
the SAR, either in cash or in whole shares of our common stock, an amount equal 
to the difference between the fair market value of the shares subject to the    
Related SAR Option and the exercise price per share of the Related SAR Option.  
SARs granted without reference to a Related SAR Option will grant to the holder 
the right to elect to receive, either in cash or in whole shares of our common  
stock, an amount equal to the difference between the fair market value of the   
shares subject to the SAR on the date the SAR is exercised and on the close of  
business on the date of grant of the SAR. To date, no SARs have been granted    
under the Plan.                                                                 

  SARs granted in tandem with a Related SAR Option are exercisable only to
the extent and under the same terms and conditions as the Related SAR Option. If
a SAR is exercised, the Related SAR Option will be modified to cancel the number
of shares with respect to which the SAR was exercised. Upon the exercise or     
termination of the Related SAR Option, the SAR granted in connection with the   
Related SAR Option will terminate to the extent of the number of shares as to   
which the Related SAR Option was exercised or terminated. SARs granted other    
than in tandem with a Related SAR Option will contain exercise terms            
substantially similar to those contained in Options.                            

 All SARs are exercisable for (i) our common stock (a "Stock Election");
(ii) an amount payable in cash or cash equivalents; or (iii) any combination of 
the foregoing. (Any exercise which includes a cash element is referred to herein
as a "Cash Election".) A Cash Election may only be made by an "officer" or      
"director" within the meaning of Section 16(b) of the Securities Exchange Act of
1934, as amended (a "Section 16(b) Person") during the period between the third 
and twelfth business days following our release for publication of quarterly or 
annual summary statements of sales and earnings. A Cash Election by a person who
is not a Section 16(b) Person and a Stock Election by any person may be made at 
any time. Notwithstanding the foregoing, the Administrator may, in its          
discretion, place a limit on the amount payable upon exercise of a SAR agreement
granting the SAR. The Plan provides that no SAR or Related SAR Option is        
exercisable until the expiration of six months following the date of grant of   
the SAR or Related SAR Option, except when the grantee dies, retires or becomes 
disabled.                                                                       

Generally, the provisions applicable to Options regarding transfer and
exercise upon termination, death, disability or retirement will also apply to   
SARs.                                                                           

Stock Compensation Plan. On July 8, 1994, we instituted our 1994 Stock
Compensation Plan (the "Stock Compensation Plan") for the purpose of            
compensating eligible directors by granting them shares of our common stock in  
lieu of a portion of their annual director's fees. A total of 50,000 shares are 
reserved for issuance pursuant to the Stock Compensation Plan, 16,000 of which  
have been issued. The Stock Compensation Plan is administered by the Board of   
Directors and currently provides that members of the Board of Directors who are 
neither officers nor employees of us or of any subsidiary shall receive, on     
November 15 of each year, 1,000 shares of our common stock. Beginning in 1999,  
the stock grant has been increased to 2,000 shares, subject to stockholder      
approval of an amendment to the Stock Compensation Plan. Our common stock will  
be granted only to persons who are directors as of the grant date. Members of   
the Administrator are eligible to receive shares of our common stock pursuant to
the Stock Compensation Plan. The Stock Compensation Plan may be terminated or   
amended either by the Board of Directors or by the Board of Directors and the   
stockholders, but not more often than once every                                

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six months, other than to comport with changes in the Internal Revenue Code, the
Employee Retirement Income Security Act or the rules thereunder. Unless the     
Stock Compensation Plan is amended, neither the number nor type of securities to
be granted to directors pursuant to the Stock Compensation Plan may be changed. 

OPTION GRANTS, EXERCISES AND YEAR-END VALUES                                    

     The following table describes option grants to the Named Executive Officers
during the last fiscal year.                                                    

OPTION GRANTS IN FISCAL 1998

                                                        [Enlarge/Download Table]

                                            % OF                             POTENTIAL REALIZABLE  
                                            TOTAL                          VALUE AT ASSUMED ANNUAL 
                                           OPTIONS                           RATES OF STOCK PRICE  
                              SHARES       GRANTED                         APPRECIATION FOR OPTION 
                            UNDERLYING       TO      EXERCISE                      TERM(b)         
                              OPTIONS     EMPLOYEES   PRICE    EXPIRATION  ------------------------
           NAME            GRANTED(#)(a)  FOR 1998    ($/SH)      DATE       5%($)         10%($)  
           ----            -------------  ---------  --------  ----------  ----------    ----------
                                                                                                   
D. Michael Talla..........    30,000        8.77%     $8.25    4/27/2003    $155,651      $394,451 
Nanette Pattee Francini...    30,000        8.77%     $8.00    4/14/2008    $150,935      $382,498 
John M. Gibbons...........    30,000        8.77%     $8.00    4/14/2008    $150,935      $382,498 
Mark S. Spino.............    30,000        8.77%     $8.00    4/14/2008    $150,935      $382,498 
Phillip J. Swain..........    30,000        8.77%     $8.00    4/14/2008    $150,935      $382,498 
Timothy M. O'Brien........    30,000        8.77%     $8.00    4/14/2008    $150,935      $382,498 

-------------------------                                                       
(a) All grants are incentive stock options granted under the terms of our 1994  
   Stock Incentive Plan, at an exercise price equal to or greater than 100% of
  the fair market value of our common stock on the date of grant. Except for
  the options granted to Mr. Talla, which expire five years from the date of
 the grant, options generally expire ten years from the date of grant, and
 vest in 33 1/3% increments on the first three anniversaries of the grant.

(b) The dollar amounts listed below are the result of calculations at the 5% and
10% annual rates of stock appreciation prescribed by the SEC and are not
intended to forecast possible future appreciation, if any, of our common
    stock. If our common stock does not appreciate, the Named Executive Officers
will receive no benefit from the options.                               

UNEXERCISED STOCK OPTIONS AND FISCAL YEAR-END OPTION VALUES                     

 None of the Named Executive Officers exercised stock options during the
last fiscal year. The following table provides information with respect to      
unexercised stock options outstanding as of December 31, 1998.                  

FISCAL YEAR-END OPTION VALUES 

                                                        [Enlarge/Download Table]

                                             NUMBER OF SHARES UNDERLYING        VALUE OF IN-THE-MONEY     
                                            UNEXERCISED OPTIONS AT FISCAL   UNEXERCISED OPTIONS AT FISCAL 
                                                     YEAR-END(a)                     YEAR-END(b)          
                                            ------------------------------  ------------------------------
                                            EXERCISABLE     UNEXERCISABLE   EXERCISABLE     UNEXERCISABLE 
                   NAME                         (#)              (#)            ($)              ($)      
                   ----                     ------------    --------------  ------------    --------------
                                                                                                          
D. Michael Talla...........................         0           30,000        $      0         $     0    
Nanette Pattee Francini....................    15,000           45,000          12,500           6,250    
John M. Gibbons............................   225,000           30,000         210,937               0    
Mark S. Spino..............................    15,000           45,000          12,500           6,250    
Philip J. Swain............................    21,667           48,333          20,834          10,416    
Timothy M. O'Brien.........................    43,334           46,666          16,459           8,228    

-------------------------                                                       
(a) All options were granted under our 1994 Stock Incentive Plan.               

(b) The in-the-money options had exercise prices of less than the $3 15/16      
    closing price of our common stock on the American Stock Exchange on December
31, 1998. The calculations of value assume exercise of the options on   
December 31, 1998 at the price of $3 15/16 per share.                   

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SHARES BENEFICIALLY OWNED BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS              

     The following table shows the shares of our common stock beneficially owned
as of April 9, 1999 by our directors and executive officers. It also shows other
individuals or entities that beneficially owned more than 5% of the 18,697,532  
outstanding shares of our common stock.                                         

PRINCIPAL STOCKHOLDERS

                                                        [Enlarge/Download Table]

                                                                                         TOTAL AND PERCENT OF      
                                             SHARES          OPTIONS       SHARES HELD    STOCK OUTSTANDING        
            NAME AND ADDRESS                  OWNED        EXERCISABLE        UNDER     ----------------------     
         OF BENEFICIAL OWNER(a)            DIRECTLY(b)  WITHIN 60 DAYS(c)  401-K PLAN     NUMBER      PERCENT      
         ----------------------            -----------  -----------------  -----------  -----------   --------     
                                                                                                                   
D. Michael Talla.........................   4,424,198         10,000          1,144       5,199,119(d)    27.81%(d)
Nanette Pattee Francini..................     256,107         35,000            210       5,199,119(d)    27.81%(d)
Mark S. Spino............................     227,969         35,000            705       5,199,119(d)    27.81%(d)
Philip J. Swain..........................     163,164         45,000            622       5,199,119(d)    27.81%(d)
John M. Gibbons..........................      48,500        235,000          1,712         285,212       1.53%    
Timothy O'Brien..........................       2,600         63,334            865          66,799          *     
The Licklider Living Trust                                                                                         
  Dated May 2, 1986......................   1,305,662             --             --       1,305,662       6.98%    
Andrew L. Turner.........................      75,000             --             --          75,000          *     
Dennison T. Veru.........................      23,000             --             --          23,000          *     
Brian J. Collins.........................      33,001             --             --          33,001          *     
All Directors and Executive Officers as a                                                                          
  Group (10 persons).....................   6,559,201        423,334          5,258       6,987,793      37.37%    
Millennium(e)............................   4,620,963             --             --       4,620,963      24.71%    
Baron Capital Group, Inc.(f).............   1,650,000             --             --       1,650,000       8.82%    

-------------------------                                                       
*  Less than 1%                                                               

(a) The address of all directors and executive officers is c/o The Sports Club  
Company, Inc. at 11100 Santa Monica Blvd., Suite 300, Los Angeles,      
California 90025.                                                       

(b) Includes shares for which the named person is considered the owner because: 
1. the named person has sole voting and investment power,                 
2. the spouse has voting and investment power, or                         
3. the shares are held by other members of the immediate family.          

(c) Includes shares that can be acquired through stock option exercises through 
May 9, 1999.                                                            

(d) Named persons share voting power pursuant to a voting agreement that        
   requires each party to vote his or her shares in the manner determined by a
  majority of all holders. The agreement is effective until October 20, 2004
  or until terminated by persons holding 66 2/3% of the shares of our common
stock subject to the agreement. The parties to the voting agreement in  
effect each control the voting of all shares held by the parties to the 
agreement and under SEC rules are deemed beneficial owners of the shares
subject to the agreement. The total number of shares of our common stock
   held by the parties without giving effect to beneficial ownership resulting
from the voting agreement is:                                           

                                                        [Enlarge/Download Table]

                                                               SHARES     TOTAL SHARES 
                                                                HELD       HELD (SEE   
                        NAMED PERSON                          DIRECTLY    ABOVE TABLE) 
                        ------------                          ---------  --------------
                                                                                       
D. Michael Talla:                                                                      

Individually................................................  4,264,961                

Spouse......................................................     30,953                

Trusts for two minor children...............................    139,428                
                                                              ---------                
        Total..........................................................    4,435,342   

Nanette Pattee Francini................................................      291,317   

Mark S. Spino..........................................................      263,674   

Philip J. Swain........................................................      208,786   
                                                                           ---------   
        All Parties to Voting Agreement................................    5,199,119   
                                                                           =========   

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(e) The Millennium shares are held by the following affiliates:                 

1. Millennium Partners LLC owns 2,253,863 shares                          
2. Millennium Development Partners L.P. owns 970,400 shares               
3. MDP Ventures I LLC owns 80,600 shares                                  
4. MDP Ventures II LLC owns 691,100 shares                                
5. Millennium Entertainment Partners L.P. owns 625,000 shares             

 The address of all such entities is c/o Millennium Partners Management LLC,
1995 Broadway, New York, New York, 10023.                                 

(f) The "Number of Shares Beneficially Owned" is based on information contained 
in a report on Schedule 13G filed by Baron Capital Group, Inc. (and     
 affiliates) with the SEC on March 4, 1999. Baron Capital Group, Inc. is a
registered investment advisor located at 767 Fifth Avenue, New York, NY 
10153.                                                                  

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS                             

Our Certificate of Incorporation includes provisions that limit the   
liability of our directors. As permitted by applicable provisions of the        
Delaware General Corporation Law (the "Delaware Law"), directors will not be    
liable to us for monetary damages arising from a breach of their fiduciary duty 
as directors in certain circumstances. These limitations do not affect liability
for any breach of a director's duty to us or our stockholders (i) with respect  
to approval by the director of any transaction from which he or she derives an  
improper personal benefit, (ii) with respect to acts or omissions involving an  
absence of good faith, that the director believes to be contrary to our best    
interests or the best interests of our stockholders, that involve intentional   
misconduct or a knowing and culpable violation of law, that constitute an       
unexcused pattern or inattention that amounts to an abdication of his or her    
duty to us or our stockholders, or that show a reckless disregard for duty to us
or our stockholders in circumstances in which he or she was, or should have been
aware, in the ordinary course of performing his or her duties, of a risk of     
serious injury to us or our stockholders, or (iii) based on transactions between
us and our directors or another corporation with interrelated directors or on   
improper distributions, loans or guarantees under applicable sections of        
Delaware Law. This limitation of directors' liability also does not affect the  
availability of equitable remedies, such as injunctive relief or rescission.    

     Our Bylaws authorize us to indemnify our directors and officers to the full
extent permitted by Delaware Law, including circumstances in which              
indemnification is otherwise discretionary under Delaware Law, and we have      
entered into indemnification agreements (the "Indemnification Agreements") with 
our directors and officers providing such indemnity. The Indemnification        
Agreements will constitute binding agreements between us and each of the other  
parties thereto, and thus will prevent us from modifying our indemnification    
policy in a way that is adverse to any person who is a party to an              
Indemnification Agreement.                                                      

     Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers or persons controlling us pursuant  
to the foregoing provisions, we have been informed that in the opinion of the   
Commission, such indemnification is against public policy as expressed in the   
Securities Act and is therefore unenforceable.                                  

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

From time to time we have entered into transactions with our officers,
directors and stockholders. We believe that each of the following transactions  
has been on terms no less favorable to us than could have been obtained from    
unaffiliated third parties. All transactions between us and any of our directors
or officers are subject to the approval of the disinterested directors.         

  Messrs. Talla and Licklider. We have a 50.1% interest in the partnership
that owns The Sports Club/LA and Mr. Talla beneficially owns the remaining      
49.9%. The partnership agreement provides that, on an annual basis, the partners
will share in the first $300,000 of the Club's net cash flow in proportion to   
our percentage interests. The next $35.0 million of net cash flow will be       
distributed to us. All distributions of net cash flow thereafter, if any, will  
be made to the partners in proportion to their percentage interests. Under      
certain circumstances, we have an option to purchase Mr. Talla's interest in the
partnership for an amount equal to four times the amount of his most recent     
annual distribution from the partnership.                                       

  Effective August 1996, Mr. Licklider entered into a consulting agreement
with us pursuant to which Mr. Licklider received $10,000 per month, plus        
reimbursement for reasonable and necessary expenses. Effective with the         
commencement of the consulting agreement, Mr. Licklider resigned from the audit 
and compensation committees of the Board of Directors. Under the terms of the   
agreement, Mr. Licklider provided a minimum of 60 hours of service per month    
outside the normal scope of his duties as a director and advised us with respect
to strategic and financial matters. By mutual consent, the agreement was not    
renewed upon its expiration on July 31, 1998.                                   

   In April 1997, RM Sports Club, Inc., a company owned by Messrs. Talla and
Licklider, entered into an agreement to purchase the Vertical Club in New York  
and in connection therewith made a $1.0 million non-refundable deposit. In April
1998, RM Sports Club, Inc. transferred its rights under the purchase agreement  
to us for a purchase price equal to $1.0 million.                               

    In January 1998, Messrs. Talla and Licklider purchased a 7,000 square foot
parcel of land adjacent to property owned and used by The Sports Club/LA. In    
February 1999, we acquired the property from them for $637,422, such price being
equal to the purchase price paid by Messrs. Talla and Licklider, minus rental   
income received by them, plus an interest credit on their investment at an      
annual rate of 6.56%. The acquired property is currently leased to a            
non-affiliated third party.                                                     

     In January 1999, we entered into a non-binding letter of intent with Equity
Advisory Group, pursuant to which we agreed to sell the property we own in      
Thousand Oaks, California for a purchase price of $12.0 million. Under the terms
of the letter agreement, the sum of $10.0 million would be received at the close
of the sale and the remaining $2.0 million would be paid upon the fulfillment of
certain conditions by us. We would leaseback the property from Equity Advisory  
Group under a long-term lease with an initial annual base rent of $1.1 million, 
until such time as we receive the final $2.0 million of the purchase price, at  
which time the annual rent will increase to $1.3 million. The Thousand Oaks     
property consists of the Spectrum Club - Thousand Oaks, unimproved office space 
and a parking area. It is anticipated that Mr. Licklider will beneficially own  
approximately a 10% interest in Equity Advisory Group and trusts for the benefit
of Mr. Talla's minor children will beneficially own approximately a 12% interest
in Equity Advisory Group.                                                       

Millennium. Millennium is a partner in the Reebok-Sports Club/NY      
partnership as well as the landlord of the building in which Reebok Sports      
Club/NY is located. Reebok-Sports Club/NY partnership pays rent to Millennium in
the amount of $2.0 million per year, and the partnership agreement provides for 
a first priority annual distribution of $3.0 million to Millennium.             

    In June 1997, we issued to Millennium 2,105,263 shares of our common stock
in exchange for $10.0 million, consisting of $5.0 million in cash and certain   
interests of Millennium in the Reebok-Sports Club/NY partnership, including a   
9.9% interest in the partnership and a $2.5 million promissory note issued by   
the partnership. We also granted to Millennium certain registration and         
preemptive rights                                                               

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regarding its shares. In addition, for so long as Millennium maintains at least 
a 12% interest in our equity securities, we and certain of our stockholders have
agreed to cause a nominee of Millennium to be appointed or elected to the Board 
of Directors. Pursuant to this agreement Brian J. Collins, an officer of        
Millennium, is currently serving as a member of our Board of Directors.         

    In December 1997, we sold 625,000 shares of common stock to Millennium for
$5.0 million, which we used to fund the cash portion of the acquisition of four 
Spectrum Clubs. In addition, Millennium acquired properties underlying two of   
the Clubs for $10.0 million and is leasing these properties to us under a       
financing lease agreement. The lease has a term of twenty years, and provides   
for an annual rent of $1.0 million for the first ten years and $1.2 million per 
year thereafter. At any time during the first three years of the lease we may   
purchase the leased property for a price (currently estimated to be             
approximately $10.2 million at December 31, 1998) equal to $10.0 million and all
costs incurred by Millennium in connection with the acquisition of such         
property, plus a 12% compound return on its total investment. Millennium has the
right to require us to acquire its interest in the property at such price if (1)
we receive private debt financing in excess of $95.0 million, (2) we receive    
public equity financing in excess of $20.0 million, (3) a default (as defined in
the lease) occurs or (4) a major casualty occurs with respect to either         
property. We intend to purchase these properties with the proceeds of the       
offering of the Old Notes.                                                      

     In June 1998, we acquired land from an unaffiliated third party in Houston,
Texas, for approximately $3.1 million, on which we intend to build a Sports     
Club. Millennium agreed that, if we could not obtain satisfactory financing for 
this development, Millennium would acquire the land and negotiate with us to    
develop a Sports Club on the site. We were able to acquire the land without     
assistance from Millennium, and this Agreement has expired.                     

    We have entered into leases with Millennium relating to Sports Clubs to be
developed in San Francisco and Washington, D.C. and we are negotiating the terms
of a lease for a Sports Club in Boston. The leases for the San Francisco and    
Washington, D.C. developments provide for base rental payments of $3.0 million  
per year, for a term of 20 years, and for three 14 year renewal options. In     
addition, once we have received an amount equal to a management fee of 6% of all
revenues, an amount equal to our investment in the Club plus an 11% annual      
return on our investment and an additional distribution sufficient to reduce our
average base rental payment for each Club to $2.75 million per year, Millennium 
is entitled to receive 20% of all additional cash flows from such Club as       
additional rent. The lease for the Boston development is expected to contain    
similar terms, except that the base rental payment is expected to be $2.75      
million per year. We expect each of the Clubs to be approximately 100,000 square
feet.                                                                           

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DESCRIPTION OF THE CREDIT FACILITY

  Concurrently with the offering of the Old Notes, we amended and restated
our existing credit facility with Comerica Bank-California. The description     
below is a summary of the principal terms of our credit facility and is subject 
to, and qualified in its entirety by reference to, the definitive credit        
facility, which we will provide upon request.                                   

  Our credit facility provides for the issuance by the lender of revolving
loans and letters of credit aggregating $20.0 million. $4.0 million in letters  
of credit is outstanding under our credit facility and an additional $8.5       
million is available thereunder. The balance of the commitment will become      
available following the satisfaction of certain conditions relating to certain  
of the collateral. Our credit facility has a scheduled maturity date of May 31, 
2001 and does not require a reduction in the outstanding principle balance prior
to such date. Advances under our credit facility bear interest at a variable    
rate not expected to exceed LIBOR plus 2 1/2% or the agent's prime rate.        

   Borrowings under our credit facility are secured by a first priority lien
on substantially all of the real and personal property assets of The Sports     
Club/Irvine, The Sports Club/Las Vegas, the Spectrum Club - Canoga Park and the 
Spectrum Club - Agoura Hills, and we have pledged to the lender the outstanding 
capital stock of our subsidiaries which own these Clubs.                        

   Our credit facility contains covenants that, among other things, restrict
our ability to dispose of assets, incur additional indebtedness, incur guarantee
obligations, repay or amend the terms of outstanding indebtedness, pay          
dividends, create liens on assets, make investments, make acquisitions, engage  
in mergers or consolidations, make capital expenditures, or engage in certain   
transactions with subsidiaries and affiliates and otherwise restrict our        
operations. In addition, our credit facility requires us to comply with certain 
financial ratios and maintenance tests.                                         

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DESCRIPTION OF INTERCREDITOR AGREEMENT

Concurrently with the offering of the Old Notes, we entered into an   
Intercreditor and Subordination Agreement (the "Intercreditor Agreement") with  
the trustee under the Indenture (the "Trustee") and the Agent (as defined in our
credit facility). The description below is a summary of the principal terms of  
the Intercreditor Agreement and is subject to, and qualified in its entirety by 
reference to, the definitive Intercreditor Agreement, which we will provide upon
request.                                                                        

     The Intercreditor Agreement, among other things, provides that the liens of
the Trustee on the Shared Assets (as defined in the Intercreditor Agreement) are
subordinated to the liens securing up to $20.0 million principal amount of      
indebtedness outstanding under our credit facility and related interest, fees,  
costs and expenses. Subject to certain exceptions, following delivery to the    
Trustee of a Notice of a Default or an Event of Default (as defined in our      
credit facility), the Intercreditor Agreement prohibits all payments or         
distributions of Shared Assets or the proceeds thereof to or for the benefit of 
the Trustee or holders of the Notes on account of the obligations under the     
Indenture. In addition, certain payments made to the Trustee or holders of the  
Notes in violation of the terms of the Intercreditor Agreement may have to be   
repaid to, or held in trust for the benefit of, the Agent for application to    
payment in full of the obligations under our credit facility. The Intercreditor 
Agreement also provides that, subject to certain exceptions, the Agent will be  
assigned and entitled to vote all claims of the Trustee and the holders of the  
Notes in any Reorganization (as defined in the Intercreditor Agreement) and     
certain other proceedings involving the Designated Guarantors (See "Description 
of Notes -- Certain Definitions").                                              

The Intercreditor Agreement provides that our credit facility may be  
amended without the consent of the Trustee or the holders of the Notes;         
provided, that such amendment may not permit the incurrence of indebtedness in  
an aggregate principal amount in excess of $20.0 million. In addition, if we    
replace our credit facility and incur additional indebtedness pursuant to clause
(a) of the covenant described under the caption "Description of Notes -- Certain
Covenants -- Limitation on Incurrence of Indebtedness," the Trustee will be     
permitted to enter into an intercreditor agreement substantially in the form of 
the Intercreditor Agreement.                                                    

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DESCRIPTION OF NOTES

GENERAL                                                                         

 The New Notes will be issued pursuant to an indenture (the "Indenture")
among the Company, each of the Subsidiary Guarantors and U.S. Bank Trust        
National Association, as trustee (the "Trustee"), a copy of which has been filed
as an exhibit to the Registration Statement of which this Prospectus constitutes
a part. The terms of the Notes include those stated in the Indenture and those  
made part of the Indenture by reference to the Trust Indenture Act of 1939, as  
amended (the "Trust Indenture Act"). The Notes are subject to all such terms,   
and Holders of the Notes are referred to the Indenture and the Trust Indenture  
Act for a statement thereof.                                                    

The terms of the New Notes are substantially identical in all material
respects to the terms of the Old Notes, except that, (i) the New Notes will not 
be subject to the restrictions on transfer (other than with respect to the      
Holders that are broker-dealers, persons who participated in the distribution of
the Old Notes or affiliates) and (ii) the Registration Rights Agreement         
covenants regarding registration and the related Liquidated Damages (other than 
those that have accrued and were not paid, if any) with respect to Registration 
Defaults will have been deemed satisfied.                                       

    The following summary of certain provisions of the Indenture, the Security
Agreements (defined below), and the Disbursement Agreement does not purport to  
be complete and is qualified in its entirety by reference to the Indenture, the 
Security Agreements, the Disbursement Agreement and the Registration Rights     
Agreement, including the definitions therein of certain terms used below. Copies
of the forms of Indenture, the Security Agreements, the Disbursement Agreement  
and the Registration Rights Agreement are available from the Company upon       
request. The definitions of certain terms used in the following summary are set 
forth below under "-- Certain Definitions." For purposes of this summary, the   
term "Company" refers to The Sports Club Company, Inc. and not to any of its    
Subsidiaries.                                                                   

    The indebtedness evidenced by the Notes will continue to be senior secured
obligations of the Company and will rank senior in right of payment to all      
existing and future subordinated Indebtedness of the Company and pari passu in  
right of payment with all existing and future senior Indebtedness of the        
Company.                                                                        

The Indenture allows the Company to designate certain Subsidiaries as 
Unrestricted Subsidiaries.                                                      

  The New Notes will be issued in registered form, without coupons, and in
denominations of $1,000 and integral multiples thereof.                         

PRINCIPAL, MATURITY AND INTEREST                                                

The Indenture provides that subject to the covenant in the Indenture  
described under "-- Certain Covenants -- Limitation on Incurrence of            
Indebtedness," additional Notes may be issued thereunder from time to time,     
without the consent of the Holders of previously issued Notes, in an aggregate  
principal amount not to exceed $100 million; provided, that additional Notes may
not be issued with original issue discount as determined under sec.1273 of the  
Internal Revenue Code 1986, as amended. The Notes will mature on March 15, 2006.
Interest on the Notes will be payable semi-annually on March 15 and September 15
of each year, commencing on September 15, 1999, to Holders of record on the     
immediately preceding March 1 and September 1, respectively. The Notes will bear
interest at 11 3/8% per annum from the date of original issue. 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 the date of original issuance. Interest will 
be computed on the basis of a 360-day year comprised of twelve 30-day months.   
The Notes will be payable both as to principal and interest at the office or    
agency of the Company maintained for such purpose within the City of New York   
or, at the option of the Company, payment of interest may be made by check      
mailed to the Holders at their respective addresses set forth in the register of
Holders. Until otherwise designated by the                                      

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Company, the Company's office or agency will be the office of the Trustee       
maintained for such purpose. If a payment date is a Legal Holiday, payment may  
be made at that place on the next succeeding day that is not a Legal Holiday,   
and no interest shall accrue for the intervening period.                        

REDEMPTION                                                                      

     At the Option of the Company.  Except as set forth below, the Notes are not
redeemable at the Company's option prior to March 15, 2003. Thereafter, the     
Notes will be subject to redemption at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption    
prices (expressed as percentages of principal amount) set forth below, plus     
accrued and unpaid interest thereon, if any, to the applicable date of          
redemption, if redeemed during the 12-month period beginning on March 15 of the 
years indicated below:                                                          

                                                                [Download Table]

                       YEAR                         PERCENTAGE
                       ----                         ----------
                                                              
2003..............................................   105.688% 
2004..............................................   102.844% 
2005 and thereafter...............................   100.000% 

  Notwithstanding the foregoing, at any time or from time to time prior to
March 15, 2002, the Company may redeem up to 35% of the aggregate principal     
amount of the Notes at a redemption price of 111.375% of the principal amount   
thereof, plus accrued and unpaid interest thereon, if any, through the          
applicable date of redemption, with the net cash proceeds of one or more Public 
Equity Offerings; provided, that (i) such redemption shall occur within 60 days 
of the date of closing of such Public Equity Offering and (ii) at least 65% of  
the aggregate principal amount of Notes issued on or after the Issue Date       
remains outstanding immediately after giving effect to each such redemption.    

    If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the         
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by   
lot or by such method as the Trustee deems to be fair and appropriate; provided,
that Notes of $1,000 or less may not be redeemed in part. Notice of redemption  
will be mailed by first-class mail at least 30 but not more than 60 days before 
the redemption date to each Holder to be redeemed at such Holder's registered   
address. If any Note is to be redeemed in part only, the notice of redemption   
that relates to such Note will state the portion of the principal amount thereof
to be redeemed. A new Note in 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 date of redemption, interest will cease to  
accrue on Notes or portions thereof called for redemption.                      

  Mandatory. The Notes will not be entitled to any mandatory redemption or
sinking fund.                                                                   

SUBSIDIARY GUARANTORS                                                           

The repayment of the Notes will be unconditionally and irrevocably    
guaranteed, jointly and severally, by all current and future Wholly Owned       
Subsidiaries. The Indenture provides that so long as any Notes remain           
outstanding, any future Wholly Owned Subsidiary of the Company shall enter into 
a Subsidiary Guaranty.                                                          

If all of the Capital Stock of any Subsidiary Guarantor is sold by the
Company or any of its Subsidiaries to a Person (other than the Company or any of
its Subsidiaries) and the Net Proceeds from such Asset Sale are used in         
accordance with the terms of the covenant described under "-- Limitation on     
Asset Sales," then such Subsidiary Guarantor shall be released and discharged   
from all of its Obligations under its Subsidiary Guaranty and the Indenture.    

    The Obligations of each Subsidiary Guarantor under its Subsidiary Guaranty
is limited to the maximum amount that will, after giving effect to all other    
contingent and fixed liabilities of such                                        

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Subsidiary Guarantor and after giving effect to any collections from or payments
made by or on behalf of the Company or any other Subsidiary Guarantor in respect
of the Obligations of the Company under the Indenture or the Notes or of such   
other Subsidiary Guarantor under its Subsidiary Guaranty or the Senior Credit   
Agreement Obligations (as defined in the Intercreditor Agreement) of such       
Subsidiary Guarantor, result in the Obligations of such Subsidiary Guarantor    
under its Subsidiary Guaranty or the Credit Facility not constituting a         
fraudulent conveyance or fraudulent transfer under federal or state law or      
render a Subsidiary Guarantor insolvent.                                        

SECURITY                                                                        

The Company and the Subsidiary Guarantors have pledged as collateral  
("Collateral") to the Trustee for the benefit of the Trustee and the Holders as 
security for the Company's Obligations with respect to the Notes (i) certain    
real assets (and related fixtures and equipment) of the Company and the         
Subsidiary Guarantors, (ii) the ownership interests of the Company and the      
Subsidiary Guarantors in certain of the Subsidiaries and (iii) cash in the      
Disbursement Account. The Collateral does not include equipment that is the     
subject of Capital Lease Obligations.                                           

    The security interest in the Collateral (other than the Shared Collateral)
is a first priority security interest, subject to certain exceptions. The       
security interest in favor of the Trustee and the Holders was created in the    
Collateral pursuant to certain mortgages and security agreements in favor of the
Trustee (collectively, the "Security Agreements"). The Trustee's security       
interest in certain of the Collateral is subordinated to a lien securing        
Indebtedness outstanding pursuant to clause (a) of the covenant described under 
the caption "-- Limitation on Incurrence of Indebtedness." In connection with   
incurring any such Indebtedness, the Trustee is permitted to enter into an      
Intercreditor Agreement substantially in the form of the Intercreditor Agreement
entered into by the Trustee, the agent under the Credit Facility, the Company   
and the Designated Guarantors on the Issue Date. See "Description of            
Intercreditor Agreement."                                                       

  The proceeds of any sale of the Collateral following an Event of Default
may not be sufficient to satisfy payments due on the Notes. In addition, the    
ability of the Holders to realize upon the Collateral may be limited pursuant to
applicable laws, including bankruptcy or securities laws.                       

    If an Event of Default occurs and is continuing, the Trustee, on behalf of
the Holders, in addition to any rights or remedies available to it under the    
Indenture and the Security Agreements, may take such action as it deems         
advisable to protect and enforce its rights in the Collateral, including the    
institution of sale or foreclosure proceedings. The proceeds received by the    
Trustee from any such sale or foreclosure will be applied by the Trustee first  
to pay the expenses of such sale or foreclosure and fees and other amounts then 
payable to the Trustee under the Indenture, and thereafter to pay amounts due   
and payable with respect to the Notes.                                          

   Certain Bankruptcy Limitations. The right of the Trustee to repossess and
dispose of the Collateral upon the occurrence of an Event of Default is likely  
to be significantly impaired by applicable bankruptcy law if a bankruptcy       
proceeding were to be commenced by or against the Company prior to the Trustee  
having repossessed and disposed of the Collateral. Under the Bankruptcy Code, a 
secured creditor is prohibited from repossessing its security from a debtor in a
bankruptcy case, or from disposing of security repossessed from such debtor,    
without bankruptcy court approval. Moreover, the Bankruptcy Code permits the    
debtor to continue to retain and to use collateral owned as of the date of the  
bankruptcy filing (and the proceeds, products, offspring, rents or profits of   
such collateral to the extent provided by the Security Agreements and by        
applicable nonbankruptcy law) even though the debtor is in default under the    
applicable debt instruments, provided that the secured creditor is given        
"adequate protection." The meaning of the term "adequate protection" may vary   
according to circumstances. In view of the lack of a precise definition of the  
term "adequate protection" and the broad discretionary powers of a bankruptcy   
court, it is impossible to predict how long payments under the Notes could be   
delayed following commencement of a bankruptcy case, whether or when the Trustee
could repossess or dispose of the                                               

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Collateral or whether or to what extent Holders would be compensated for any    
delay in payment or loss of value of the Collateral through the requirement of  
"adequate protection." Furthermore, in the event a bankruptcy court determines  
the value of the Collateral is not sufficient to repay all amounts due on the   
Notes, the Holders would hold secured claims to the extent of the value of the  
Collateral to which the Holders are entitled, and would hold unsecured claims   
with respect to such shortfall. Applicable Federal bankruptcy laws do not permit
the payment and/or accrual of post-petition interest, costs and attorneys' fees 
during a debtor's bankruptcy case unless the claims are oversecured or the      
debtor is solvent at the time of reorganization. In addition, in the event that 
the Company becomes the subject of a bankruptcy case, the bankruptcy court,     
among other things, may avoid certain transfers made by the entity that is the  
subject of the bankruptcy filing, including, without limitation, transfers held 
to be fraudulent conveyances and preferences.                                   

Disbursement Agreement                                                          

    Approximately $54.4 million of the net proceeds of the offering of the Old
Notes was deposited in the Disbursement Account and, subject to the terms of the
Disbursement Agreement, will be used to pay the development costs of two Sports 
Clubs in New York City and Sports Clubs in Washington, D.C. and Boston. If the  
Company does not develop either of the Washington, D.C. or Boston Clubs, amounts
allocated to such Club in the Disbursement Account may be used to acquire or    
develop other Clubs. Until such funds are released in accordance with the terms 
of the Disbursement Agreement they will constitute a portion of the Collateral. 

REPURCHASE UPON CHANGE OF CONTROL                                               

     Upon the occurrence of a Change of Control, the Company will be required to
offer to repurchase all of the Notes then outstanding (the "Change of Control   
Offer") at a purchase price equal to 101% of the aggregate principal amount     
thereof, plus accrued and unpaid interest, if any, to the date of repurchase    
(the "Change of Control Payment"). Within 20 days following any Change of       
Control, the Company must mail or cause to be mailed a notice to each Holder    
stating, among other things: (i) the purchase price and the purchase date, which
will be no earlier than 30 days nor later than 45 days from the date such notice
is mailed (the "Change of Control Payment Date"); (ii) that any Holder electing 
to have Notes purchased pursuant to a Change of Control Offer will be required  
to surrender the Notes, with the form entitled "Option of Holder to Elect       
Purchase" on the reverse of the Notes completed, to the paying agent with       
respect to the Notes (the "Paying Agent") at the address specified in the notice
prior to the close of business on the third Business Day preceding the Change of
Control Payment Date; and (iii) that the Holder will be entitled to withdraw    
such election if the Paying Agent receives, not later than the close of business
on the second Business Day preceding the Change of Control Payment Date, a      
telegram, telex, facsimile transmission or letter setting forth the name of the 
Holder, the principal amount of Notes delivered for purchase, and a statement   
that such Holder is withdrawing its election to have such Notes purchased.      

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 the Notes in connection with a Change of Control. To the extent   
that the provisions of any securities laws or regulations conflict with the     
"Change of Control" provisions of the Indenture, the Company will 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.                                                    

On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment the Notes or portions thereof tendered pursuant  
to the Change of Control Offer, (ii) deposit with the Paying Agent an amount    
equal to the Change of Control Payment in respect of all Notes or portions      
thereof so tendered and not withdrawn, and (iii) deliver or cause to be         
delivered to the Trustee the Notes                                              

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so accepted, together with an Officers' Certificate stating that the Notes or   
portions thereof tendered to the Company are accepted for payment. The Paying   
Agent will promptly mail to each Holder of Notes so accepted payment in an      
amount equal to the purchase price for such Notes, and the Trustee will         
authenticate and mail to each Holder (or cause to be transferred by book entry) 
a new Note equal in principal amount to any unpurchased portion of the Notes    
surrendered, if any; provided, that each such new Note will be in the principal 
amount of $1,000 or an integral multiple thereof. The Company will announce the 
result of the Change of Control Offer on or as soon as practicable after the    
Change of Control Payment Date.                                                 

Except as described above with respect to a Change of Control, the    
Indenture does not contain provisions that permit the Holders to require that   
the Company repurchase or redeem the Notes in the event of a takeover,          
recapitalization or similar restructuring.                                      

  There can be no assurance that sufficient funds will be available at the
time of any Change of Control Offer to make required repurchases.               

   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.                                                                  

    The term "all or substantially all" as used in the definition of Change in
Control has not been interpreted under New York law (which is the governing law 
of the Indenture) to represent a specific quantitative test. As a consequence,  
in the event the Holders elect to exercise their rights under the Indenture and 
the Company elects to contest such election, there could be no assurance as to  
how a court would interpret the phrase under New York law, which may have the   
effect of preventing the Trustee or the Holders from successfully asserting that
a Change of Control has occurred.                                               

CERTAIN COVENANTS                                                               

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

          (i) declare or pay any dividend or make any distribution on account of
    any Equity Interests of the Company or any of its Subsidiaries (other than
(A) dividends or distributions payable in Equity Interests (other than
     Disqualified Stock) of the Company or (B) amounts payable to the Company or
any Restricted Subsidiary);                                           

      (ii) purchase, redeem or otherwise acquire or retire for value any
  Equity Interest of the Company, any Subsidiary or any other Affiliate of
   the Company (other than (x) any such Equity Interest owned by the Company
     or any Subsidiary Guarantor or (y) the purchase of partnership interests in
   the Partnership Entities outstanding on the Issue Date in compliance with
the covenant described under "-- Limitation on Transactions with      
Affiliates");                                                         

        (iii) make any principal payment on, or purchase, redeem, defease or
  otherwise acquire or retire for value any Indebtedness of the Company or
     any Subsidiary Guarantor that is expressly subordinated in right of payment
     to the Notes or such Subsidiary Guarantor's Subsidiary Guaranty thereof, as
 the case may be, prior to any scheduled principal payment, sinking fund
payment or other payment at the stated maturity thereof; or           

(iv) make any Restricted Investment                         

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(all such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
such Restricted Payment:                                                        

        (a) no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof,                                 

       (b) immediately after giving effect to such Restricted Payment on a
pro forma basis, the Company could incur at least $1.00 of additional 
Indebtedness under the Interest Coverage Ratio test set forth in the  
     covenant described under "-- Limitation on Incurrence of Indebtedness," and

        (c) such Restricted Payment (the value of any such payment, if other
    than cash, being determined in good faith by the Board of Directors of the
     Company and evidenced by a resolution set forth in an Officers' Certificate
delivered to the Trustee), together with the aggregate of all other   
Restricted Payments made after the Issue Date (including Restricted   
    Payments permitted by clauses (i) and (ii) of the next following paragraph
    and excluding Restricted Payments permitted by the other clauses therein),
is less than the sum of:                                              

       (1) 50% of the Consolidated Net Income of the Company for the
      period (taken as one accounting period) from the Issue Date to the end
      of the Company's most recently ended fiscal quarter for which internal
 financial statements are available at the time of such Restricted
 Payment (or, if such Consolidated Net Income for such period is a
deficit, 100% of such deficit), plus                            

          (2) 100% of the aggregate net cash proceeds (and of the net cash
     proceeds received upon the conversion of non-cash proceeds into cash)
  received by the Company from the issuance or sale, other than to a
       Subsidiary, of Equity Interests of the Company (other than Disqualified
Stock) after the Issue Date and on or prior to the time of such 
Restricted Payment, plus                                        

       (3) 100% of the aggregate net cash proceeds received from the
   issuance or sale, other than to a Subsidiary, of any convertible or
    exchangeable debt security of the Company that has been converted or
       exchanged into Equity Interests of the Company (other than Disqualified
   Stock) pursuant to the terms thereof after the Issue Date and on or
      prior to the time of such Restricted Payment (including any additional
       net proceeds received by the Company upon such conversion or exchange).

The foregoing provisions will not prohibit:                           

    (i) the payment of any dividend within 60 days after the date of
    declaration thereof, if at said date of declaration such payment would not
have been prohibited by the provisions of the Indenture;              

       (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company or any Restricted Subsidiary in   
    exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary) of, other Equity Interests of the Company
(other than Disqualified Stock);                                      

      (iii) the repurchase, retirement or other acquisition for value of
    common stock of the Company held by any future, present or former employee
of the Company or any Restricted Subsidiary or the estate, heirs or   
  legatees of, or any entity controlled by, any such employee, pursuant to
(A) any bona fide management equity plan or stock option plan, (B) any
  other management or employee benefit plan or (C) agreement in connection
    with the termination of such person's employment for any reason (including
   by reason of death or disability); provided, that the aggregate amount of
   Restricted Payments made under this clause (iii) does not exceed $500,000
in any calendar year;                                                 

        (iv) the redemption, repurchase or payoff of any Indebtedness of the
Company or a Restricted Subsidiary with proceeds of any Refinancing   
   Indebtedness permitted to be incurred pursuant to the provision described
under "-- Limitation on Incurrence of Indebtedness";                  

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          (v) distributions to the partners of the Partnership Entities, in each
     case in accordance with their respective interests pursuant to the terms of
the respective Partnership Agreements;                                

       (vi) the repurchase by HFA Services, Inc. of up to 15,000 shares of
     its common stock subject to options (or the underlying options) outstanding
 on the Issue Date, pursuant to that certain Shareholder Agreement dated
July 1, 1997, or any amendment, modification or supplement thereto;   
     provided, that such amendment, modification or supplement does not decrease
the exercise price of such options or increase the amount payable in  
respect of such repurchase; and                                       

         (vii) Restricted Investments in an aggregate amount not to exceed (1)
 $5.0 million less (2) any Restricted Payments made on or after March 1,
  1999 and on or prior to the Issue Date; provided, that (A) no Default or
Event of Default shall have occurred and be continuing at the time, or
  shall occur as a consequence thereof and (B) if any Person in which such
   Restricted Investment is made, pays or makes any dividend or distribution
     to the Person that made such Restricted Investment, the aggregate amount of
  such dividends and distributions not exceeding the original cost of such
   Restricted Investment will replenish the amount of Restricted Investments
permitted to be made pursuant to this clause (vii).                   

    Not later than the date of making any Restricted Payment, the Company will
deliver to the Trustee an Officers' Certificate stating that such Restricted    
Payment is permitted and setting forth the basis upon which the calculations    
required by this covenant were computed, which calculations may be based upon   
the Company's latest available financial statements.                            

  Limitation on Incurrence of Indebtedness. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, (i)   
create, incur, issue, assume, guaranty or otherwise become directly or          
indirectly liable with respect to, contingently or otherwise (collectively,     
"incur"), any Indebtedness (including, without limitation, Acquired Debt) or    
(ii) issue any Disqualified Stock; provided, that the Company may incur         
Indebtedness (including, without limitation, Acquired Debt) and issue shares of 
Disqualified Stock (and a Restricted Subsidiary may incur Acquired Debt) if (w) 
no Default or Event of Default shall have occurred and be continuing at the time
of, or would occur after giving effect on a pro forma basis to, such incurrence 
or issuance, (x) the Rent Coverage Ratio for the Company's most recently ended  
four full fiscal quarters for which internal financial statements are available 
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been not less than 1.0x,        
determined on a pro forma basis (including a pro forma application of the net   
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period, (y) the Interest Coverage Ratio for the Company's most     
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional           
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least equal to the ratio set forth below opposite the period in which such      
incurrence or issuance occurs, determined on a pro forma basis (including a pro 
forma application of the net proceeds therefrom), as if the additional          
Indebtedness had been incurred, or the Disqualified Stock had been issued, as   
the case may be, at the beginning of such four-quarter period:                  

                                                                [Download Table]

                       PERIOD ENDING                          RATIO
                       -------------                          -----
                                                                   
December 31, 2000...........................................  2.00x
December 31, 2002...........................................  2.25x
Thereafter..................................................  2.50x

and (z) in the case of Indebtedness (other than Purchase Money Obligations,     
Capital Lease Obligations or Acquired Debt), the Weighted Average Life to       
Maturity and final stated maturity of such Indebtedness is equal to or greater  
than the Weighted Average Life to Maturity and final stated maturity of the     
Notes.                                                                          

    Notwithstanding the foregoing, the foregoing limitations will not prohibit
the incurrence of:                                                              

   (a) Indebtedness of the Company and its Restricted Subsidiaries
   (including, without limitation, Indebtedness outstanding under the Credit
Facility and Indebtedness of the Partnership Entities);               

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provided, that the aggregate principal amount of Indebtedness incurred
     pursuant to this clause (a) on any date, together with the principal amount
of all other Indebtedness incurred pursuant to this clause (a) and    
     outstanding on such date, shall not exceed $20.0 million less the aggregate
amount of commitment reductions contemplated by clause (iii) under the
caption "-- Limitation on Asset Sales";                               

       (b) Equipment Financing, in an aggregate amount not to exceed $10.0
million at any time outstanding;                                      

(c) performance bonds, appeal bonds, surety bonds, insurance
obligations or bonds and other similar bonds or obligations (including
 Obligations under letters of credit) incurred in the ordinary course of
business;                                                             

    (d) Hedging Obligations incurred to fix the interest rate on any
   variable rate Indebtedness otherwise permitted by the Indenture; provided
     that the notional principal amount of each such Hedging Obligation does not
exceed the principal amount of the Indebtedness to which such Hedging 
Obligation relates;                                                   

          (e) so long as no Default exists, intercompany receivables between the
Company and any Restricted Subsidiary incurred in connection with cash
   management activities in the ordinary course of business, consistent with
 past practices; provided, that each such receivable owed by the Company
   shall be eliminated by an intercompany dividend or distribution within 45
     days after the end of the fiscal quarter in which it was incurred except to
   the extent such dividend or distribution is prohibited by applicable law;

(f) Indebtedness of the Company or any Restricted Subsidiary
   outstanding on the Issue Date (other than Equipment Financing), including
the Notes outstanding on the Issue Date and the Subsidiary Guaranties 
thereof, and Subsidiary Guaranties incurred after the Issue Date; or  

          (g) Indebtedness of the Company or any Restricted Subsidiary issued in
exchange for, or the proceeds of which are contemporaneously used to  
   extend, refinance, renew, replace, or refund (collectively, "Refinance"),
Indebtedness of such Person incurred pursuant to the Interest Coverage
 Ratio test set forth in the immediately preceding paragraph, clause (f)
   above or this clause (g) (the "Refinancing Indebtedness"); provided, that
   (i) the principal amount of such Refinancing Indebtedness does not exceed
    the principal amount of Indebtedness so Refinanced (including any required
premiums and out-of-pocket expenses reasonably incurred in connection 
therewith), (ii) the Refinancing Indebtedness has a final scheduled   
   maturity that equals or exceeds the final stated maturity, and a Weighted
Average Life to Maturity that is equal to or greater than the Weighted
  Average Life to Maturity, of the Indebtedness being Refinanced and (iii)
    the Refinancing Indebtedness ranks, in right of payment, no more favorable
to the Notes than the Indebtedness being Refinanced.                  

  Limitation on Asset Sales. The Company will not, and will not permit any
Restricted Subsidiary to, make any Asset Sale unless:                           

        (i) the Company or such Restricted Subsidiary receives consideration
   at the time of such Asset Sale not less than the fair market value of the
assets subject to such Asset Sale;                                    

        (ii) at least 80% of the consideration for such Asset Sale is in the
form of cash or Cash Equivalents or liabilities of the Company or any 
Restricted Subsidiary (other than liabilities that are by their terms 
   subordinated to the Notes or any Subsidiary Guaranty) that are assumed by
 the transferee of such assets (provided, that following such Asset Sale
    there is no further recourse to the Company or its Restricted Subsidiaries
with respect to such liabilities); and                                

          (iii) within 360 days of such Asset Sale, the Net Proceeds thereof are
(A) applied to repay Indebtedness under the Credit Facility (and      
    permanently reduce, in an amount equal to the full amount of such payment,
amounts available to be borrowed thereunder), (B) invested in assets  

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    related to the business of the Company or its Restricted Subsidiaries, (C)
  applied to repay Purchase Money Obligations (or Refinancing Indebtedness
     incurred to Refinance such Purchase Money Obligations) secured by the asset
     sold, or (D) to the extent not used as provided in clauses (A), (B) or (C),
   applied to make an offer to purchase Notes as described below (an "Excess
   Proceeds Offer"); provided, that the Company will not be required to make
 an Excess Proceeds Offer until the amount of Excess Proceeds is greater
than $10.0 million.                                                   

   The foregoing provisions in (i) or (ii) above shall not apply to an Event
of Loss. Notwithstanding clause (iii) above, within 30 days of an Asset Sale of 
The Sports Club/LA or the Upper East Side Club, the Company will use the Net    
Proceeds thereof to make an Excess Proceeds Offer.                              

Pending the final application of any Net Proceeds, the Company may    
temporarily reduce Indebtedness under the Credit Facility or temporarily invest 
such Net Proceeds in Investments described under clauses (a) or (b) of the      
definition of Permitted Investments.                                            

    Net Proceeds not invested or applied as set forth in the preceding clauses
(A), (B) and (C) constitute "Excess Proceeds." If the Company elects, or becomes
obligated to make an Excess Proceeds Offer, the Company will offer to purchase  
Notes having an aggregate principal amount equal to the Excess Proceeds (the    
"Purchase Amount"), at a purchase price equal to 100% of the aggregate principal
amount thereof, plus accrued and unpaid interest, if any, to the purchase date. 
The Company must commence such Excess Proceeds Offer not later than 30 days     
after the expiration of the 360 day period following the Asset Sale that        
produced such Excess Proceeds. If the aggregate purchase price for the Notes    
tendered pursuant to the Excess Proceeds Offer is less than the Excess Proceeds,
the Company and its Restricted Subsidiaries may use the portion of the Excess   
Proceeds remaining after payment of such purchase price for general corporate   
purposes.                                                                       

     The Indenture provides that each Excess Proceeds Offer will remain open for
a period of 20 Business Days and no longer, unless a longer period is required  
by law (the "Excess Proceeds Offer Period"). Promptly after the termination of  
the Excess Proceeds Offer Period (the "Excess Proceeds Payment Date"), the      
Company will purchase and mail or deliver payment for the Purchase Amount for   
the Notes or portions thereof tendered, pro rata or by such other method as may 
be required by law, or, if less than the Purchase Amount has been tendered, all 
Notes tendered pursuant to the Excess Proceeds Offer. The principal amount of   
Notes to be purchased pursuant to an Excess Proceeds Offer may be reduced by the
principal amount of Notes acquired by the Company through purchase or redemption
(other than pursuant to a Change of Control Offer) subsequent to the date of the
Asset Sale and surrendered to the Trustee for cancellation.                     

   Any Excess Proceeds Offer will be conducted in compliance with applicable
regulations under the federal securities laws, including Exchange Act Rule      
14e-1. To the extent that the provisions of any securities laws or regulations  
conflict with the "Asset Sale" provisions of the Indenture, the Company will    
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.                                                    

   The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, create or suffer to exist or become effective
any restriction that would impair the ability of the Company to make an Excess  
Proceeds Offer upon an Asset Sale or, if such Excess Proceeds Offer is made, to 
pay for the Notes tendered for purchase.                                        

 The foregoing provisions will not apply to a transaction consummated in
compliance with the provisions of the Indenture described under "Merger,        
Consolidation or Sale of Assets" below.                                         

Limitation on Liens. The Company will not, and will not permit any    
Restricted Subsidiary to, directly or indirectly, create, incur, assume or      
suffer to exist any Lien on any asset (including, without limitation, all real, 
tangible or intangible property) of the Company or any Restricted Subsidiary,   
whether                                                                         

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now owned or hereafter acquired, or on any income or profits therefrom, or      
assign or convey any right to receive income therefrom, except Permitted Liens. 

   Limitation on Sale-Leaseback Transactions. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into any 
Sale-Leaseback Transaction (other than the Thousand Oaks Transaction), unless:  
(a) immediately prior to such transaction the Company could have incurred       
Indebtedness under the Interest Coverage Ratio test set forth in the covenant   
described under "-- Limitation on Incurrence of Indebtedness" in an amount equal
to the Attributable Indebtedness in respect of such transaction and (b) the     
gross cash proceeds received by the Company or a Restricted Subsidiary, as the  
case may be, from such sale equals or exceeds the fair market value of the      
property sold in such transaction.                                              

   Limitation on Restrictions on Subsidiary Dividends. The Company will not,
and will not permit any Restricted Subsidiary to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective any encumbrance or    
restriction on the ability of any Restricted Subsidiary to:                     

       (i) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries (a) on such Restricted Subsidiary's
  Capital Stock or (b) with respect to any other interest or participation
in, or measured by, such Restricted Subsidiary's profits, or          

          (ii) pay any Indebtedness owed to the Company or any of its Restricted
Subsidiaries, or                                                      

        (iii) make loans or advances to the Company or any of its Restricted
Subsidiaries, or                                                      

(iv) transfer any of its assets to the Company or any of its
Restricted Subsidiaries,                                              

except, with respect to clauses (i) through (iv) above, for such encumbrances or
restrictions existing under or by reason of:                                    

   (1) the Credit Facility, as in effect on the Issue Date, or any
amendments, modifications, supplements, refinancings or replacements  
     thereof containing dividend or other payment restrictions that are not more
restrictive than those contained in the documents governing the Credit
Facility, as in effect on the Issue Date;                             

          (2) the Indenture, the Security Agreements, the Disbursement Agreement
and the Notes;                                                        

(3) applicable law;                                         

        (4) Acquired Debt; provided, that such encumbrances and restrictions
are not applicable to any Person, or the properties or assets of any  
    Person, other than the Person, or the property or assets of the Person, so
acquired;                                                             

        (5) customary non-assignment, subletting and net worth provisions of
any contract or lease entered into in the ordinary course of business;

     (6) customary restrictions on the transfer of assets subject to a
Permitted Lien imposed by the holder of such Lien;                    

     (7) Indebtedness incurred by the Partnership Entities pursuant to
  clause (a) under the caption "Limitation on Incurrence of Indebtedness";
     provided, that such restrictions are ordinary and customary with respect to
the type of Indebtedness being incurred and are not applicable to any 
Person other than the Partnership Entity incurring such Indebtedness; 

    (8) the agreements governing permitted Refinancing Indebtedness,
    provided, that such restrictions contained in any agreement governing such
  Refinancing Indebtedness are no more restrictive than those contained in
any agreements governing the Indebtedness being refinanced; and       

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         (9) an agreement for the sale or disposition of assets or the Capital
 Stock of such Restricted Subsidiary; provided, that such restriction or
     encumbrance is (x) only applicable to such Restricted Subsidiary or assets,
   as applicable, and (y) effective only for a period from the execution and
  delivery of such agreement through a termination date not later than 270
days after such execution and delivery.                               

     Merger, Consolidation or Sale of Assets. The Company may not consolidate or
merge with or into (regardless of whether the Company is the surviving          
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of  
all or substantially all of its properties or assets (determined on a           
consolidated basis for the Company and its Restricted Subsidiaries) in one or   
more related transactions to, any other Person, unless:                         

      (i) the Company is the surviving Person or the Person formed by or
   surviving any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, lease, conveyance or other  
     disposition has been made is a corporation organized and existing under the
    laws of the United States of America, any state thereof or the District of
Columbia;                                                             

    (ii) the Person formed by or surviving any such consolidation or
merger (if other than the Company) or the Person to which such sale,  
    assignment, transfer, lease, conveyance or other disposition has been made
assumes all the Obligations of the Company, pursuant to a supplemental
   indenture and in a form reasonably satisfactory to the Trustee, under the
Notes, the Indenture and the Registration Rights Agreement;           

      (iii) immediately after giving effect to such transaction on a pro
forma basis, no Default or Event of Default exists or would occur; and

   (iv) the Company, or any Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer, 
    lease, conveyance or other disposition has been made, (A) has Consolidated
Net Worth (immediately after the transaction but prior to any purchase
    accounting adjustments resulting from the transaction) equal to or greater
  than the Consolidated Net Worth of the Company immediately preceding the
    transaction and (B) will be permitted, at the time of such transaction and
   after giving pro forma effect thereto as if such transaction had occurred
   at the beginning of the applicable four-quarter period, to incur at least
  $1.00 of additional Indebtedness pursuant to the Interest Coverage Ratio
     test set forth in the covenant described under "-- Limitation on Incurrence
of Indebtedness."                                                     

In the event of any transaction (other than a lease) described in and 
complying with the conditions listed in the immediately preceding paragraph in  
which the Company is not the surviving Person, such surviving Person or         
transferee shall succeed to, and be substituted for, and may exercise every     
right and power of, the Company under, and the Company shall be discharged from 
its Obligations under, the Indenture, the Notes and the Registration Rights     
Agreement.                                                                      

    Limitation on Transactions with Affiliates. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, sell, 
lease, transfer or otherwise dispose of any of its properties or assets to, or  
purchase any property or assets from, or enter into any contract, agreement,    
understanding, loan, advance or guaranty with, or for the benefit of, any       
Affiliate (other than the Company or a Wholly Owned Subsidiary of the Company)  
(each of the foregoing, an "Affiliate Transaction"), except for:                

        (a) Affiliate Transactions that, together with all related Affiliate
Transactions, have an aggregate value of not more than $2.0 million;  
 provided, that (i) such transactions are conducted in good faith and on
    terms that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable   
     transaction at such time by the Company or such Restricted Subsidiary on an
arm's-length basis from a Person that is not an Affiliate of the      

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    Company or such Restricted Subsidiary and (ii) prior to entering into such
  transaction the Company shall have delivered to the Trustee an Officers'
Certificate certifying to such effect;                                

        (b) Affiliate Transactions that, together with all related Affiliate
Transactions, have an aggregate value of not more than $5.0 million;  
    provided, that (i) a majority of the disinterested members of the Board of
    Directors of the Company determine that such transactions are conducted in
  good faith and on terms that are no less favorable to the Company or the
    relevant Restricted Subsidiary than those that would have been obtained in
 a comparable transaction at such time by the Company or such Restricted
    Subsidiary on an arm's-length basis from a Person that is not an Affiliate
  of the Company or such Restricted Subsidiary; and (ii) prior to entering
  into such transaction the Company shall have delivered to the Trustee an
Officers' Certificate certifying to such effect; and                  

    (c) Affiliate Transactions for which the Company delivers to the
 Trustee an opinion as to the fairness to the Company or such Restricted
   Subsidiary from a financial point of view issued by an investment banking
firm of national standing, or in the case of the sale or lease of real
   property, an appraisal from an MAI certified appraiser employed by a real
estate appraisal firm of national standing.                           

Notwithstanding the foregoing, the following will be deemed not to be 
Affiliate Transactions:                                                         

      (a) employment agreements, arrangements and plans (including stock
  plans) entered into by the Company or any Restricted Subsidiary (and the
   granting of awards and customary benefits thereunder) in each case in the
    ordinary course of business with the approval of the disinterested members
   of the Board of Directors of the Company or, if none, unanimously by such
Board of Directors;                                                   

        (b) Restricted Payments permitted by the provisions of the Indenture
described above under "-- Limitations on Restricted Payments;"        

  (c) reasonable and customary fees and compensation paid to and
indemnity provided on behalf of, directors of the Company;            

        (d) the performance by the Company or its Restricted Subsidiaries of
   any of their obligations under the Partnership Agreements as in effect on
the Issue Date;                                                       

       (e) the performance of services by a Wholly-Owned Subsidiary of the
   Company in the ordinary course of business, consistent with past practice
     (and the receipt of payment therefor) pursuant to the management agreements
governing the management of the Manhattan Beach Spectrum Club and the 
Reebok Sports Club/NY, each as in effect on the Issue Date, or as     
     thereafter amended, modified or supplemented; provided that, the amendment,
modification or supplement thereto does not result in terms any less  
    favorable to the Wholly-Owned Subsidiary managing such Club than the terms
in existence immediately prior to such amendment, modification or     
supplement;                                                           

(f) the Thousand Oaks Transaction;                          

        (g) the performance by the Company or its Restricted Subsidiaries of
their obligations under the following agreements with Millennium or   
   Affiliates of Millennium: (1) that certain Agreement of Lease, dated June
3, 1992, governing the lease of the Reebok Sports Club/NY; (2) leases 
  entered into with Millennium with respect to the San Francisco Club, the
   Boston Club and the Washington, D.C. Club, provided, that such leases are
     no less favorable to the Company and the Restricted Subsidiaries than those
described under the caption "Certain Relationships and Related        
     Transactions -- Millennium"; and (3) that certain Agreement of Lease, dated
  December 31, 1997 (the "Fullerton/Santa Ana Lease Agreement"), governing
the lease of the property on which the Fullerton Club is located (the 
     "Fullerton Land") and the lease of the property on which the Santa Ana Club
     is located (the "Santa Ana Land"), in the case of clauses (1) and (3) as in
effect on the Issue Date or as thereafter amended, modified or        
supplemented; provided, that no such amendment, modification or       

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supplement, directly or indirectly, shall result in terms any less    
   favorable to the Company or its Restricted Subsidiaries than the terms in
    existence immediately prior to such amendment, modification or supplement;

(h) the purchase by the Company of the Santa Ana Land and of
Millennium's leasehold interest in the Fullerton Land pursuant to the 
Fullerton/Santa Ana Lease Agreement; and                              

   (i) the performance by the Company of its obligations under the
   registration and pre-emptive rights granted to Millennium pursuant to (1)
   that certain letter agreement dated March 13, 1997, as amended in writing
   June 10, 1997, and as corrected by letter agreement dated April 28, 1998;
and (2) that certain letter agreement dated December 29, 1997.        

     Restriction on Sale and Issuance of Subsidiary Stock. The Company will not,
and will not permit any Restricted Subsidiary to issue or sell, any Equity      
Interests of any Restricted Subsidiary to any Person other than the Company or a
Wholly Owned Subsidiary of the Company; provided, that the Company and its      
Restricted Subsidiaries may sell all (but not less than all) of the Capital     
Stock of a Restricted Subsidiary owned by the Company and its Restricted        
Subsidiaries if the Net Proceeds from such Asset Sale are used in accordance    
with the terms of the covenant described under "-- Limitation on Asset Sales."  

    Rule 144A Information Requirement. The Company will furnish to the Holders
or beneficial holders of Notes, upon their request, and to prospective          
purchasers thereof designated by such Holders or beneficial holders, the        
information required to be delivered pursuant to Rule 144A(d)(4) under the      
Securities Act for so long as is required for an offer or sale of the Notes to  
qualify for an exemption under Rule 144A.                                       

   Subsidiary Guarantors. The Company will cause each Person which becomes a
Wholly Owned Subsidiary of the Company in the future to (i) execute and deliver 
to the Trustee a supplemental indenture in form reasonably satisfactory to the  
Trustee, pursuant to which such Wholly Owned Subsidiary shall unconditionally   
guarantee all of the Company's Obligations under the Notes and the Indenture on 
the terms set forth in the Indenture and (ii) deliver to the Trustee an opinion 
of counsel that such supplemental indenture has been duly authorized, executed  
and delivered by such Wholly Owned Subsidiary and constitutes a legal, valid,   
binding and enforceable obligation, of such Wholly Owned Subsidiary, in each    
case subject to customary qualifications. Thereafter, such Wholly Owned         
Subsidiary shall be a Subsidiary Guarantor for all purposes of the Indenture.   

Additional Collateral. The Company will, and will cause each of the   
Subsidiary Guarantors to, grant to the Trustee a security interest in all       
Collateral which (except with respect to Shared Collateral) will be a first     
priority interest, whether owned on the Issue Date or thereafter acquired, and  
to execute and deliver all documents and to take all action necessary or        
desirable to perfect and protect such a security interest in favor of the       
Trustee.                                                                        

    Limitation on Lines of Business. The Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly engage to any     
substantial extent in any line or lines of business activity other than that    
which, in the reasonable good faith judgment of the Board of Directors of the   
Company, is a Related Business. The Company will not permit the Designated      
Guarantors to own any material assets other than (i) the Shared Collateral and  
(ii) equipment encumbered by Liens contemplated by clause (viii) of the         
definition of Permitted Liens.                                                  

     Reports. Regardless of whether required by the rules and regulations of the
SEC, so long as any Notes are outstanding, the Company will furnish to the      
Trustee and Holders, within 15 days after the Company is or would have been     
required to file such with the SEC:                                             

    (i) all quarterly and annual financial information that would be
     required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
the Company were required to file such Forms, including for each a    
     "Management's Discussion and Analysis of Financial Condition and Results of

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Operations" and, with respect to the annual information only, a report
thereon by the Company's independent certified public accountants and 

    (ii) all information that would be required to be contained in a
   filing with the SEC on Form 8-K if the Company were required to file such
     reports. From and after the time the Company files a registration statement
with the SEC with respect to the Notes, the Company will file such    
information with the SEC so long as the SEC will accept such filings. 

EVENTS OF DEFAULT AND REMEDIES                                                  

Each of the following will constitute an Event of Default under the   
Indenture:                                                                      

      (i) default for 30 days in the payment when due of interest on the
Notes;                                                                

          (ii) default in payment of principal (or premium, if any) on the Notes
when due at maturity, redemption, by acceleration or otherwise;       

      (iii) default in the performance or breach of the covenants in the
Indenture described under "--Repurchase Upon Change of Control,"      
"-- Certain Covenants -- Limitation on Asset Sales," "-- Limitation on
Sale-Leaseback Transactions," or "-- Merger, Consolidation or Sale of 
Assets;"                                                              

       (iv) failure by the Company or any Subsidiary Guarantor for 30 days
  after notice to comply with certain other agreements in the Indenture or
the Notes;                                                            

          (v) default under (after giving effect to any applicable grace periods
or any extension of any maturity date) any mortgage, indenture or     
     instrument under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by the Company or any
     Restricted Subsidiary (or the payment of which is guaranteed by the Company
  or any Restricted Subsidiary), whether such Indebtedness or guaranty now
   exists or is created after the Issue Date, if (A) either (1) such default
results from the failure to pay principal of or interest on such      
   Indebtedness when the same becomes due or (2) as a result of such default
the maturity of such Indebtedness has been accelerated, and (B) the   
   principal amount of such Indebtedness, together with the principal amount
     of any other such Indebtedness with respect to which such a payment default
  (after the expiration of any applicable grace period or any extension of
the maturity date) has occurred, or the maturity of which has been so 
accelerated, exceeds $5.0 million in the aggregate;                   

        (vi) failure by the Company or any Subsidiary to pay final judgments
(other than any judgment as to which a reputable insurance company has
accepted full liability) aggregating in excess of $5.0 million, which 
   judgments are not discharged, bonded or stayed within 60 days after their
entry;                                                                

   (vii) any event of default under the Security Agreements or the
Disbursement Agreement; and                                           

         (viii) certain events of bankruptcy or insolvency with respect to the
Company or any of the Subsidiary Guarantors.                          

Subject to the terms of the Intercreditor Agreement, if any Event of  
Default occurs and is continuing, the Trustee or the Holders of at least 25% in 
principal amount of the then outstanding Notes may declare by written notice to 
the Company and the Trustee all the Notes to be due and payable immediately.    
Notwithstanding the foregoing, in the case of an Event of Default arising from  
certain events of bankruptcy or insolvency, all outstanding Notes will become   
due and payable without further action or notice. Holders may not enforce the   
Indenture or the Notes except as provided in the Indenture. Subject to certain  
limitations, Holders of a majority in principal amount of the then outstanding  
Notes may direct the Trustee in its exercise of any trust or power.             

   The Holders of a majority in aggregate principal amount of the Notes then
outstanding, by written notice to the Trustee, may on behalf of the Holders of  
all of the Notes (i) waive any existing Default or Event of Default and its     
consequences under the Indenture except a continuing Default or Event of        

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Default in the payment of interest on, or the principal of, the Notes or a      
Default or an Event of Default with respect to any covenant or provision which  
cannot be modified or amended without the consent of the Holder of each         
outstanding Note affected, and/or (ii) rescind an acceleration and its          
consequences if the rescission would not conflict with any judgment or decree if
all existing Events of Default (except nonpayment of principal or interest that 
has become due solely because of the acceleration) have been cured or waived.   

 The Company is required, upon becoming aware of any Default or Event of
Default, to deliver to the Trustee a statement specifying such Default or Event 
of Default and what action the Company is taking or proposes to take with       
respect thereto.                                                                

NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS        

    No director, officer, employee, incorporator or stockholder of the Company
or any Subsidiary Guarantor, as such, will have any liability for any           
obligations of the Company or any Subsidiary Guarantor under the Notes, the     
Indenture or the Registration Rights Agreement or for any claim based on, in    
respect of, or by reason of, such obligations or their creation. Each Holder by 
accepting a Note waives and releases all such liability. The waiver and release 
will be part of the consideration for issuance of the Notes. Such waiver may not
be effective to waive liabilities under the federal securities laws and it is   
the view of the Commission that such a waiver is against public policy.         

LEGAL DEFEASANCE AND COVENANT DEFEASANCE                                        

  The Company may, at its option and at any time, elect to have all of the
obligations of the Company and the Subsidiary Guarantors discharged with respect
to the outstanding Notes and the Subsidiary Guarantees ("Legal Defeasance")     
except for (i) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of, premium, if any, and interest and Liquidated       
Damages on such Notes when such payments are due from the trust referred to     
below, (ii) the Company's obligations with respect to the Notes concerning      
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or   
stolen Notes and the maintenance of an office or agency for payment and money   
for security payments held in trust, (iii) the rights, powers, trusts, duties   
and immunities of the Trustee, and the Company's obligations in connection      
therewith and (iv) 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 material        
covenants that are described herein ("Covenant Defeasance") and thereafter any  
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the Notes. In the event Covenant Defeasance occurs,  
certain events (not including non-payment, bankruptcy, receivership,            
rehabilitation 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,  

        (i) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, cash in U.S. dollars, non-callable    
     Government Securities, 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
   and Liquidated Damages on the outstanding Notes on the stated maturity or
     on the applicable redemption date, as the case may be, and the Company must
     specify whether the Notes are being defeased to maturity or to a particular
redemption date;                                                      

          (ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States of America  
  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 Issue Date, there has been a change in the  
applicable Federal                                                    

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   income tax law, in either case to the effect that, and based thereon such
     opinion of counsel shall confirm that, the Holders of the outstanding Notes
    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;              

    (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States of
     America reasonably acceptable to the Trustee confirming that the Holders of
   the outstanding Notes 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;                                                     

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

         (v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material    
    agreement or instrument (other than the Indenture) to which the Company or
  any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;                                                

         (vi) the Company must deliver to the Trustee an Officers' Certificate
 stating that the deposit was not made by the Company with the intent of
 preferring the Holders over the other creditors of the Company with the
 intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and                                                

          (vii) the Company must deliver to the Trustee an Officers' Certificate
and an opinion of counsel, each stating, subject to certain factual   
   assumptions and bankruptcy and insolvency exceptions, that all conditions
     precedent provided for in the Indenture relating to the Legal Defeasance or
the Covenant Defeasance have been complied with.                      

TRANSFER AND EXCHANGE                                                           

   A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to      
furnish appropriate endorsements and transfer documents, and the Company may    
require a Holder to pay any taxes and fees required by law or permitted by the  
Indenture. The Company is not required to transfer or exchange any Note (i)     
during a Change of Control Offer or Excess Proceeds Offer if such Note is       
tendered pursuant to such Change of Control Offer or Excess Proceeds Offer and  
not withdrawn or (ii) selected for redemption. The Company is not required to   
transfer or exchange any Note for a period of 15 days before a selection of     
Notes to be redeemed.                                                           

    The registered holder of a Note will be treated as the owner of it for all
purposes.                                                                       

AMENDMENT, SUPPLEMENT AND WAIVER                                                

    Except as provided in the two succeeding paragraphs, the Indenture and the
Notes may be amended or supplemented with the consent of the Holders of at least
a majority in principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for Notes) and any 
existing Default or Event of Default or compliance with any provision of the    
Indenture or the Notes may be waived with the consent of the Holders of a       
majority in principal amount of the then outstanding Notes (including consents  
obtained in connection with a tender offer or exchange offer for Notes).        

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     Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder):                    

          (i) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;                                   

    (ii) reduce the principal of, or the premium (including, without
 limitation, redemption premium) on, or change the fixed maturity of any
  Note or alter the provisions with respect to the payment with respect to
redemption of the Notes or alter the price at which repurchases of the
     Notes may be made pursuant to an Excess Proceeds Offer or Change of Control
Offer;                                                                

          (iii) reduce the rate of or change the time for payment of interest on
any Note;                                                             

        (iv) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Notes;                      

    (v) make any Note payable in money other than that stated in the
Notes;                                                                

       (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults with respect to, or the rights of Holders to 
receive, payments of principal of or interest on the Notes;           

(vii) waive a redemption payment with respect to any Note;  

   (viii) adversely affect the contractual ranking of the Notes or
Subsidiary Guaranties; or                                             

          (ix) make any change in the foregoing amendment and waiver provisions.

Notwithstanding the foregoing, without the consent of the Holders, the
Company and the Trustee may amend or supplement the Indenture or the Notes to   
cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes
in addition to or in place of certificated Notes, to provide for the assumption 
of the Company's or the Subsidiary Guarantors' obligations to Holders in the    
case of a merger or consolidation, to make any change that would provide any    
additional rights or benefits to the Holders or that does not adversely affect  
the legal rights of any such Holder under the Indenture or the Notes, to release
any Subsidiary Guaranty permitted to be released under the terms of the         
Indenture, or to comply with requirements of the Commission in order to effect  
or maintain the qualification of the Indenture under the Trust Indenture Act.   

  In addition, the Intercreditor Agreement prohibits certain amendments to
the Indenture unless the Trustee has received a notice from the Agent of its    
consent thereto.                                                                

CONCERNING THE TRUSTEE                                                          

  The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in      
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, that, if the Trustee acquires any conflicting interest, 
it must eliminate such conflict within 90 days, apply to the Commission for     
permission to continue, or resign.                                              

     The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any      
proceeding for exercising any remedy available to the Trustee, subject to       
certain exceptions. The Indenture provides that in case an Event of Default     
occurs (and is not cured), the Trustee will be required, in the exercise of its 
power, to use the degree of care of a prudent man in the conduct of his own     
affairs. Subject to such provisions, the Trustee will be under no obligation to 
exercise any of its rights or powers under the Indenture at the request of any  
Holder, unless such Holder shall have offered to the Trustee security and       
indemnity satisfactory to it against any loss, liability or expense.            

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CERTAIN DEFINITIONS                                                             

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

  "Acquired Debt" means Indebtedness of a Person existing at the time such
Person is merged with or into the Company or a Restricted Subsidiary or becomes 
a Restricted Subsidiary, other than Indebtedness incurred in connection with, or
in contemplation of, such Person merging with or into the Company or a          
Restricted Subsidiary or becoming a Restricted Subsidiary; provided, that       
Indebtedness of such acquired Person that is redeemed, defeased, retired or     
otherwise repaid at the time of or immediately upon consummation of the         
transactions by which such acquired Person merges with or into or becomes a     
Restricted Subsidiary shall not be Acquired Debt.                               

"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common      
control with such specified Person. For purposes of this definition, "control"  
(including, with correlative meanings, the terms "controlling," "controlled by" 
and "under common control with"), as used with respect to any Person, will mean 
(a) the possession, directly or indirectly, of the power to direct or cause the 
direction of the management or policies of such Person, whether through the     
ownership of voting securities, by agreement or otherwise or (b) beneficial     
ownership of 10% or more of the voting power of the Voting Stock of such Person.
Notwithstanding the foregoing, (i) neither the Initial Purchasers nor any of    
their Affiliates will be deemed to be Affiliates of the Company and (ii) a      
Person beneficially owning 10% or more of the voting power of the Voting Stock  
of the Company on any date will not be deemed to control the Company on such    
date solely by reason of clause (b) above if (A) the common stock of the Company
is then registered pursuant to Section 12(b) or 12(g) of the Exchange Act, (B)  
such Person is not, and has not been, required to file a statement on Schedule  
13D with respect to its interest in the Company, and (C) such Person is not then
an Affiliate of Millennium Entertainment Partners L.P. or D. Michael Talla.     

   "Asset Sale" means any (i) direct or indirect sale, assignment, transfer,
lease, conveyance, or other disposition (including, without limitation, by way  
of merger or consolidation) (collectively, a "transfer"), other than in the     
ordinary course of business, of any assets of the Company or any Restricted     
Subsidiary; (ii) direct or indirect issuance or sale of any Capital Stock of any
Restricted Subsidiary, in each case to any Person (other than the Company or a  
Restricted Subsidiary); or (iii) Event of Loss. For purposes of this definition,
(a) any series of transactions that are part of a common plan shall be deemed a 
single Asset Sale and (b) the term "Asset Sale" shall not include (1) any series
of transactions that have a fair market value (or result in gross proceeds of   
less than $2.0 million) or (2) any disposition of all or substantially all of   
the assets of the Company that is governed under and complies with the terms of 
the covenant described under "-- Certain Covenants -- Merger, Consolidation or  
Sale of Assets."                                                                

"Attributable Indebtedness" means, with respect to a Sale-Leaseback   
Transaction, the present value (discounted at the interest rate borne by the    
Notes, compounded annually) of the total obligations of the lessee for rental   
payments during the remaining term of the lease included in such Sale-Leaseback 
Transaction (including any period for which such lease has been extended).      

"beneficial owner" has the meaning attributed to it in Rules 13d-3 and
13d-5 under the Exchange Act (as in effect on the Issue Date), whether or not   
applicable, except that a "person" shall be deemed to have "beneficial          
ownership" of all shares that any such person has the right to acquire, whether 
such right is exercisable immediately or only after the passage of time.        

"Business Day" means any day other than a Legal Holiday.              

     "Capital 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 the amount of such obligations at any 
date shall be the capitalized amount of such obligations at such date,          
determined in accordance with GAAP.                                             

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"Capital Stock" means, (i) with respect to any Person that is a       
corporation, any and all shares, interests, participations, rights or other     
equivalents (however designated) of corporate stock, and (ii) with respect to   
any other Person, any and all partnership or other equity interests of such     
Person.                                                                         

"Cash Equivalent" means (i) securities issued or directly and fully   
guaranteed or insured by the United States of America or any agency or          
instrumentality thereof (provided that the full faith and credit of the United  
States of America is pledged in support thereof); (ii) time deposits and        
certificates of deposit and commercial paper issued by the parent corporation of
any domestic commercial bank of recognized standing having capital and surplus  
in excess of $500.0 million and commercial paper issued by others rated at least
A-2 or the equivalent thereof by Standard & Poor's Corporation or at least P-2  
or the equivalent thereof by Moody's Investors Service, Inc. and in each case   
maturing within one year after the date of acquisition; and (iii) investments in
money market funds substantially all of whose assets comprise securities of the 
type described in clauses (i) and (ii) above.                                   

"Change of Control" means                                             

          (i) any merger or consolidation of the Company with or into any Person
   or any sale, transfer or other conveyance, whether direct or indirect, of
  all or substantially all of the assets of the Company, on a consolidated
basis, in one transaction or a series of related transactions, if,    
 immediately after giving effect to such transaction(s), any "person" or
     "group" (as such terms are used for purposes of Sections 13(d) and 14(d) of
   the Exchange Act, whether or not applicable) is or becomes the beneficial
   owner, directly or indirectly, of more than 50% of the total voting power
in the aggregate of the Voting Stock of the transferee(s) or surviving
entity or entities,                                                   

        (ii) any "person" or "group" (as such terms are used for purposes of
     Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) is
   or becomes the beneficial owner, directly or indirectly, of more than 50%
of the total voting power in the aggregate of the Voting Stock of the 
 Company; provided, that Voting Stock of the Company owned by Millennium
  Entertainment Partners L.P. and D. Michael Talla shall not be aggregated
    together for purposes of calculating the voting power of any such group so
long as (a) at least 25% of the Capital Stock of the Company is       
    beneficially owned by Persons who are not Affiliates of any of the Company
     or any member of such group, and (b) a class of Voting Stock of the Company
  is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, or

(iii) the Company adopts a plan of liquidation.             

"Consolidated EBITDA" means, with respect to any Person (the referent 
Person) for any period (without duplication),                                   

         (a) consolidated income (loss) from operations of such Person and its
subsidiaries for such period, determined in accordance with GAAP, plus

          (b) to the extent such amounts are deducted in calculating such income
  (loss) from operations of such Person for such period, (i) amortization,
depreciation, other non-cash charges (including, without limitation,  
     amortization of goodwill, deferred financing fees and other intangibles but
   excluding (x) non-cash charges incurred after the Issue Date that require
   an accrual of or a reserve for cash charges for any future period and (y)
     normally recurring accruals such as reserves against accounts receivables),
and (ii) Pre-Opening Expenses, plus                                   

        (c) the equity interest in net income of unconsolidated subsidiaries
   of the referent Person, but only to the extent of the amount of dividends
   or distributions paid to the referent Person or a Wholly Owned Subsidiary
of the referent Person, minus                                         

(d) all expense attributable to minority interest;          

   provided, that (i) the income from operations of any Person that is not a
Restricted Subsidiary will be included, but only to the extent of the 
amount of dividends or distributions paid to the referent Person or a 
Wholly Owned Subsidiary of the referent Person, (ii) the income from  
     operations of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition will be excluded, and
(iii) the income from operations of any Restricted Subsidiary will    

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 not be included to the extent that declarations of dividends or similar
    distributions by that Restricted Subsidiary are not at the time permitted,
directly or indirectly, by operation of the terms of its organization 
   documents or any agreement, instrument, judgment, decree, order, statute,
     rule or governmental regulation applicable to that Restricted Subsidiary or
its owners.                                                           

   "Consolidated Interest Expense" means, with respect to any Person for any
period, the consolidated interest expense of such Person and its subsidiaries   
for such period, whether paid or accrued (including amortization of original    
issue discount, noncash interest payment, and the interest component of Capital 
Lease Obligations), to the extent such expense was deducted in computing        
Consolidated Net Income of such Person for such period.                         

   "Consolidated Net Income" means, with respect to any Person (the referent
Person) for any period, the aggregate of the Net Income of such Person and its  
subsidiaries for such period, determined on a consolidated basis in accordance  
with GAAP; provided, that (i) the Net Income of any Person relating to any      
portion of such period that such Person (a) is not a Restricted Subsidiary or   
(b) is accounted for by the equity method of accounting will be included only to
the extent of the amount of dividends or distributions paid to the referent     
Person or a Wholly Owned Subsidiary of the referent Person during such portion  
of such period, (ii) the Net Income of any Person acquired in a pooling of      
interests transaction for any period prior to the date of such acquisition will 
be excluded, and (iii) the Net Income of any Restricted Subsidiary will not be  
included to the extent that declarations of dividends or similar distributions  
by that Restricted Subsidiary are not at the time permitted, directly or        
indirectly, by operation of the terms of its organization documents or any      
agreement, instrument, judgment, decree, order, statute, rule or governmental   
regulation applicable to that Restricted Subsidiary or its owners.              

"Consolidated Net Worth" means, with respect to any Person, the total 
stockholders' equity of such Person determined on a consolidated basis in       
accordance with GAAP, adjusted to exclude (to the extent included in calculating
such equity), (i) the amount of any such stockholders' equity attributable to   
Disqualified Capital Stock or treasury stock of such Person and its consolidated
subsidiaries, (ii) all upward revaluations and other write-ups in the book value
of any asset of such Person or a consolidated subsidiary of such Person         
subsequent to the Issue Date, and (iii) all Investments in subsidiaries of such 
Person that are not consolidated subsidiaries and in Persons that are not       
subsidiaries of such Person.                                                    

"Consolidated Rent Expense" means, with respect to any Person for any 
period, the consolidated rent expense of such Person and its subsidiaries for   
such period, whether paid or accrued, to the extent such expense was deducted in
computing Consolidated Net Income of such Person for such period.               

 "Credit Facility" means the Fourth Amended and Restated Loan Agreement,
dated as of the Issue Date, by and among the Company and various of its         
subsidiaries and Comerica Bank-California, as amended, modified or supplemented 
from time to time or any refinancing or replacement thereof.                    

   "Default" means any event that is, or after notice or the passage of time
or both would be, an Event of Default.                                          

     "Designated Guarantors" means any Subsidiary Guarantor that, at or prior to
the time of determination, shall have been designated by the Board of Directors 
of the Company as a Designated Guarantor; provided, that (i) such Subsidiary    
does not hold any Indebtedness (other than intercompany receivables pursuant to 
clause (e) under the caption "-- Limitation on Incurrence of Indebtedness") or  
Capital Stock of, or any Lien on any assets of, the Company or any other        
Restricted Subsidiary, (ii) no Default or Event of Default would be in existence
following such designation and (iii) the only assets owned by such Designated   
Guarantor on the date of such designation are assets reasonably related to the  
operation of The Sports Club/Las Vegas, The Sports Club/Irvine, or the Agoura   
Hills or Canoga Park Spectrum Clubs. Any such designation by the Board of       
Directors of the Company shall be evidenced to the Trustee by filing with the   
Trustee a certified copy of the Board resolution giving effect to such          
designation and an Officers' Certificate certifying that such designation       
complies with the foregoing conditions. On the Issue Date, the Designated       
Guarantors shall be Irvine Sports Club, Inc., Green Valley Spectrum Club, Inc.  
and Agoura Canoga Spectrum Club, Inc.                                           

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     "Disqualified Stock" means any Equity Interest that (i) either by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable) is or upon the happening of an event would be required to be      
redeemed or repurchased prior to the final stated maturity of the Notes or is   
redeemable at the option of the holder thereof at any time prior to such final  
stated maturity, or (ii) is convertible into or exchangeable at the option of   
the issuer thereof or any other Person for debt securities.                     

"Equipment Financing" means Purchase Money Obligations (or Refinancing
Indebtedness incurred to Refinance such Purchase Money Obligations) or Capital  
Lease Obligations incurred to finance the acquisition or lease of fixtures or   
equipment.                                                                      

     "Equity Interests" means Capital Stock or warrants, options or other rights
to acquire Capital Stock (but excluding any debt security that is convertible   
into, or exchangeable for, Capital Stock).                                      

     "Event of Loss" means, with respect to any property or asset, any (i) loss,
destruction or damage of such property or asset or (ii) any condemnation,       
seizure or taking, by exercise of the power of eminent domain or otherwise, of  
such property or asset, or confiscation or requisition of the use of such       
property or asset.                                                              

"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 approved by a significant segment of the accounting profession, 
and in the rules and regulations of the Commission, as in effect from time to   
time.                                                                           

"GAAP" means gaap as in effect on the Issue Date.                     

   "guaranty" or "guarantee," used as a noun, means any guaranty (other than
by endorsement of negotiable instruments for collection in the ordinary course  
of business), direct or indirect, in any manner (including, without limitation, 
letters of credit and reimbursement agreements in respect thereof), of all or   
any part of any Indebtedness or other Obligation. "guarantee," used as a verb,  
has a correlative meaning.                                                      

     "Hedging Obligations" means, with respect to any Person, the Obligations of
such Person under (i) interest rate swap agreements, interest rate cap          
agreements and interest rate collar agreements and (ii) other agreements or     
arrangements designed to protect such Person against fluctuations in interest   
rates.                                                                          

"Holder" means the Person in whose name a Note is registered in the   
register of the Notes.                                                          

"Indebtedness" of any Person means (without duplication):             

         (i) all liabilities and obligations, contingent or otherwise, of such
     Person (A) in respect of borrowed money (regardless of whether the recourse
 of the lender is to the whole of the assets of such Person or only to a
portion thereof), (B) evidenced by bonds, debentures, notes or other  
similar instruments, (C) representing the deferred purchase price of  
 property or services (other than deferred membership revenues and trade
   payables on customary terms incurred in the ordinary course of business),
    (D) created or arising under any conditional sale or other title retention
     agreement with respect to property acquired by such Person (even though the
 rights and remedies of the seller or lender under such agreement in the
     event of default are limited to repossession or sale of such property), (E)
as lessee under capitalized leases, (F) under bankers' acceptance and 
  letter of credit facilities, (G) to purchase, redeem, retire, defease or
  otherwise acquire for value any Disqualified Stock, or (H) in respect of
Hedging Obligations;                                                  

          (ii) all Indebtedness of others that is guaranteed by such Person; and

         (iii) all Indebtedness of others that is secured by (or for which the
     holder of such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien on property (including, without limitation,
     accounts and contract rights) owned by such Person, even though such Person
has                                                                   

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not assumed or become liable for the payment of such Indebtedness,    
  provided, that the amount of such Indebtedness shall (to the extent such
Person has not assumed or become liable for the payment of such       
   Indebtedness) be the lesser of (x) the fair market value of such property
at the time of determination and (y) the amount of such Indebtedness. 

The amount of Indebtedness of any Person at any date shall be the     
outstanding balance at such date of all unconditional obligations as described  
above and the maximum liability, upon the occurrence of the contingency giving  
rise to the obligation, of any contingent obligations at such date.             
Notwithstanding the foregoing, Indebtedness shall not include Indebtedness      
arising from the honoring by a bank or other financial institution of a check,  
draft or similar instrument inadvertently drawn against insufficient funds in   
the ordinary course of business; provided, that such Indebtedness is            
extinguished within three business days of the incurrence thereof. The principal
amount outstanding of any Indebtedness issued with original issue discount is   
the accreted value of such Indebtedness.                                        

"Interest Coverage Ratio" means, for any period, the ratio of (i)     
Consolidated EBITDA of the Company for such period, to (ii) Consolidated        
Interest Expense of the Company for such period. In calculating the Interest    
Coverage Ratio for any period, pro forma effect shall be given to the           
incurrence, assumption, guarantee, repayment, repurchase, redemption or         
retirement by the Company or any of its Subsidiaries of any Indebtedness        
subsequent to the commencement of the period for which the Interest Coverage    
Ratio is being calculated, as if the same had occurred at the beginning of the  
applicable period. For purposes of making the computation referred to above,    
acquisitions that have been made by the Company or any of its Restricted        
Subsidiaries, including all mergers and consolidations, subsequent to the       
commencement of such period shall be calculated on a pro forma basis, assuming  
that all such acquisitions, mergers and consolidations had occurred on the first
day of such period. Without limiting the foregoing, the financial information of
the Company with respect to any portion of such period that falls before the    
Issue Date shall be adjusted to give pro forma effect to the issuance of the    
Notes and the application of the proceeds therefrom as if they had occurred at  
the beginning of such period.                                                   

  "Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans,           
guaranties, advances or capital contributions, purchases or other acquisitions  
for consideration of Indebtedness, Equity Interests or other securities, and any
other items that are or would be classified as investments on a balance sheet   
prepared in accordance with GAAP (excluding (i) commission, travel and similar  
advances to officers and employees of such Person made in the ordinary course of
business, (ii) advances made under customary indemnification agreements entered 
into in the ordinary course of business and (iii) bona fide accounts receivable 
arising from the sale of goods or services in the ordinary course of business   
consistent with past practice).                                                 

"Issue Date" means the date upon which the Notes are first issued.    

"Legal Holiday" means a Saturday, a Sunday or a day on which banking  
institutions in the City of New York or at a place of payment are authorized by 
law, regulation or executive order to remain closed.                            

"Lien" means any mortgage, lien, pledge, charge, security interest or 
encumbrance of any kind, regardless of whether filed, recorded or otherwise     
perfected under applicable law (including any conditional sale or other title   
retention agreement, any lease in the nature thereof, any option or other       
agreement to sell or give a security interest in and any filing of or agreement 
to give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).                                                 

"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, determined in accordance with     
GAAP, excluding (i) any gain or loss, together with any related provision for   
taxes on such gain or loss, realized in connection with any Asset Sales and     
dispositions pursuant to Sale-Leaseback Transactions, (ii) any extraordinary    
gain or loss, together with any related provision for taxes on such gain or loss
and (iii) any Pre-Opening Expense (after giving effect to any related tax       
benefit on such Pre-Opening Expenses).                                          

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     "Net Proceeds" means the aggregate proceeds received in the form of cash or
Cash Equivalents in respect of any Asset Sale (including payments in respect of 
deferred payment obligations when received), net of                             

        (i) the reasonable and customary direct out-of-pocket costs relating
  to such Asset Sale (including, without limitation, legal, accounting and
   investment banking fees and sales commissions), other than any such costs
payable to an Affiliate of the Company;                               

       (ii) taxes actually payable directly as a result of such Asset Sale
    (after taking into account any available tax credits or deductions (to the
 extent reasonably allocable thereto) and any tax sharing arrangements);

      (iii) amounts required to be applied to the permanent repayment of
Indebtedness in connection with such Asset Sale;                      

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

       (v) if such Person is a Partnership Entity, any distribution of the
     portion of the Net Proceeds payable to any Person other than the Company or
a Restricted Subsidiary pursuant to the Partnership Agreements.       

"Obligation" means any principal, premium, interest, penalty, fee,    
indemnification, reimbursement, damage and other obligation and liability       
payable under the documentation governing any liability.                        

     "Partnership Agreement" means the partnership agreements of the Partnership
Entities as in effect on the Issue Date or as thereafter amended, modified or   
supplemented; provided that such amendment, modification or supplement does not 
result, directly or indirectly, (i) in a partner (other than the Company or a   
Wholly Owned Subsidiary) being entitled to receive distributions or any other   
economic benefit in an amount greater than the distributions and economic       
benefit to which such partner was entitled immediately prior to such amendment, 
modification or supplement or (ii) in the Company or any Restricted Subsidiary  
being entitled to receive distributions or any other economic benefit in an     
amount lesser than the distributions to which the Company or such Restricted    
Subsidiary was entitled immediately prior to such amendment, modification, or   
supplement.                                                                     

"Partnership Entity" means each of Sports Connection - ES/MB,         
Reebok - Sports Club/NY, El Segundo TDC Ltd. and LA/Irvine Sports Club, Ltd.    
("LASC"), in each case so long as it is a Restricted Subsidiary.                

"Permitted Investments" means:                                        

     (a) (i) Investments in the Company or in any Subsidiary Guarantor
other than a Designated Guarantor; (ii) Investments of cash in any    
     Designated Guarantor that is concurrently used by such Designated Guarantor
 in the operation of the Shared Collateral in the ordinary course of its
   business; and (iii) intercompany receivables permitted pursuant to clause
(e) under the caption "-- Limitation on Incurrence of Indebtedness";  

(b) Investments in Cash Equivalents;                        

         (c) Investments in a Person, if, as a result of such Investment, such
Person (i) becomes a Wholly Owned Subsidiary, or (ii) is merged,      
consolidated or amalgamated with or into, or transfers or conveys     
     substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Subsidiary;                                              

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      (d) purchases of partnership interests in the Partnership Entities
     outstanding on the Issue Date that comply with the covenant described under
the caption "-- Limitation on Transactions with Affiliates";          

(e) Hedging Obligations;                                    

         (f) Investments received as consideration in connection with an Asset
Sale made in compliance with the covenant described under the caption 
"Certain Covenants -- Limitation on Asset Sales";                     

    (g) Investments existing on the Issue Date (including up to $6.8
million in contributions to Designated Guarantors to satisfy existing 
    Indebtedness of such Designated Guarantors, as described under the caption
"Use of Proceeds");                                                   

  (h) Investments paid for solely with Capital Stock (other than
Disqualified Stock) of the Company; and                               

        (i) credit extensions to members in the ordinary course of business.

"Permitted Liens" means:                                              

       (i) Liens arising by reason of any judgment, decree or order of any
   court for an amount and for a period not resulting in an Event of Default
     with respect thereto, so long as such Lien is being contested in good faith
  and is adequately bonded, and any appropriate legal proceedings that may
   have been duly initiated for the review of such judgment, decree or order
     shall not have been finally adversely terminated or the period within which
such proceedings may be initiated shall not have expired;             

        (ii) security for the performance of bids, tenders, trade, contracts
  (other than contracts for the payment of money) or leases, surety bonds,
  performance bonds and other obligations of a like nature incurred in the
ordinary course of business, consistent with industry practice;       

 (iii) Liens (other than Liens arising under ERISA) for taxes,
 assessments or other governmental charges not yet due or that are being
     contested in good faith and by appropriate proceedings if adequate reserves
with respect thereto are maintained on the books of the Company in    
accordance with gaap;                                                 

        (iv) Liens of carriers, warehousemen, mechanics, landlords, material
men, repairmen or other like Liens arising by operation of law in the 
    ordinary course of business consistent with industry practices (other than
     Liens arising under ERISA) and Liens on deposits made to obtain the release
of such Liens if (a) the underlying obligations are not overdue for a 
   period of more than 30 days or (b) such Liens are being contested in good
 faith and by appropriate proceedings and adequate reserves with respect
     thereto are maintained on the books of the Company in accordance with gaap;

     (v) easements, rights of way, zoning and similar restrictions and
     other similar encumbrances or title defects incurred in the ordinary course
     of business, consistent with industry practices that, in the aggregate, are
   not substantial in amount, and that do not in any case materially detract
     from the value of the property subject thereto (as such property is used by
    the Company or a Subsidiary) or interfere with the ordinary conduct of the
 business of the Company or any of its Subsidiaries; provided, that such
 Liens are not incurred in connection with any borrowing of money or any
commitment to loan any money or to extend any credit;                 

       (vi) pledges or deposits made in the ordinary course of business in
 connection with workers' compensation, unemployment insurance and other
types of social security legislation;                                 

       (vii) Liens that secure Acquired Debt, provided, that such Liens do
not extend to or cover any property or assets other than those of the 
 Person being acquired and were not put in place in anticipation of such
acquisition;                                                          

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       (viii) Liens that secure Purchase Money Obligations (or Refinancing
Indebtedness incurred to Refinance such Purchase Money Obligations) or
 Capital Lease Obligations permitted to be incurred under the Indenture,
    provided, that such Liens do not extend to or cover any property or assets
other than those being acquired;                                      

       (ix) Liens securing Obligations under the Indenture, the Notes, the
Security Agreements or the Disbursement Agreement;                    

     (x) Liens on the Shared Collateral securing Indebtedness incurred
  pursuant to clause (a) under the caption "-- Limitation on Incurrence of
Indebtedness"; and                                                    

         (xi) Liens securing Indebtedness of the Partnership Entities incurred
  pursuant to clause (a) under the caption "-- Limitation on Incurrence of
Indebtedness."                                                        

"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,            
unincorporated organization, government or any agency or political subdivision  
thereof, or any other entity.                                                   

  "Pre-Opening Expenses" means all costs of start-up activities, including
organization costs and Club openings that are required to be expensed (and are  
not capitalized) in accordance with SOP 98-5.                                   

    "Public Equity Offering" means a bona fide underwritten public offering of
Qualified Capital Stock of the Company, pursuant to a registration statement    
filed with and declared effective by the Commission in accordance with the      
Securities Act.                                                                 

   "Purchase Money Obligations" means Indebtedness representing, or incurred
to finance, the cost (i) of acquiring any assets and (ii) of construction or    
build-out of facilities (including Purchase Money Obligations of any other      
Person at the time such other Person is merged with or into or is otherwise     
acquired by the Company); provided, that (x) the principal amount of such       
Indebtedness does not exceed 80% of such cost, including construction charges,  
(y) any Lien securing such Indebtedness does not extend to or cover any other   
asset or property other than the asset or property being so acquired and (z)    
such Indebtedness is incurred, and any Liens with respect thereto are granted,  
within 180 days of the acquisition of such property or asset.                   

    "Qualified Capital Stock" means, with respect to any Person, Capital Stock
of such Person other than Disqualified Stock.                                   

"Related Business" means the businesses conducted (or proposed to be  
conducted) by the Company and its Restricted Subsidiaries as of the Issue Date  
and any and all businesses that in the good faith judgment of the Board of      
Directors of the Company are materially related businesses.                     

  "Rent Coverage Ratio" means, for any period, the ratio of (a) the sum of
(i) Consolidated EBITDA of the Company for such period and (ii) Consolidated    
Rent Expense of the Company for such period, to (b) the sum of (i) Consolidated 
Interest Expense of the Company for such period and (ii) Consolidated Rent      
Expense of the Company for such period. In calculating the Rent Coverage Ratio  
for any period, pro forma effect shall be given to the incurrence, assumption,  
guarantee, repayment, repurchase, redemption or retirement of any Indebtedness  
and the entry into or termination of any lease, in each case by the Company or  
any of its Subsidiaries subsequent to the commencement of the period for which  
the Rent Coverage Ratio is being calculated, as if the same had occurred at the 
beginning of the applicable period. For purposes of making the computation      
referred to above, acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including all mergers and consolidations, subsequent to
the commencement of such period shall be calculated on a pro forma basis,       
assuming that all such acquisitions, mergers and consolidations had occurred on 
the first day of such period. Without limiting the foregoing, the financial     
information of the Company with respect to any portion of such period that falls
before the Issue Date shall be adjusted to give pro forma effect to the issuance
of the Notes and the application of the proceeds therefrom as if they had       
occurred at the beginning of such period.                                       

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"Restricted Investment" means an Investment other than a Permitted    
Investment.                                                                     

"Restricted Subsidiary" means a Subsidiary other than an Unrestricted 
Subsidiary.                                                                     

"Sale-Leaseback Transaction" means any arrangement providing for the  
transfer by the Company or any Subsidiary of any property to any Person, which  
property has been or is to be leased back by the Company or any Subsidiary from 
such Person or any subsequent transferee of such property.                      

     "Shared Collateral" means (a) any assets now existing or hereafter acquired
in the ordinary course of business (whether real or personal) that are owned by 
a Designated Guarantor and are reasonably related to the operation of The Sports
Club/Las Vegas, The Sports Club/Irvine, or the Agoura Hills or the Canoga Park  
Spectrum Clubs, and (b) all of the Capital Stock of, or any other interest in,  
any Designated Guarantor; in each case only if such property, Capital Stock or  
other interest (i) is Collateral and (ii) also secures the Obligations of the   
Company and the Designated Guarantor under the Credit Facility.                 

"subsidiary" means, with respect to any Person, (i) any corporation,  
association or other business entity (including a limited liability company) of 
which more than 50% of the total voting power of shares of Voting Stock thereof 
is at the time owned or controlled, directly or indirectly, by such Person or   
one or more of the other subsidiaries of that Person or a combination thereof   
and (ii) any partnership in which such Person or any of its subsidiaries is a   
general partner.                                                                

"Subsidiary" means any subsidiary of the Company.                     

"Subsidiary Guaranty" means an unconditional guaranty by a Subsidiary 
Guarantor of the Obligations of the Company under the Notes and the Indenture,  
as set forth in the Indenture, as amended from time to time in accordance with  
the terms thereof.                                                              

    "Subsidiary Guarantor" means any Wholly Owned Subsidiary that has executed
and delivered in accordance with the Indenture a Subsidiary Guaranty, and such  
Person's successors and assigns.                                                

   "Thousand Oaks Transaction" means the sale-leaseback by the Spectrum Club
Company, Inc. of its property in Thousand Oaks, California pursuant to the      
transaction contemplated by the letter of intent, dated January 4, 1999, with   
Equity Advisory Group.                                                          

 "Unrestricted Subsidiary" means any Subsidiary that, at or prior to the
time of determination, shall have been designated by the Board of Directors of  
the Company as an Unrestricted Subsidiary; provided, that such Subsidiary does  
not hold any Indebtedness or Capital Stock of, or any Lien on any assets of, the
Company or any Restricted Subsidiary. If, at any time, any Unrestricted         
Subsidiary would fail to meet the foregoing requirements as an Unrestricted     
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for      
purposes of the Indenture and any Indebtedness of such Subsidiary shall be      
deemed to be incurred by a Restricted Subsidiary as of such date. The Board of  
Directors of the Company may at any time designate any Unrestricted Subsidiary  
to be a Restricted Subsidiary; provided, that such designation shall be deemed  
to be an incurrence of Indebtedness by a Restricted Subsidiary of any           
outstanding Indebtedness of such Unrestricted Subsidiary and such designation   
shall only be permitted if (i) such Indebtedness is permitted under the Interest
Coverage Ratio test set forth in the covenant described under the caption       
"-- Certain Covenants -- Limitation on Incurrence of Indebtedness" calculated on
a pro forma basis as if such designation had occurred at the beginning of the   
four-quarter reference period, and (ii) no Default or Event of Default would be 
in existence following such designation. The Company shall be deemed to make an 
Investment in each Subsidiary designated as an Unrestricted Subsidiary          
immediately following such designation in an amount equal to the Investment in  
such Subsidiary and its subsidiaries immediately prior to such designation;     
provided, that if such Subsidiary is subsequently redesignated as a Restricted  
Subsidiary, the amount of such Investment shall be deemed to be reduced (but not
below zero) by the fair market value of the net consolidated assets of such     
Subsidiary on the date of such redesignation. Any such designation by the Board 
of Directors of the Company shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board resolution giving effect to such          
designation and an Officers' Certificate certifying that such designation       
complies with the foregoing conditions and is permitted by the covenant         
described above under the caption "-- Certain Covenants -- Limitation on        
Incurrence of Indebtedness."                                                    

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   "Voting Stock" means, with respect to any Person, (i) one or more classes
of the Capital Stock of such Person having general voting power to elect at     
least a majority of the Board of Directors, managers or trustees of such Person 
(regardless of whether at the time Capital Stock of any other class or classes  
have or might have voting power by reason of the happening of any contingency)  
and (ii) any Capital Stock of such Person convertible or exchangeable without   
restriction at the option of the holder thereof into Capital Stock of such      
Person described in clause (i) above.                                           

     "Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years (rounded to the nearest one-twelfth) obtained  
by dividing (i) the then outstanding principal amount of such Indebtedness into 
(ii) the total of the product obtained by multiplying (A) the amount of each    
then remaining installment, sinking fund, serial maturity or other required     
payments of principal, including payment at final maturity, in respect thereof, 
by (B) the number of years (calculated to the nearest one-twelfth) that will    
elapse between such date and the making of such payment.                        

   "Wholly Owned Subsidiary" of any Person means a subsidiary of such Person
all the Capital Stock of which is owned directly or indirectly by such Person;  
provided, that with respect to the Company, the term Wholly Owned Subsidiary (a)
shall exclude Unrestricted Subsidiaries and (b) shall include LASC so long as   
(i) LASC is both a Restricted Subsidiary and Subsidiary Guarantor and (ii) no   
amendment, modification or supplement to any agreement or arrangement governing 
or relating to such partnership is effected after the Issue Date that directly  
or indirectly in any manner (x) increases the economic benefit to D. Michael    
Talla under such agreements and arrangement as in effect on the Issue Date or   
(y) decreases the economic benefit to the Company or any of its Subsidiaries    
under such agreements and arrangements as in effect on the Issue Date.          

BOOK-ENTRY, DELIVERY AND FORM                                                   

The New Notes initially will be represented by one or more Notes in   
registered, global form without interest coupons (collectively, the "Global     
Notes"). The Global Notes will be deposited upon issuance with the Trustee as   
custodian for The Depository Trust Company ("DTC"), in New York, New York, and  
registered in the name of DTC or its nominee, in each case for credit to an     
account of a direct or indirect participant as described below.                 

  Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its 
nominee. Beneficial interests in the Global Notes may not be exchanged for Notes
in certificated form except in the limited circumstances described below. See   
"--Exchange of Book-Entry Notes for Certificated Notes."                        

     Transfer of beneficial interests in the Global Notes will be subject to the
applicable rules and procedures of DTC and its direct or indirect participants, 
which may change from time to time.                                             

     The Notes may be presented for registration of transfer and exchange at the
offices of the Registrar.                                                       

DEPOSITORY PROCEDURES                                                           

 DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,   
the "Participants") and to facilitate the clearance and settlement of           
transactions in those securities between Participants through electronic        
book-entry changes in accounts of Participants. The Participants include        
securities brokers and dealers (including the Initial Purchasers), banks, 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 that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect       
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or Indirect           
Participants. The ownership interest                                            

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and transfer of ownership interest of each actual purchaser of each security    
held by or on behalf of DTC are recorded on the records of the Participants and 
Indirect Participants.                                                          

     DTC has also advised the Company that pursuant to procedures established by
it, (i) upon deposit of the Global Notes, DTC will credit the accounts of       
Participants with portions of the principal amount of Global Notes and (ii)     
ownership of such interests in the Global Notes will be shown on, and the       
transfer of ownership thereof will be effected only through, records maintained 
by DTC (with respect to Participants) or by Participants and Indirect           
Participants (with respect to other owners of beneficial interests in the Global
Notes).                                                                         

 Investors in the Global Notes may hold their interests therein directly
through DTC, if they are Participants in such system, or indirectly through     
organizations that are Participants in such system. All interests in a Global   
Note, may be subject to the procedures and requirements of DTC.                 

     The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to    
transfer beneficial interest in a Global Note to such persons may be limited to 
that extent. Because DTC can act only on behalf of Participants, which in turn  
act on behalf of Indirect Participants and certain banks, the ability of a      
person having a beneficial interest in a Global Note to pledge such interest to 
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such interest, may be affected by the lack of a physical  
certificate evidencing such interest. For certain other restrictions on the     
transferability of the Notes, see "--Exchange of Book-Entry Notes for           
Certificated Notes."                                                            

     EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF     
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR  
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.                            

    Payments in respect of the principal, premium, Liquidated Damages, if any,
and interest on a Global Note registered in the name of DTC or its nominee will 
be payable by the Trustee to DTC or its nominee in its capacity as the          
registered Holder under the Indenture. Under the terms of the Indenture, the    
Company and the Trustee will treat the persons in whose names the Notes,        
including the Global Notes, are registered as the owners thereof for the purpose
of receiving such payments and for any and all other purposes whatsoever.       
Consequently, neither the Company, the Trustee nor any agent of the Company or  
the Trustee has or will have any responsibility or liability for (i) any aspect 
of DTC's records or any Participant's or Indirect Participant's records relating
to or payments made on account of beneficial ownership interests in the Global  
Notes, or for maintaining, supervising or reviewing any of DTC's records or any 
Participant's or Indirect Participant's records relating to the beneficial      
ownership interests in the Global Notes or (ii) any other matter relating to the
actions and practices of DTC or any of its Participants or Indirect             
Participants.                                                                   

     DTC has advised the Company that its current practices, upon receipt of any
payment in respect of securities such as the Notes (including principal and     
interest), is to credit the accounts of the relevant Participants with the      
payment on the payment date, in amounts proportionate to their respective       
holdings in principal amount of beneficial interests in the relevant security   
such as the Global Notes as shown on the records of DTC. Payments by            
Participants and Indirect Participants to the beneficial owners of Notes will be
governed by standing instructions and customary practices and will not be the   
responsibility of DTC, the Trustee or the Company. Neither the Company nor the  
Trustee will be liable for any delay by DTC or its Participants in identifying  
the beneficial owners of the Notes, and the Company and the Trustee may         
conclusively rely on and will be protected in relying on instructions from DTC  
or its nominee as the registered owner of the Notes for all purposes.           

     Interests in the Global Notes will trade in DTC's Same-Day Funds Settlement
System and secondary market trading activity in such interests will, therefore, 
settle in immediately available funds, subject in all cases to the rules and    
procedures of DTC and its participants. Transfers between Participants in DTC   
will be effected in accordance with DTC's procedures, and will be settled in    
same-day funds.                                                                 

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  DTC has advised the Company that it will take any action permitted to be
taken by a Holder of Notes only at the direction of one or more Participants to 
whose account DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of the Notes as to which such 
Participant or Participants has or have given direction. However, if there is an
Event of Default under the Notes, DTC reserves the right to exchange Global     
Notes for Notes in certificated form, and to distribute such Notes to its       
Participants.                                                                   

  The information in this section concerning DTC and its book-entry system
has been obtained from sources believed to be reliable, but the Company takes no
responsibility for the accuracy thereof.                                        

     Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Notes among participants in DTC it is under no       
obligation to perform or to continue to perform such procedures, and such       
procedures may be discontinued at any time. Neither the Initial Purchasers nor  
the Trustee will have any responsibility for the performance by DTC or its      
participants or indirect participants of their respective obligations under the 
rules and procedures governing their operations.                                

EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES                             

A Global Note is exchangeable for definitive Notes in registered      
certificated form if (i) DTC (x) notifies the Company that it is unwilling or   
unable to continue as depositary for the Global Note and the Company thereupon  
fails to appoint a successor depositary or (y) has ceased to be a clearing      
agency registered under the Exchange Act, (ii) the Company, at its option,      
notifies the Trustee in writing that it elects to cause the issuance of the     
Notes in certificated form or (iii) there shall have occurred and be continuing 
to occur a Default or an Event of Default with respect to the Notes. In         
addition, beneficial interests in a Global Note may be exchanged for            
certificated Notes upon request but only upon at least 20 days' prior written   
notice given to the Trustee by or on behalf of DTC in accordance with customary 
procedures. In all cases, certificated Notes delivered in exchange for any      
Global Note or beneficial interest therein will be registered in the names, and 
issued in any approved denominations, requested by or on behalf of the          
depositary (in accordance with its customary procedures) and will bear the      
restrictive legend referred to in "Notice to Investors" unless the Company      
determines otherwise in compliance with applicable law.                         

CERTIFICATED NOTES                                                              

     Subject to certain conditions, any person having a beneficial interest in a
Global Note may, upon request to the Trustee, exchange such beneficial interest 
for Notes in the form of Certificated Notes. Upon any such issuance, the Trustee
is required to register such Certificated Notes in the name of, and cause the   
same to be delivered to, such person or persons (or the nominee of any thereof).
In addition, if (i) the Company notifies the Trustee in writing that DTC is no  
longer willing or able to act as a depositary and the Company is unable to      
locate a qualified successor within 90 days or (ii) the Company, at its option, 
notifies the Trustee in writing that it elects to cause the issuance of Notes in
the form of Certificated Notes under the Indenture, then, upon surrender by the 
Global Note Holder of its Global Note, Notes in such form will be issued to each
person that the Global Note Holder and the DTC identify as being the beneficial 
owner of the related Notes.                                                     

 Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or DTC in identifying the beneficial owners of Notes and the 
Trustee may conclusively rely on, and will be protected in relying on,          
instructions from the Global Note Holder or DTC for all purposes.               

SAME DAY SETTLEMENT AND PAYMENT                                                 

     The Indenture requires that payments in respect of the Notes represented by
a Global Note (including principal, premium, if any, interest and Liquidated    
Damages, if any, thereon) be made by wire transfer of immediately available next
day funds to the accounts specified by the Global Note Holder.                  

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With respect to Certificated Notes, the Company will make all payments of       
principal, premium, if any, interest and Liquidated Damages, if any, thereon by 
wire transfer of immediately available funds to the accounts specified by the   
Holders thereof or, if no such account is specified, by mailing a check to each 
such Holder's registered address. The Company expects that secondary trading in 
the Certificated Notes will also be settled in immediately available funds.     

YEAR 2000                                                                       

The following information has been provided by DTC:                   

     DTC's management is aware that some computer applications, systems, and the
like for processing data that are dependent upon calendar dates, including dates
before, on and after January 1, 2000, may encounter "Year 2000 problems." DTC   
has informed its participants and other members of the financial community that 
it has developed and is implementing a program so that its systems, as they     
relate to the timely payment of distributions, including principal and income   
payments, to securityholders, book-entry deliveries, and settlement of trades   
within DTC, continue to function appropriately. This program includes a         
technical assessment and a remediation plan, each of which is complete.         
Additionally, DTC's plan includes a testing phase, which is expected to be      
completed within appropriate time frames.                                       

   However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as   
well as third party vendors from whom DTC licenses software and hardware, and   
third party vendors on whom DTC relies for information or the provision of      
services, including telecommunication and electrical utility service providers, 
among others. DTC has informed the financial community that it is contacting,   
and will continue to contact, third party vendors from whom DTC acquires        
services to (1) impress upon them the importance of such services being Year    
2000 compliant; and (2) determine the extent of their efforts for Year 2000     
testing and remediation of their services. In addition, DTC is in the process of
developing such contingency plans as it deems appropriate.                      

  According to DTC, the foregoing information with respect to DTC has been
provided to the financial community for informational purposes only and is not  
intended to serve as a representation, warranty or contract modification of any 
kind.                                                                           

CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES

The following is a summary of certain United States Federal income tax
consequences associated with the exchange of Old Notes for New Notes and the    
disposition of the New Notes. This summary is based upon existing United States 
Federal income tax law, which is subject to change, possibly retroactively. This
summary does not discuss all aspects of United States Federal income taxation   
which may be important to particular holders in light of their individual       
investment circumstances, such as Notes held by investors subject to special tax
rules (e.g., financial institutions, insurance companies, broker-dealers, tax-  
exempt organizations, or, except to the extent described below, Non-U.S. Holders
(as defined below)) or to persons that hold the Old Notes or will hold the New  
Notes as a part of a straddle, hedge, or synthetic security transaction for     
United States Federal income tax purposes or that have a functional currency    
other than the United States dollar, all of whom may be subject to tax rules    
that differ significantly from those summarized below. In addition, this summary
does not discuss any foreign, state, or local tax considerations. This summary  
addresses tax consequences only to current holders of Notes and assumes that    
such holders hold their Old Notes and will hold their New Notes as "capital     
assets" (generally, property held for investment) under the United States       
Internal Revenue Code of 1986, as amended (the "Code"). Holders are urged to    
consult their tax advisors regarding the United States Federal, state, local and
foreign income and other tax considerations associated with the exchange of Old 
Notes for New Notes and the disposition of the New Notes.                       

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  For purposes of this summary, a "U.S. Holder" is a beneficial owner of a
Note that is (i) an individual who is a citizen or resident of the United       
States, (ii) a corporation or partnership created or organized under the laws of
the United States or any state or political subdivision thereof, (iii) an estate
that is subject to United States Federal income taxation without regard to the  
source of its income, or (iv) a trust the administration of which is subject to 
the primary supervision of a United States court and which has one or more      
United States persons who have the authority to control all substantial         
decisions of the trust. A "Non-U.S. Holder" is a beneficial owner of an Old Note
or New Note who is not a U.S. Holder.                                           

U.S. HOLDERS AND NON-U.S. HOLDERS                                               

  There will be no United States Federal income tax consequences to a U.S.
Holder or Non-U.S. Holder who exchanges an Old Note for a New Note pursuant to  
the Exchange Offer and such holder will have the same adjusted basis and holding
period in the New Note as it had in the Old Note immediately before the         
exchange.                                                                       

U.S. HOLDERS                                                                    

    Disposition of New Notes. In general, subject to the market discount rules
discussed below, a U.S. Holder of a New Note will recognize capital gain or loss
upon the sale, redemption, or other disposition of the New Note in an amount    
equal to the difference between the amount realized (except to the extent       
attributable to accrued but unpaid interest) in such disposition and the        
holder's adjusted tax basis in the New Note. Under recently adopted amendments  
to the Code, net capital gain (i.e., generally capital gain in excess of capital
loss) recognized by an individual holder upon a disposition of a New Note that  
has been held for more than 12 months will generally be subject to a maximum tax
rate of 20% or, in the case of a New Note that has been held for 12 months or   
less, will be subject to tax at ordinary income tax rates. In addition, capital 
gain recognized by a corporate holder will be subject to tax at the ordinary    
income tax rates applicable to corporations.                                    

   Market Discount. Holders, other than original purchasers of the Old Notes
in the original offering, should be aware that the sale of the New Notes may be 
affected by the market discount provisions of the Code. These rules generally   
provide that if a holder of a Note purchased such note, subsequent to the       
original offering, at a market discount in excess of a statutorily defined DE   
MINIMIS amount, and thereafter recognizes gain upon a disposition (including a  
partial redemption) of the New Note received in exchange for such Old Note, the 
lesser of such gain or the portion of the market discount that accrued while the
Old Note and New Note were held by such holder will be treated as ordinary      
interest income at the time of disposition. The rules also provide that a holder
who acquires a Note at a market discount may be required to defer a portion of  
any interest expense that may otherwise be deductible on any indebtedness       
incurred or maintained to purchase or carry such note until the holder disposes 
of such note in a taxable transaction. If a holder of such a note elects to     
include market discount in income currently, both of the foregoing rules would  
not apply.                                                                      

NON-U.S. HOLDERS                                                                

     Payments of Interest. Interest paid by the Company to Non-U.S. Holders will
not be subject to United States federal income or withholding tax provided that 
(i) such holder does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote,  
(ii) such holder is not a controlled foreign corporation that is related to the 
Company through stock ownership, a foreign tax-exempt organization or foreign   
private foundation for United States federal income tax purposes, and (iii) the 
requirements of section 871(h) or 881(c) of the Code are satisfied as described 
below under the heading "Owner Statement Requirement." Notwithstanding the      
above, a Non-U.S. Holder that is engaged in the conduct of a United States trade
or business will be subject to (i) United States federal income tax on interest 
that is effectively connected with the conduct                                  

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of such trade or business and (ii) if the Non-U.S. Holder is a corporation, a   
United States branch profits tax equal to 30% of its "effectively connected     
earnings and profits" as adjusted for the taxable year, unless the holder       
qualifies for an exemption from such tax or a lower tax rate under an applicable
treaty.                                                                         

 Gain on Disposition. A Non-U.S. Holder will generally not be subject to
United States federal income tax on gain recognized on a sale, redemption, or   
other disposition of a Note unless (i) the gain is effectively connected with   
the conduct of a trade or business within the United States by the Non-U.S.     
Holder or (ii) in the case of a Non-U.S. Holder who is a nonresident alien      
individual, such holder is present in the United States for 183 or more days    
during the taxable year and certain other requirements are met. Any such gain   
that is effectively connected with the conduct of a United States trade or      
business by a Non-U.S. Holder will be subject to United States federal income   
tax on a net income basis in the same manner as if such holder were a United    
States person and, if such Non-U.S. Holder is a corporation, such gain may also 
be subject to the 30% United States branch profits tax described above.         

     Federal Estate Taxes. A Note held by an individual who at the time of death
is not a citizen or resident of the United States will not be subject to United 
States federal estate tax as a result of such individual's death, provided that 
(i) the individual does not actually or constructively own 10% or more of the   
total combined voting power of all classes of stock of the Company entitled to  
vote and (ii) the interest accrued on the Note was not effectively connected    
with a United States trade or business.                                         

     Owner Statement Requirement. Sections 871(h) and 881(c) of the Code require
that either the beneficial owner of a Note or a securities clearing             
organization, bank or other financial institution that holds customers'         
securities in the ordinary course of its trade or business (a "Financial        
Institution") and that holds a Note on behalf of such owner file a statement    
with the Company or its agent to the effect that the beneficial owner is not a  
United States person in order to avoid withholding of United States federal     
income tax. Under current regulations, this requirement will be satisfied if the
Company or its agent receives (i) a statement (an "Owner's Statement") from the 
beneficial owner of a Note in which such owner certifies, under penalties of    
perjury, that such owner is not a United States person and provides such owner's
name and address or (ii) a statement from the Financial Institution holding the 
Note on behalf of the beneficial owner in which the Financial Institution       
certifies, under penalties of perjury, that it has received the Owner's         
Statement together with a copy of the Owner's Statement. The beneficial owner   
must inform the Company or its agent (or, in the case of a statement described  
in clause (ii) of the immediately preceding sentence, the Financial Institution)
within 30 days of any change in information on the Owner's Statement.           

     Backup Withholding and Information Reporting. Current United States federal
income tax law provides that in the case of payments of interest to Non-U.S.    
Holders, the 31% backup withholding tax will not apply to payments made outside 
the United States by the Company or a paying agent on a Note if an Owner's      
Statement is received or an exemption has otherwise been established; provided  
in each case that the Company or the paying agent, as the case may be, does not 
have actual knowledge that the payee is a United States person.                 

     Under current Treasury Regulations, payments of the proceeds of the sale of
a Note to or through a foreign office of a "broker" will not be subject to      
backup withholding but will be subject to information reporting if the broker is
a United States person, a controlled foreign corporation for United States      
federal income tax purposes, or a foreign person 50% or more of whose gross     
income is from a United States trade or business for a specified three-year     
period, unless the broker has in its records documentary evidence that the      
holder is not a United States person and certain other conditions are met or the
holder otherwise establishes an exemption. Payment of the proceeds of a sale to 
or through the United States office of a broker is subject to backup withholding
and information reporting unless the holder certifies its non-United States     
status under penalties of perjury or otherwise establishes an exemption.        

  Recently, the Treasury Department has promulgated final regulations (the
"Final Regulations") regarding the withholding and information reporting rules  
discussed above. In general, the Final Regulations do not significantly alter   
the substantive withholding and information reporting requirements              

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but unify current certification procedures and forms and clarify reliance       
standards. Under the Final Regulations, special rules apply which permit the    
shifting of primary responsibility for withholding to certain financial         
intermediaries acting on behalf of beneficial owners. The Final Regulations are 
generally effective for payments made after December 31, 1999, subject to       
certain transition rules.                                                       

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 the 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 acquired
as a result of market-making activities or other trading activities. We have    
agreed that we will make this Prospectus available to any broker-dealer for use 
in connection with any such resale.                                             

We will not receive any proceeds from any sale of New Notes. 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 concession from any such broker-dealer and/or the    
purchasers of any New Notes. Any broker-dealer that resells New Notes that were 
received by it for its own account pursuant to the Exchange Offer and any       
broker-dealer that participates in a distribution of New Notes may be deemed to 
be an "underwriter" within the meaning of the Securities Act, and any profit on 
any resale of New Notes and any commissions 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.                   

   We have not entered into any arrangement or understanding with any person
to distribute the New Notes to be received in the Exchange Offer, and to the    
best of our information and belief, each person participating in the Exchange   
Offer is acquiring the New Notes in its ordinary course of business and has no  
arrangement or understanding with any person to participate in the distribution 
of the New Notes to be received in the Exchange Offer.                          

After the date upon which the Registration Statement of which this    
Prospectus is a part is declared effective by the Commission, 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 in connection with the       
Exchange Offer and reimburse the Initial Purchasers for the reasonable fees and 
expenses of counsel for the holders of the Notes. Each holder will pay all      
expenses of its counsel other than as described in the preceding sentence,      
transfer taxes, if any, and any commissions or concessions of any brokers or    
dealers. We have agreed in the Registration Rights Agreement to indemnify the   
holders of the Notes (including any broker-dealer) against certain liabilities, 
including liabilities under the Securities Act.                                 

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LEGAL MATTERS 

The validity of the Notes offered hereby will be passed upon for us by
Kinsella, Boesch, Fujikawa & Towle, LLP, Los Angeles, California and by Rogers &
Wells LLP, New York, New York.                                                  

INDEPENDENT AUDITORS

     The Company's consolidated financial statements as of December 31, 1997 and
1998 and for each of the years in the three-year period ended December 31, 1998,
have been included herein in reliance upon the report of KPMG LLP, independent  
certified public accountants, and upon the authority of said firm as experts in 
accounting and auditing.                                                        

AVAILABLE INFORMATION 

  The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy statements and other    
information with the SEC under the Exchange Act. These reports, proxy statements
and other information can be inspected and copied at the public reference       
facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street N.W.,     
Washington, D.C. 20549 and at the following regional offices of the SEC: Seven  
World Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center,  
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of this    
material can be obtained at prescribed rates by writing to the SEC, Public      
Reference Section, 450 Fifth Street N.W., Washington, D.C. 20549. The SEC       
maintains an internet web site that contains reports, proxy and information     
statements and other information regarding issuers (including us) that file     
electronically with the SEC. The address of that site is "www.sec.gov."         

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THE SPORTS CLUB COMPANY, INC. 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                [Download Table]

                                                              PAGE
                                                              ----
                                                                  
Independent Auditors' Report................................  F-2 
Consolidated Balance Sheets as of December 31, 1997 and           
  1998......................................................  F-3 
Consolidated Statements of Income for the Three-Year Period       
  ended December 31, 1998...................................  F-4 
Consolidated Statements of Stockholders' Equity for the           
  Three-Year Period ended December 31, 1998.................  F-5 
Consolidated Statements of Cash Flows for the Three-Year          
  Period ended December 31, 1998............................  F-6 
Notes to Consolidated Financial Statements..................  F-7 

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INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders                                         
The Sports Club Company, Inc.:                                                  

   We have audited the accompanying consolidated financial statements of The
Sports Club Company, Inc. and subsidiaries (the Company) as listed in the       
accompanying index. 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 generally accepted auditing
standards. 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 The Sports  
Club Company, Inc. and subsidiaries as of December 31, 1997 and 1998, and the   
results of their operations and their cash flows for each of the years in the   
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.                                                          

    KPMG LLP

Los Angeles, California                                                         
February 19, 1999,                                                              
except for Note 13 which                                                        
is as of April 15, 1999                                                         

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THE SPORTS CLUB COMPANY, INC. 

CONSOLIDATED BALANCE SHEETS 
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                                                                [Download Table]

                                                                1997       1998   
                                                              --------   -------- 
                                                                                  
ASSETS                                                                            
Current assets:                                                                   
  Cash and cash equivalents.................................  $  1,581   $  2,233 
  Accounts receivable, net of allowance for doubtful                              
     accounts of $385 and $215 in 1997 and 1998,                                  
     respectively...........................................     2,072      2,480 
  Inventories...............................................       813      1,527 
  Other current assets......................................       354        569 
  Due from affiliates.......................................       106        234 
                                                              --------   -------- 
          Total current assets..............................     4,926      7,043 
Property and equipment, net.................................   106,791    135,269 
Equity interest in unconsolidated subsidiary................       862      1,295 
Costs in excess of net assets acquired, less accumulated                          
  amortization of $822 and $1,294 at December 31, 1997 and                        
  1998, respectively........................................    15,917     15,443 
Organizational costs and other assets, net..................     3,065      4,707 
                                                              --------   -------- 
                                                              $131,561   $163,757 
                                                              ========   ======== 

LIABILITIES AND STOCKHOLDERS' EQUITY                                              
Current liabilities:                                                              
  Current installments of notes payable and capitalized                           
     lease obligations......................................  $  2,975   $  7,746 
  Notes payable to bank.....................................     5,000         -- 
  Accounts payable..........................................       948      2,273 
  Accrued liabilities.......................................     7,985      6,227 
  Deferred membership revenues..............................     9,936      9,953 
                                                              --------   -------- 
          Total current liabilities.........................    26,844     26,199 
Notes payable and capitalized lease obligations, less                             
  current installments......................................    42,823     18,755 
Notes payable to bank.......................................        --     10,940 
Deferred lease obligations..................................     2,817      2,724 
Minority interest...........................................       600        600 
                                                              --------   -------- 
          Total liabilities.................................    73,084     59,218 
Stockholders' equity:                                                             
  Preferred stock, $.01 par value, 1,000,000 shares                               
     authorized; no shares issued or outstanding............        --         -- 
  Common stock, $.01 par value, 40,000,000 shares                                 
     authorized; 14,382,621 and 20,896,623 shares issued and                      
     outstanding at December 31, 1997 and 1998,                                   
     respectively...........................................       144        209 
  Additional paid-in capital................................    53,613    102,361 
  Retained earnings.........................................     5,674      9,656 
  Treasury stock, at cost, 163,976 and 1,258,691 shares at                        
     December 31, 1997 and 1998, respectively...............      (954)    (7,687)
                                                              --------   -------- 
          Total stockholders' equity........................    58,477    104,539 
                                                              --------   -------- 
                                                              $131,561   $163,757 
                                                              ========   ======== 

See accompanying notes to consolidated financial statements.                    
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THE SPORTS CLUB COMPANY, INC. 

CONSOLIDATED STATEMENTS OF INCOME 
THREE-YEAR PERIOD ENDED DECEMBER 31, 1998 
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                        [Enlarge/Download Table]

                                                              1996      1997      1998   
                                                             -------   -------   ------- 
                                                                                         
Revenues.................................................... $36,918   $61,154   $81,923 
Operating expenses:                                                                      
  Direct....................................................  22,989    43,517    56,746 
  Selling, general and administrative.......................   6,052     6,607     8,556 
  Depreciation and amortization.............................   2,490     3,919     5,282 
                                                             -------   -------   ------- 
          Total operating expenses..........................  31,531    54,043    70,584 
                                                             -------   -------   ------- 
            Income from operations..........................   5,387     7,111    11,339 
Other income (expense):                                                                  
  Interest..................................................  (2,682)   (3,206)   (1,629)
  Minority interests........................................    (150)      (22)     (150)
  Equity interest in net income of unconsolidated                                        
     subsidiaries...........................................     631       696       880 
  Non-recurring items.......................................    (300)   (2,025)     (314)
                                                             -------   -------   ------- 
            Income before income taxes and extraordinary                                 
               charge.......................................   2,886     2,554    10,126 
Provision for income taxes..................................   1,183     1,014     3,971 
                                                             -------   -------   ------- 
            Net income before extraordinary charge..........   1,703     1,540     6,155 
Extraordinary charge from early extinguishment of debt, net                              
  of income tax effect of $1,331............................      --        --     2,173 
                                                             -------   -------   ------- 
            Net income...................................... $ 1,703   $ 1,540   $ 3,982 
                                                             =======   =======   ======= 
Net income per share before extraordinary charge:                                        
  Basic..................................................... $  0.15   $  0.12   $  0.33 
                                                             =======   =======   ======= 
  Diluted................................................... $  0.15   $  0.12   $  0.33 
                                                             =======   =======   ======= 
Per share effect of extraordinary charge:                                                
  Basic..................................................... $    --   $    --   $ (0.12)
                                                             =======   =======   ======= 
  Diluted................................................... $    --   $    --   $ (0.12)
                                                             =======   =======   ======= 
Net income per share:                                                                    
  Basic..................................................... $  0.15   $  0.12   $  0.21 
                                                             =======   =======   ======= 
  Diluted................................................... $  0.15   $  0.12   $  0.21 
                                                             =======   =======   ======= 
Weighted average number of common shares outstanding:                                    
  Basic.....................................................  11,355    12,524    18,603 
                                                             =======   =======   ======= 
  Diluted...................................................  11,360    12,683    18,829 
                                                             =======   =======   ======= 

See accompanying notes to consolidated financial statements.                    

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THE SPORTS CLUB COMPANY, INC. 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 
THREE-YEAR PERIOD ENDED DECEMBER 31, 1998 
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                               COMMON STOCK    ADDITIONAL             TREASURY STOCK  
                                              ---------------   PAID-IN    RETAINED  ---------------- 
                                              SHARES   AMOUNT   CAPITAL    EARNINGS  SHARES   AMOUNT  
                                              ------   ------  ----------  --------  ------   ------- 
                                                                                                      
Balance January 1, 1996.....................  11,355    $114    $ 36,927    $2,450      --         -- 
  Net income................................      --      --          --     1,703      --         -- 
  Issuance of common stock to outside                                                                 
     directors..............................       3      --           8        --      --         -- 
                                              ------    ----    --------    ------   -----    ------- 
Balance, December 31, 1996..................  11,358     114      36,935     4,153      --         -- 
  Net income................................      --      --          --     1,540      --         -- 
  Sale of common stock......................   2,730      27      14,973        --      --         -- 
  Issuance of common stock in connection                                                              
     with acquisition of The Sports Club/Las                                                          
     Vegas..................................     291       3       1,672        --      --         -- 
  Treasury stock repurchased................      --      --          --        --     185    $(1,034)
  Reissuance of treasury stock for employee                                                           
     stock plans............................      --      --          --       (19)    (21)        80 
  Issuance of common stock to outside                                                                 
     directors..............................       4      --          33        --      --         -- 
                                              ------    ----    --------    ------   -----    ------- 
Balance, December 31, 1997..................  14,383    $144    $ 53,613    $5,674     164    $  (954)
  Net income................................      --      --          --     3,982      --         -- 
  Sale of common stock net of issuance cost                                                           
     of $695................................   6,500      65      48,639        --      --         -- 
  Treasury stock repurchased................      --      --          --        --   1,107     (6,800)
  Reissuance of treasury stock for employee                                                           
     stock plans............................      --      --          45        --     (12)        67 
  Exercise of employee stock options........      10      --          26        --      --         -- 
  Issuance of common stock to outside                                                                 
     directors..............................       4      --          38        --      --         -- 
                                              ------    ----    --------    ------   -----    ------- 
Balance, December 31, 1998..................  20,897    $209    $102,361    $9,656   1,259    $(7,687)
                                              ======    ====    ========    ======   =====    ======= 

See accompanying notes to consolidated financial statements.                    

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THE SPORTS CLUB COMPANY, INC. 

CONSOLIDATED STATEMENTS OF CASH FLOWS 
THREE-YEAR PERIOD ENDED DECEMBER 31, 1998 
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                               1996       1997       1998   
                                                             --------   --------   -------- 
                                                                                            
Cash flows from operating activities:                                                       
  Net income................................................ $  1,703   $  1,540   $  3,982 
  Adjustments to reconcile net income to cash provided by                                   
    operating activities:                                                                   
    Loss on early extinguishment of debt, net of tax........       --         --      2,173 
    Depreciation and amortization...........................    2,490      3,919      5,282 
    Accrued management fees.................................      (97)        --         -- 
    Equity interest in net income of unconsolidated                                         
      subsidiaries..........................................     (631)      (696)      (880)
    Distributions from unconsolidated subsidiaries..........      623        469        447 
    Stock issued as directors' fees.........................        8         33         38 
    Loss on sale of Sports Connections......................      300         --         -- 
    Minority interest in Reebok Sports Club/NY..............       --       (128)        -- 
    (Increase) decrease in:                                                                 
      Accounts receivable, net..............................      149     (1,176)      (408)
      Inventories...........................................      105       (395)      (714)
      Other current assets..................................      (12)    (2,187)      (830)
    Increase (decrease) in:                                                                 
      Accounts payable......................................     (816)      (493)     1,325 
      Accrued liabilities...................................      225      2,519       (315)
      Deferred membership revenues..........................     (633)     1,635         17 
      Deferred lease obligations............................      211       (492)       (93)
                                                             --------   --------   -------- 
      Net cash provided by operating activities.............    3,625      4,548     10,024 
                                                             --------   --------   -------- 
Cash flows from investing activities:                                                       
  Capital expenditures......................................   (2,788)    (4,899)   (28,623)
  Business acquisitions, net of cash acquired...............   (2,118)   (10,778)        -- 
  Proceeds from sale of Sports Connections..................    3,569         --         -- 
  Sale of other non-operating assets........................       95         --         -- 
  Treasury stock acquired...................................       --     (1,034)    (6,800)
                                                             --------   --------   -------- 
      Net cash used for investing activities................   (1,242)   (16,711)   (35,423)
                                                             --------   --------   -------- 
Cash flows from financing activities:                                                       
  (Increase) decrease in due from affiliates................      540        937       (128)
  Exercise of employee stock options........................       --         --         26 
  Proceeds from sale of common stock........................       --     10,000     48,704 
  Proceeds from notes payable and capitalized lease                                         
    obligations.............................................   23,371      2,324     10,940 
  Repayments of notes payable and capitalized lease                                         
    obligations.............................................  (23,693)    (3,663)   (33,491)
                                                             --------   --------   -------- 
      Net cash provided by financing activities.............      218      9,598     26,051 
                                                             --------   --------   -------- 
      Net increase (decrease) in cash and cash                                              
         equivalents........................................    2,601     (2,565)       652 
Cash and cash equivalents at beginning of year..............    1,545      4,146      1,581 
                                                             --------   --------   -------- 
Cash and cash equivalents at end of year.................... $  4,146   $  1,581   $  2,233 
                                                             ========   ========   ======== 
Supplemental disclosure of cash flow information:                                           
  Cash paid during the year for interest.................... $  3,068   $  3,599   $  2,636 
                                                             ========   ========   ======== 
  Cash paid during the year for income taxes................ $    590   $    306   $  1,881 
                                                             ========   ========   ======== 
  Capital expenditures financed............................. $    153   $  7,223   $  5,690 
                                                             ========   ========   ======== 
  Stock issued in exchange for interest in Reebok-Sports                                    
    Club/NY................................................. $     --   $  5,000   $     -- 
                                                             ========   ========   ======== 
  Stock issued as partial consideration for The Sports                                      
    Club/Las Vegas.......................................... $     --   $  1,675   $     -- 
                                                             ========   ========   ======== 
  Acquisition of land and building under capital lease...... $     --   $ 10,000   $     -- 
                                                             ========   ========   ======== 

See accompanying notes to consolidated financial statements.                    

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THE SPORTS CLUB COMPANY, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998

1. ORGANIZATION                                                                 

   The Sports Club Company, Inc. (the "Company") operates sports and fitness
Clubs ("Clubs"), under the "Sports Club" and "Spectrum Club" names. Sports Clubs
have been developed as "urban country clubs" offering a full range of services  
including numerous fitness and recreation options, diverse facilities and other 
amenities. Spectrum Clubs are designed as smaller-scale Sports Clubs with an    
extensive range of services. Both Sports Clubs and Spectrum Clubs are marketed  
to affluent, health conscience individuals who desire a premier Club.           

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                   

Principles of Consolidation                                                     

    The accompanying consolidated financial statements include the accounts of
the Company and its majority owned subsidiaries. All significant intercompany   
transactions and balances have been eliminated in consolidation.                

Revenue Recognition                                                             

   The Company receives a one-time non-refundable initiation fee and monthly
membership dues from its members. Substantially all of the Company's members    
join on a month-to-month basis and can therefore cancel their membership at any 
time. Initiation fees and related direct expenses, primarily sales commissions, 
are deferred and recognized, on a straight-line basis, over an estimated        
membership period of between two and one half and three years. Dues that are    
received in advance are recognized on a pro-rata basis over the periods in which
services are to be provided.                                                    

Cash and Cash Equivalents                                                       

For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with original maturities of three months
or less to be cash equivalents.                                                 

Inventories                                                                     

 Inventories are stated at the lower of cost or market using the average
cost method.                                                                    

Depreciation and Amortization                                                   

    Depreciation is computed primarily using the straight-line method over the
estimated useful lives of the assets, ranging from five to seven years for      
equipment and 30 to 40 years for buildings. Leasehold improvements are amortized
using the straight-line method over the shorter of the lease term or the        
estimated useful life of the improvements. Loan costs are amortized over the    
terms of the related loans and organizational costs are amortized over five     
years. Costs in excess of net assets of acquired businesses are being amortized 
on a straight-line basis over forty years.                                      

Start-up Costs                                                                  

     The Company will adopt Statement of Position 98-5, "Accounting for Start-Up
Costs" ("SOP 98-5") effective January 1, 1999. SOP 98-5 provides that all costs 
related to the development of new fitness clubs, except for real estate related 
costs, be expensed as incurred. This is a change from the Company's previous    

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998

accounting policy, whereby many of these costs were capitalized and charged to  
expense upon the Club opening. As a result, the Company will record a one-time  
charge equal to the unamortized balance of all capitalized development and      
start-up costs as of January 1, 1999. This charge will be recorded as a         
cumulative effect of a change in accounting principle, net of the related income
tax effect. The amount of this charge is currently expected to be approximately 
$1.0 million.                                                                   

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of         

The Company reviews its long-lived assets and certain identifiable    
intangible assets for impairment whenever events or changes in circumstances    
indicate that the carrying amount of an asset may not be recoverable.           
Recoverability of assets to be held and used is measured by a comparison of the 
carrying amount of an asset to future net undiscounted operating cash flows     
expected to be generated by the asset. If such assets are considered to be      
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets to be 
disposed of are reported at the lower of the carrying amount or fair value less 
costs to sell. The Company has not experienced an impairment of value of any of 
its long-lived or identifiable intangible assets as of December 31, 1998.       

Income Taxes                                                                    

  The Company uses the asset and liability method of accounting for income
taxes. Under this method, deferred income taxes are recognized for the future   
tax consequences attributable to differences between the financial statement    
carrying amounts of existing assets and liabilities and their respective tax    
bases. Deferred tax assets and liabilities are measured using enacted tax rates 
expected to be applied to taxable income in the years in which those temporary  
differences are expected to be recovered or settled. The effect on deferred     
taxes of a change in tax rates is recognized in income in the period that       
includes the enactment date.                                                    

Earnings per Share                                                              

   The Company presents Basic and Diluted earnings per share. Basic earnings
reflects only the actual weighted average shares of common stock outstanding    
during the period. Diluted earnings per share includes the effects of all       
dilutive options, warrants and other securities and utilizes the treasury stock 
method.                                                                         

Use of Estimates                                                                

The preparation of financial statements in conformity with generally  
accepted accounting principles requires management to make certain estimates and
assumptions. These affect the reporting of assets and liabilities, the          
disclosure of any contingent assets and liabilities and the reported amounts of 
revenues and expenses during the reporting periods. Actual results could differ 
from these estimates.                                                           

Fair Value of Financial Instruments                                             

    The carrying amounts of financial instruments approximate fair value as of
December 31, 1998. The carrying amounts related to cash and cash equivalents,   
accounts receivable, other current assets and accounts payable approximate fair 
value due to the relatively short maturity of such instruments. The fair value  
of long-term debt is estimated by discounting the future cash flows of each     
instrument at rates                                                             

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998

currently available to the Company for similar debt instruments of comparable   
maturities by the Company's bankers.                                            

Segment Reporting                                                               

The Company has adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131") effective January 1, 1998. SFAS
131 establishes standards for public enterprises to report information about    
operating segments in annual and interim financial statements. It also          
establishes standards for related disclosures concerning products and services, 
geographic areas and major customers. Management has determined that the Company
has one principal operating segment, the operation of sports and fitness clubs. 
The adoption of SFAS 131 has had no impact on the Company's financial position  
or results of operations.                                                       

Computer Software Costs                                                         

     The Company will adopt Statement of Position 98-1 "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1")       
effective January 1, 1999. SOP 98-1 provides guidance as to appropriate         
treatment of internal use software costs that is acquired or internally         
developed. The adoption of SOP 98-1 may impact the Company's accounting for its 
membership software system currently being implemented. The Company has not yet 
determined whether the application of SOP 98-1 will have a material impact upon 
the Company's financial position or results of operations.                      

3. ACQUISITIONS                                                                 

Sports Clubs                                                                    

    On December 30, 1996, the Company acquired an additional 10.1% interest in
the Reebok-Sports Club/NY partnership for $2.5 million which increased the      
Company's ownership in the partnership to 50.1%. This acquisition was accounted 
for as a purchase and accordingly, the operations of the Club are included in   
the Company's consolidated statements of income from the date of acquisition.   
Prior to this acquisition, the Company's interest was recorded under the equity 
method of accounting. Goodwill of approximately $3.8 million resulted from this 
transaction.                                                                    

     On June 23, 1997, the Company completed the sale of 2,105,263 shares of its
Common Stock to Millennium Entertainment Partners L.P., (including affiliated   
entities, hereafter referred to as "Millennium"). In exchange for the newly     
issued shares, the Company received $5.0 million cash, Millennium's 9.9%        
Partnership interest in The Reebok-Sports Club/NY Partnership, a $2.5 million   
note due from the Partnership and Millennium's rights to certain accrued        
management fees due from the Partnership. This transaction increased the        
Company's ownership in the Partnership to 60%. The Company also signed          
definitive leases with Millennium to jointly develop Sports Clubs in Washington 
D.C. and San Francisco, California on properties currently under development by 
Millennium. The Company has also signed a letter of intent to develop a Sports  
Club in Boston, Massachusetts on property currently under development by        
Millennium.                                                                     

   On August 1, 1997, the Company acquired a Club in Henderson, Nevada which
is now operated as The Sports Club/Las Vegas. The purchase price of             
approximately $6.7 million consisted of $5.0 million in cash and 290,358 shares 
of the Company's Common Stock, valued at approximately $1.7 million. The        
acquisition was accounted for as a purchase. Accordingly, the operations of The 
Sports Club/Las Vegas are included in the Company's statement of income from the
date of acquisition.                                                            

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998

Spectrum Clubs                                                                  

On December 31, 1997, the Company acquired four Clubs from Racquetball
World, which are now operated as Spectrum Clubs, for a total purchase price     
(including the portion paid by Millennium described below) of approximately     
$19.4 million. Millennium acquired properties underlying two of the Clubs for   
$10.0 million and is leasing these two properties to the Company under a        
financing lease agreement which is reflected as capitalized lease obligations in
the Company's consolidated balance sheet. At any time during the first three    
years of the lease the Company may purchase the leased property from Millennium 
for a purchase price determined pursuant to the lease, currently estimated to be
approximately $10.2 million. Millennium has the right to require the Company to 
acquire its interest in the property upon the occurrence of certain events      
defined in the lease.                                                           

  A cash payment of approximately $6.0 million was made to the sellers and
their creditors and the Company assumed approximately $2.0 million of           
liabilities. In addition, up to 159,081 shares of the Company's Common Stock    
valued at approximately $1.4 million will be issued to certain of the selling   
entities, subject to reduction if certain liabilities of the Clubs exceed       
agreed-upon amounts. In a private placement completed in December 1997, the     
Company sold 625,000 shares of its Common Stock to Millennium for $5.0 million  
to raise funds to complete this acquisition. The acquisition was accounted for  
as a purchase. Accordingly, the operations of these four Clubs are included in  
the Company's statement of operations from the date of acquisition.             

SportsMed                                                                       

    On July 1, 1997, the Company acquired the assets of SportsTherapy Systems,
Inc. ("STS"), a physical therapy and rehab clinic located in Calabasas,         
California for approximately $485,000 in cash plus the assumption of various    
liabilities in the amount of $187,000. STS has been merged into the Company's   
SportsMed subsidiary. In addition, the Company entered into an employment       
agreement with the seller of STS pursuant to which the seller is managing the   
operations of SportsMed. The acquisition was accounted for as a purchase.       
Accordingly, the operations of STS are included in the Company's statement of   
income from the date of acquisition.                                            

    The following pro forma financial data present the Company's unaudited pro
forma statement of income for the year ended December 31, 1997, giving effect to
the Reebok-Sports Club/NY, The Sports Club/Las Vegas and the four Spectrum Club 
acquisitions as if these transactions had occurred on January 1, 1997. None of  
the acquisitions was considered to be significant individually or in the        
aggregate under the applicable rules of the Securities and Exchange Commission. 
The STS operation is not material to the consolidated statement of income, and  
accordingly, its impact has been excluded from the following pro forma          
presentation. The unaudited pro forma condensed statement of income does not    
purport to represent what the Company's actual results of operations would have 
been had such transactions in fact                                              

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998

occurred on such date. The unaudited pro forma condensed statement of income    
also does not purport to project the results of operations of the Company for   
any future period.                                                              

                                                                [Download Table]

                                                                 YEAR ENDED    
                                                              DECEMBER 31, 1997
                                                              -----------------
                                                                 (UNAUDITED)   
                                                               (IN THOUSANDS,  
                                                              EXCEPT PER SHARE 
                                                                    DATA)      
                                                                               
Revenues....................................................       $72,707     
Operating expenses..........................................        65,944     
                                                                   -------     
Income from operations......................................         6,763     
Other expenses..............................................         6,159     
                                                                   -------     
Income before provision for income taxes....................           604     
Provision for income taxes..................................           273     
                                                                   -------     
Net income..................................................       $   331     
                                                                   =======     
Net income per share:                                                          
  Basic.....................................................       $   .02     
                                                                   =======     
  Diluted...................................................       $   .02     
                                                                   =======     
Weighted average number of common shares outstanding:                          
  Basic.....................................................        14,456     
                                                                   =======     
  Diluted...................................................        14,615     
                                                                   =======     

4. PROPERTY AND EQUIPMENT                                                       

   Property and equipment is carried at cost, less accumulated depreciation,
which is summarized as follows:                                                 

                                                                [Download Table]

                                                               AT DECEMBER 31,   
                                                             --------------------
                                                               1997        1998  
                                                             --------    --------
                                                                (IN THOUSANDS)   
                                                                                 
Land........................................................ $ 18,234    $ 21,484
Building and improvements...................................   82,405     107,000
Furniture, fixtures and equipment...........................   14,095      19,305
                                                             --------    --------
                                                              114,734     147,789
Less accumulated depreciation and amortization..............    7,943      12,520
                                                             --------    --------
Net property and equipment.................................. $106,791    $135,269
                                                             ========    ========

   Equipment under capital leases was $7,456,000 and $10,479,000 and related
accumulated amortization was $1,854,000 and 3,271,000 at December 31, 1997 and  
1998, respectively.                                                             

  Included in buildings and improvements at December 31, 1997 and 1998, is
$10,000,000 of buildings acquired under a capital lease in connection with the  
acquisition of four Spectrum Clubs (See Note 3). No amortization was recorded   
for the year ending December 31, 1997 due to the close proximity of the         
acquisition to the end of the year. Accumulated amortization at December 31,    
1998 was $255,000.                                                              

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THE SPORTS CLUB COMPANY, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998

5. NOTES PAYABLE AND CAPITALIZED LEASE OBLIGATIONS                              

    Notes payable and capitalized lease obligations are summarized as follows:

                                                                [Download Table]

                                                               AT DECEMBER 31,   
                                                             --------------------
                                                              1997         1998  
                                                             -------      -------
                                                                (IN THOUSANDS)   
                                                                                 
The Sports Club/LA note(a).................................. $22,378      $    --
The Sports Club/Irvine note(b)..............................   4,875        4,375
Spectrum Club - Agoura Hills note(c)........................   2,533        2,506
Spectrum Clubs Fullerton and Santa Ana lease(d).............  10,000        9,745
Equipment financing loans(e)................................   5,602        7,208
Other notes payable.........................................     410        2,667
                                                             -------      -------
                                                              45,798       26,501
Less current installments...................................   2,975        7,746
                                                             -------      -------
                                                             $42,823      $18,755
                                                             =======      =======

-------------------------                                                       
(a) The Sports Club/LA note was at a 10.63% rate of interest and required a     
monthly payment of approximately $262,000 with a balloon payment of     
approximately $17.5 million on April 1, 2003. In April 1998 the Company 
 pre-paid this note and incurred a prepayment penalty of $3.5 million. The
prepayment penalty has been recorded as an extraordinary charge on the  
  accompanying statement of income, recorded net of its income tax effect of
$1.3 million.                                                           

(b) The Sports Club/Irvine note was issued to previous owners of this Club. The 
  note is secured by land, equipment, building improvements and the building
 of The Sports Club/Irvine, bears interest at the rate of 6%, and requires
quarterly principal payments of $125,000 and a balloon payment of $4.0  
million on November 1, 1999.                                            

(c) The Spectrum Club - Agoura Hills note was issued by a savings and loan      
association to complete the Company's acquisition of the Spectrum       
Club - Agoura Hills. The note is secured by land, equipment, building   
   improvements and the building of the Spectrum Club - Agoura Hills. The note
   bears interest at the rate of 8.5%. Monthly principal and interest payments
of $20,107 are required through the note's maturity in April 2024.      

(d) In December 1997, the Company acquired four Spectrum Clubs. Millennium      
acquired properties underlying two of the Clubs for $10.0 million and is
leasing these two properties to the Company under a financing lease     
   agreement which is reflected as a capital lease obligation in the Company's
consolidated balance sheet.                                             

(e) The equipment financing loans are secured by the furniture, fixtures and    
    equipment. The amounts are generally repayable in monthly payments over five
years with effective interest rates between 8% to 10%.                  

Future minimum annual principal payments at December 31, 1998, are as 
follows (in thousands):                                                         

                                                                [Download Table]
                                                                     
1999........................................................  $ 7,746
2000........................................................    3,906
2001........................................................    1,819
2002........................................................    1,342
2003........................................................      849
Thereafter..................................................   10,839
                                                              -------
                                                              $26,501
                                                              =======

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THE SPORTS CLUB COMPANY, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998

6. BANK CREDIT FACILITY                                                         

     At December 31, 1998, the Company had a $30.0 million bank credit facility.
At that date, $10.9 million was outstanding and an additional $4.0 million was  
utilized in the form of a letter of credit. The loans are unsecured, however,   
the Company is prohibited from pledging any of its assets except for normal     
furniture, fixture and equipment financing. The agreement also requires the     
Company to maintain certain Tangible Net Worth, Debt Coverage Ratios and Senior 
Liabilities to Tangible Net Worth Ratio requirements. The Company was in        
compliance with its covenants as of December 31, 1998. (See Note 13).           

7. COMMITMENTS AND CONTINGENCIES                                                

Lease Commitments                                                               

   The Company leases certain facilities pursuant to various operating lease
agreements. The Club facility leases are generally long-term and noncancelable  
triple-net leases (requiring the Company to pay all real estate taxes, insurance
and maintenance expenses), and have an average remaining term of 35 years,      
including renewal options, with the earliest expiration date of March 30, 2000. 
Future minimum noncancelable operating lease payments as of December 31, 1998   
are as follows (in thousands):                                                  

                                                                [Download Table]
                                                                      
Year ending December 31:                                              
1999........................................................  $ 10,968
2000........................................................    16,870
2001........................................................    22,551
2002........................................................    22,780
2003........................................................    23,345
Thereafter..................................................   313,538
                                                              --------
          Total minimum lease payments......................  $410,052
                                                              ========

Rent expense for facilities and equipment aggregated, $1,960,000,     
$7,438,000 and $8,174,000 for the years ended December 31, 1996, 1997 and 1998, 
respectively.                                                                   

Litigation                                                                      

  The Company is involved in various claims and lawsuits incidental to its
business, including claims arising from accidents and disputes with landlords.  
However, in the opinion of management, the Company is adequately insured against
such claims and lawsuits involving personal injuries, and any ultimate liability
arising out of any such proceedings will not have a material adverse effect on  
the financial condition, cash flow or operations of the Company.                

Employment Agreements                                                           

  The Company currently has employment agreements with three key executive
officers which expire in December 31, 2000. The agreements provide the          
executives with a base compensation and, in the event of certain conditions, a  
severance payment not to exceed three times each executive's annual             
compensation.                                                                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998

8. INCOME PER SHARE                                                             

     The following is a reconciliation of the basic and diluted income per share
computations for the years 1996, 1997 and 1998:                                 

                                                        [Enlarge/Download Table]

                                                           YEAR ENDED DECEMBER 31,        
                                                   ---------------------------------------
                                                     1996           1997           1998   
                                                   ---------      ---------      ---------
                                                    (IN THOUSANDS, EXCEPT PER SHARE DATA) 
                                                                                          
Net income used for basic and diluted income per                                          
  share...........................................  $ 1,703        $ 1,540        $ 3,982 
                                                    =======        =======        ======= 
Shares of Common Stock and Common Stock                                                   
  equivalents:                                                                            
  Weighted average shares used in basic                                                   
     computation..................................   11,355         12,524         18,603 
  Weighted stock options..........................        5            159            226 
                                                    -------        -------        ------- 
  Impact from dilutive shares.....................   11,360         12,683         18,829 
                                                    =======        =======        ======= 
Income per share:                                                                         
  Basic...........................................  $  0.15        $  0.12        $  0.21 
                                                    =======        =======        ======= 
  Diluted.........................................  $  0.15        $  0.12        $  0.21 
                                                    =======        =======        ======= 

9. INCOME TAXES                                                                 

The provision for income taxes consists of the following:             

                                                        [Enlarge/Download Table]

                                                          YEAR ENDED DECEMBER 31,     
                                                      ------------------------------- 
                                                       1996        1997        1998   
                                                      ------      ------      ------- 
                                                              (IN THOUSANDS)          
                                                                                      
Current:                                                                              
  Federal...........................................  $  985      $  842      $ 2,893 
  State.............................................     280         255          839 
                                                      ------      ------      ------- 
                                                       1,265       1,097        3,732 
                                                      ------      ------      ------- 
Deferred:                                                                             
  Federal...........................................     (78)        (78)         156 
  State.............................................      (4)         (5)          83 
                                                      ------      ------      ------- 
                                                         (82)        (83)         239 
                                                      ------      ------      ------- 
Income tax provision................................  $1,183      $1,014      $ 3,971 
                                                      ======      ======      ======= 
Tax benefit from extraordinary charge:                                                
  Federal...............................................................      $(1,021)
  State.................................................................         (310)
                                                                              ------- 
Total tax benefit from extraordinary charge.............................      $(1,331)
                                                                              ======= 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998

  Income tax expense from net income before income taxes and extraordinary
charge differs from the statutory rate as applied to net income before income   
taxes and extraordinary charge as follows:                                      

                                                        [Enlarge/Download Table]

                                                          YEAR ENDED DECEMBER 31     
                                                      ------------------------------ 
                                                       1996        1997        1998  
                                                      ------      ------      ------ 
                                                              (IN THOUSANDS)         
                                                                                     

Computed "expected" tax expense...................... $  981      $  868      $3,443 
Increase (decrease) in tax resulting from:                                           
  State taxes -- net of federal benefit..............    182         165         609 
  Meals and entertainment............................      7           8           8 
  Goodwill amortization..............................     65          80          80 
  Other..............................................    (52)       (107)       (169)
                                                      ------      ------      ------ 
Income tax provision................................. $1,183      $1,014      $3,971 
                                                      ======      ======      ====== 

     The effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities are presented as follows:                

                                                                [Download Table]

                                                                AT DECEMBER 31    
                                                             -------------------- 
                                                              1997         1998   
                                                             -------      ------- 
                                                                (IN THOUSANDS)    
                                                                                  
Deferred tax assets:                                                              
  Deferred initiation fees.................................. $   688      $   811 
  Accrued vacation..........................................     142          182 
  Bad debt..................................................     154           86 
  State taxes...............................................      44          180 
                                                             -------      ------- 
          Gross deferred tax assets.........................   1,028        1,259 
                                                             -------      ------- 
Deferred tax liabilities:                                                         
  Depreciation and amortization.............................  (3,419)      (3,889)
  Other.....................................................    (542)        (542)
                                                             -------      ------- 
          Gross deferred tax liabilities....................  (3,961)      (4,431)
                                                             -------      ------- 
Net deferred tax liability.................................. $(2,933)     $(3,172)
                                                             =======      ======= 

10. STOCK PLANS                                                                 

  The Company has elected to measure the impact of its stock options under
the provisions of APB No. 25, using the intrinsic value method. Entities        
electing to remain with the accounting in APB Opinion No. 25 must make pro forma
disclosures of net income and income per share, as if the fair value based      
method of accounting defined in SFAS 123 had been applied.                      

     The Company has an employee stock option plan which is described below. The
Company applied APB No. 25 in accounting for its plan. Accordingly, no          
compensation cost has been recognized. Had                                      

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998

compensation cost for the Company's plan been determined consistent with SFAS   
123, the Company's net income and income per share would have been reduced to   
the proforma amounts indicated below:                                           

                                                        [Enlarge/Download Table]

                                                              YEAR ENDED DECEMBER 31         
                                                      ---------------------------------------
                                                        1996           1997           1998   
                                                      ---------      ---------      ---------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA) 
                                                                                             
Net income:                                                                                  
  As reported........................................  $1,703         $1,540         $3,982  
  Pro forma..........................................  $1,533         $1,368         $3,504  
Basic income per share:                                                                      
  As reported........................................  $  .15         $  .12         $  .21  
  Pro forma..........................................  $  .14         $  .11         $  .19  

     The fair value of all option grants for the Company's plan are estimated on
the date of grant using the Black-Scholes option-pricing model with the         
weighted-average assumptions used for all fixed option grants in 1996, 1997 and 
1998 respectively: dividend yield of 0%, 0% and 0%; expected volatility of      
51.3%, 62.1%, and 71.4% risk-free interest rates of 7.0%, 6.5% and 6.0% and     
expected economic lives of 7.0 years, 6.0 years and 5.9 years.                  

   1,800,000 shares of Common Stock are reserved under the Company's Amended
and Restated 1994 Stock Incentive Plan (the "Plan"), which authorizes the       
issuance of various stock incentives to directors, officers, employees and      
consultants including options, stock appreciation rights and purchase rights.   

    Options allow for the purchase of Common Stock at prices determined by the
Company's Compensation Committee. Incentive stock options must be granted at a  
price at least equal to the fair market value of a share of Common Stock on the 
date the option is granted. Non-statutory options must have an exercise price   
equal to at least 85% of the fair market value of the Company's Common Stock at 
the date of grant. Options granted under the Plan may, at the election of the   
Compensation Committee, become exercisable in installments. Except for the      
options granted to the Chief Executive Officer which expire on the fifth        
anniversary of the grant date, all options will expire on the tenth anniversary 
of the grant date.                                                              

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THE SPORTS CLUB COMPANY, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998

    A summary of the status of the Company's stock option plans as of December
31, 1996, 1997 and 1998 and changes during the years then ended are presented   
below:                                                                          

                                                                [Download Table]

                                                                      WEIGHTED
                                                                      AVERAGE 
                                                                      EXERCISE
                                                             SHARES    PRICE  
                                                             -------  --------
                                                                              
Outstanding at January 1, 1996.............................. 297,000   $5.06  
Granted..................................................... 220,500    2.66  
Canceled....................................................  25,000    3.18  
                                                             -------          
Outstanding at December 31, 1996............................ 492,500    3.17  
                                                             =======          
Options exercisable at December 31, 1996.................... 185,505    3.28  
                                                             =======          
Weighted-average per share fair value of options granted                      
  during year ended December 31, 1996.......................            1.75  
Outstanding at January 1, 1997.............................. 492,500    3.17  
Granted..................................................... 155,000    5.51  
Canceled....................................................   5,000    3.10  
                                                             -------          
Outstanding at December 31, 1997............................ 642,500    3.77  
                                                             =======          
Options exercisable at December 31, 1997.................... 334,512    3.23  
                                                             =======          
Weighted-average per share fair value of options granted                      
  during year ended December 31, 1997.......................            3.53  
Outstanding at January 1, 1998.............................. 642,500    3.77  
Granted..................................................... 342,000    7.99  
Canceled....................................................   2,000    2.56  
Exercised...................................................  10,002    2.61  
                                                             -------          
Outstanding at December 31, 1998............................ 972,498    5.25  
                                                             =======          
Options exercisable at December 31, 1998.................... 462,696    3.52  
                                                             =======          
Weighted-average per share fair value of options granted                      
  during year ended December 31, 1998.......................            5.43  

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THE SPORTS CLUB COMPANY, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998

    The following table summarizes information about stock options outstanding
at December 31, 1998:                                                           

                                                                [Download Table]

                          WEIGHTED                
                          AVERAGE                 
                         REMAINING                
EXERCISE    NUMBER      CONTRACTUAL      OPTIONS  
 PRICES   OUTSTANDING   LIFE (YEARS)   EXERCISABLE
--------  -----------   ------------   -----------
                                                  
$8.3750...    27,000        8.84           9,008  
5.3750..     68,000         8.50          22,672  
4.3750..     60,000         8.22          20,000  
2.7500..     55,666         7.83          36,349  
2.5625..     58,832         7.40          37,000  
2.6875..     70,000         7.17          46,667  
3.0000..    225,000         6.58         225,000  
5.2500..     66,000         6.25          66,000  
8.2500..     30,000         4.32              --  
8.0000..    302,000         9.28              --  
7.0000..     10,000         9.54              --  
            -------                      -------  
            972,498                      462,696  
            =======                      =======  

Stock appreciation rights ("SAR's") may be granted in combination with
options or on a stand-alone basis. SAR's permit the holder to receive shares of 
stock, cash or a combination of shares and cash based upon by the difference    
between the option price and the fair market value of the Common Stock on the   
date of exercise. Upon exercise of a SAR granted in combination with an option, 
the related option is canceled. At December 31, 1998, no SAR's had been granted.

 Rights to purchase shares of Common Stock to be offered for direct sale
under the Plan must be at a purchase price equal to not less than 85% of the    
fair market value of the shares on the day preceding the date of grant. Purchase
rights are generally exercisable for a period of thirty days following the date 
of grant. At December 31, 1998, no purchase rights had been granted.            

   In July 1994, the Company instituted its 1994 Stock Compensation Plan for
the purpose of compensating outside directors by issuing them shares of the     
Company's Common Stock as part of their directors' fees. A total of 50,000      
shares are reserved for issuance pursuant to this plan. A total of 16,000 shares
have been issued to outside directors under the plan.                           

11. RELATED PARTY TRANSACTIONS                                                  

   Due from affiliates consist of advances made to unconsolidated affiliates
in the normal course of business. Such advances are payable on demand.          

 The Company manages the operation of its unconsolidated subsidiary, the
Spectrum Club - Manhattan Beach, of which it owns a 46.1% interest. The Company 
receives a fee of $33,322 per month plus 4.5% of the Club's gross revenues for  
managing this Club. The Company also manages the operations of the Reebok Sports
Club/NY and receives a fee of approximately 5.87% of the gross monthly          
collections, as defined. Management fees relating to Reebok Sports Club/NY of   
$779,000 for the year ended December 31, 1996 were earned and included in the   
Company's income statement. Management fees of $1.1 million and $1.3 million    
relating to Reebok Sports Club/NY were earned for the year ended                

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THE SPORTS CLUB COMPANY, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998

December 31, 1997 and 1998. These amounts are eliminated from income and expense
in the presentation of the Company's 1997 and 1998 consolidated statement of    
income.                                                                         

 The Reebok Sports Club/NY pays rent to Millennium in the amount of $2.0
million per year, and the partnership agreement provides for a first priority   
annual distribution of $3.0 million to Millennium. All such, payments are       
reflected as rent expense in the consolidated statement of income. The Company  
has entered into leases with Millennium to develop Sports Clubs in San Francisco
and Washington D.C., and is currently negotiating with Millennium with respect  
to the development of a Sports Club in Boston.                                  

12. CONCENTRATION OF CREDIT RISK                                                

The Company markets its products principally to customers in Southern 
California, New York City and Las Vegas. Management performs regular evaluations
concerning the ability of its customers to satisfy their obligations and records
a provision for doubtful accounts based upon these evaluations. The Company's   
credit losses for the periods presented are insignificant and have not exceeded 
management's estimates.                                                         

13. SUBSEQUENT EVENTS                                                           

    On April 1, 1999, the Company issued in a private placement 11 3/8% Senior
Secured Notes (the "Senior Secured Notes") with interest due semi-annually      
beginning September 15, 1999. The Company is using the proceeds to repay        
existing indebtedness, develop new clubs and for general corporate purposes.    

    The Senior Secured Notes are secured by substantially all of the Company's
assets, other than certain excluded assets. The indenture dated as of April 1,  
1999 (the "Indenture") includes certain covenants which limit the ability of the
Company and its restricted subsidiaries, subject to certain exceptions, to: (i) 
incur additional indebtedness; (ii) pay dividends or other distributions,       
repurchase capital stock or other equity interest or subordinated indebtedness; 
(iii) enter into certain transactions with affiliates; (iv) create certain liens
or sell certain assets; and (v) enter into certain mergers and consolidations.  

     Under the terms of the Indenture, after March 15, 2003, the Company may, at
its option, redeem all or some of the Senior Secured Notes at a premium that    
will decrease over time from 105.688% to 100% of their face amount, plus        
interest. Prior to March 15, 2002, if the Company publicly offers certain equity
securities the Company may, at its option, apply certain of the net proceeds    
from those transactions to the redemption of up to 35% of the principal amount  
of the Senior Secured Notes at 111.375% of their face amount, plus interest. If 
the Company goes through a change in control, it must give holders of the Senior
Secured Notes the opportunity to sell their Senior Secured Notes to the Company 
at 101% of their face amount, plus interest.                                    

Concurrent with the offering of the Senior Secured Notes, the Company 
restated and amended its bank credit facility. The credit facility now provides 
for revolving loans and letters of credit aggregating $20.0 million. Borrowings 
under the credit facility are secured by a first priority lien on substantially 
all of the real and personal property assets of certain Sports Clubs and        
Spectrum Clubs. Borrowings under the credit facility bear interest at a variable
rate not expected to exceed LIBOR plus 2 1/2% or the agent's prime rate. The    
facility matures on May 31, 2001.                                               

    In 1999, the Company approved the use of $8.4 million to repurchase shares
of Common Stock. At April 15, 1999, 940,400 shares have been repurchased for    
$3.9 million.                                                                   

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================================================================================

WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON, OR OTHER PERSON TO GIVE ANY 
INFORMATION OR REPRESENT ANYTHING TO YOU OTHER THAN THE INFORMATION CONTAINED IN
THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED INFORMATION OR               
REPRESENTATIONS.                                                                

THIS PROSPECTUS DOES NOT OFFER TO SELL OR ASK FOR OFFERS TO BUY ANY OF THE  
SECURITIES IN ANY JURISDICTION WHERE IT IS UNLAWFUL, WHERE THE PERSON MAKING THE
OFFER IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON WHO CANNOT LEGALLY BE OFFERED 
THE SECURITIES.                                                                 

THE INFORMATION IN THIS PROSPECTUS IS CURRENT ONLY AS OF THE DATE ON ITS    
COVER, AND MAY CHANGE AFTER THAT DATE. FOR ANY TIME AFTER THE COVER DATE OF THIS
PROSPECTUS, WE DO NOT REPRESENT THAT OUR AFFAIRS ARE THE SAME AS DESCRIBED OR   
THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT - NOR DO WE IMPLY THOSE      
THINGS BY DELIVERING THIS PROSPECTUS OR SELLING SECURITIES TO YOU.              

------------------------- 

TABLE OF CONTENTS 

                                                                [Download Table]

                                                        PAGE
                                                        ----
                                                            
Prospectus Summary....................................     1
Risk Factors..........................................     9
The Exchange Offer....................................    17
Use of Proceeds.......................................    25
Capitalization........................................    26
Selected Consolidated Financial Information...........    27
Management's Discussion and Analysis of Financial           
  Condition and Results of Operations.................    28
Business..............................................    34
Management............................................    43
Certain Relationships and Related Transactions........    52
Description of the Credit Facility....................    54
Description of Intercreditor Agreement................    55
Description of Notes..................................    56
Certain United States Federal Tax Consequences........    85
Plan of Distribution..................................    88
Legal Matters.........................................    89
Independent Auditors..................................    89
Available Information.................................    89
Index to Financial Statements.........................   F-1

============================================================                    

============================================================                    

EXCHANGE OFFER

[SPORTS CLUB LOGO]
11 3/8% SERIES B
SENIOR SECURED NOTES
DUE 2006

------------------------------------------

PROSPECTUS

------------------------------------------

April 29, 1999

===============================================================                 

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘424B1’ Filing		Date		First		Last			Other Filings
		3/15/06		1		58
		3/15/05		8
		10/20/04		52
		3/15/04		8
		4/1/03		103
		3/15/03		8		110
		12/31/02		48		64			10-K,  10-K/A,  5
		3/15/02		8		110
		5/31/01		33		110
		12/31/00		47		104			10-K
		3/30/00		104
		1/1/00		87
		12/31/99		90					10-K405
		11/1/99		103
		9/15/99		1		110
		5/31/99		1		19
		5/9/99		52
Filed on:		4/29/99		1		111
		4/26/99		10		28
		4/16/99		5		6			S-4
		4/15/99		93		110
		4/9/99		52
		4/1/99		1		110			8-K
		3/29/99		6
		3/4/99		53					SC 13G/A
		3/1/99		64
		2/28/99		28
		2/19/99		93
		2/10/99		48
		1/31/99		44
		1/4/99		83
		1/1/99		34		100
		12/31/98		10		110			10-K
		12/15/98		34
		7/31/98		54
		6/1/98		48
		4/28/98		70
		4/15/98		48					8-K
		1/1/98		10		108
		12/31/97		10		110			10-K405,  4,  8-K
		12/29/97		70
		8/1/97		100
		7/1/97		64		101			SC 13D
		6/23/97		100
		6/10/97		70
		3/13/97		70
		1/1/97		101		108
		12/31/96		32		110			10-K405,  10-K405/A
		12/30/96		30		100
		1/1/96		96		108
		2/27/95		47
		12/31/94		10		29
		10/24/94		10
		10/20/94		29
		7/8/94		50
		1/17/94		44
		6/3/92		69
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