GUARANTEE AND COLLATERAL AGREEMENT

SUPERPRIORITY DEBTOR-IN-POSSESSION GUARANTEE AND COLLATERAL AGREEMENT

by and among

BALLY TOTAL FITNESS HOLDING CORPORATION,

and certain of its Domestic Subsidiaries

and

MORGAN STANLEY SENIOR FUNDING, INC.,

as Collateral Agent

Dated as of August 22, 2007

TABLE OF CONTENTS

		Page
1.1 Definitions			2
1.2 Other Definitional Provisions			7
SECTION 2. GUARANTEE			7
2.1 Guarantee			7
2.2 Right of Contribution			8
2.3 Subordination of Subrogation			9
2.4 Amendments, etc. with respect to the Borrower Obligations			9
2.5 Guarantee Absolute and Unconditional			9
2.6 Payments			10
SECTION 3. PRIORITY AND LIENS			10
3.1 Superpriority Claims and Liens			10
3.2 Real Property			11
3.3 Set Off			12
3.4 Discharge			12
SECTION 4. GRANT OF SECURITY INTEREST			12
4.1 Grant of Security Interest			12
4.2 Formalities			13
SECTION 5. REPRESENTATIONS AND WARRANTIES			14
5.1 Representations in Credit Agreement			14
5.2 Power and Authority			14
5.3 Valid and Binding Obligation			14
5.4 Title; No Other Liens			14
5.5 Perfected First Priority Liens			14
5.6 Chief Executive Office			15
5.7 Inventory and Equipment			15
5.8 Farm Products			15
5.9 Pledged Securities			15
5.10 Receivables			16
5.11 Contracts			16
5.12 Intellectual Property			16
5.13 Leasehold Mortgages			17
5.14 Commercial Tort Claims			17
SECTION 6. COVENANTS			17
6.1 Covenants in Credit Agreement			17
6.2 Delivery of Instruments and Chattel Paper			17
6.3 Maintenance of Insurance			17
6.4 Payment of Obligations			17
6.5 Maintenance of Perfected Security Interest; Further Documentation			18
6.6 Changes in Locations, Name, etc			18

 i

		Page
6.7 Notices			19
6.8 Pledged Securities			19
6.9 [Reserved]			20
6.10 Intellectual Property			20
6.11 Receivables			21
6.12 Commercial Tort Claims			22
6.13 Opt-in			22
SECTION 7. REMEDIAL PROVISIONS			22
7.1 Certain Matters Relating to Receivables			22
7.2 Communications with Obligors; Grantors Remain Liable			23
7.3 Pledged Securities			23
7.4 Proceeds to be Turned Over To Collateral Agent			25
7.5 Application of Proceeds			25
7.6 Code and Other Remedies			25
7.7 Registration Rights			26
7.8 Waiver; Deficiency			27
SECTION 8. THE COLLATERAL AGENT			27
8.1 Collateral Agent’s Appointment as Attorney-in-Fact, etc.			27
8.2 Duty of Collateral Agent			29
8.3 Execution of Financing Statements			29
8.4 Authority of Collateral Agent			30
SECTION 9. MISCELLANEOUS			30
9.1 Amendments in Writing			30
9.2 Notices			30
9.3 No Waiver by Course of Conduct; Cumulative Remedies			30
9.4 Enforcement Expenses; Indemnification			30
9.5 Successors and Assigns			31
9.6 Counterparts			31
9.7 Severability			31
9.8 Section Headings			31
9.9 Integration			31
9.10 GOVERNING LAW			32
9.11 Submission To Jurisdiction; Waivers			32
9.12 Acknowledgements			32
9.13 WAIVER OF JURY TRIAL			32
9.14 Additional Grantors			33
9.15 Releases; Exercise of Remedies			33
9.16 Operating Bank Obligations			33

 ii

SUPERPRIORITY DEBTOR-IN-POSSESSION GUARANTEE AND COLLATERAL AGREEMENT

          SUPERPRIORITY DEBTOR-IN-POSSESSION GUARANTEE AND COLLATERAL AGREEMENT (as amended, supplemented or otherwise modified from time to time, the “ Agreement ”), dated as of August 22, 2007, made by BALLY TOTAL FITNESS HOLDING CORPORATION, a Delaware corporation and a debtor and debtor-in-possession in a case pending under Chapter 11 of the Bankruptcy Code (“ Borrower ”) and each of the other signatories hereto (together with Borrower and any other entity that may become a party hereto as provided herein, the “ Grantors ”), in favor of MORGAN STANLEY SENIOR FUNDING, INC., as Collateral Agent for the Secured Creditors (as defined below) (in such capacity, the “ Collateral Agent ”).

W I T N E S S E T H :

          WHEREAS, the Borrower, the Collateral Agent, the several lenders from time to time parties thereto (the “ Lenders ”), Morgan Stanley Senior Funding, Inc., as Administrative Agent, Wells Fargo Foothill, LLC, as Revolving Credit Agent and The CIT Group/Business Credit, Inc., as Revolving Syndication Agent, are parties to that certain Superpriority Debtor-in-Possession Credit Agreement, dated as of the date hereof (as amended, modified, restated or supplemented from time to time, the “ Credit Agreement ”);

          WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make loans to the Borrower upon the terms and subject to the conditions set forth therein;

          WHEREAS, the Borrower is a member of an affiliated group of companies that includes each other Grantor;

          WHEREAS, the proceeds of the extensions of credit under the Credit Agreement have been and will be used in part to enable the Borrower to make valuable transfers to one or more of the other Grantors in connection with the operation of their respective businesses;

          WHEREAS, the Borrower and the other Grantors are engaged in related businesses, and each Grantor has derived and will derive substantial direct and indirect benefit from the making of the extensions of credit under the Credit Agreement;

          WHEREAS, the Operating Banks (as defined in the Credit Agreement) have provided, and may from time to time provide, independently of the Lenders and the Credit Agreement, customary banking deposit, disbursement services and cash management services to the Borrower and/or its Subsidiaries in connection with the Demand Deposit Accounts (as defined in the Credit Agreement) established by the Borrower and/or its Subsidiaries with such Operating Banks;

          WHEREAS, it is a condition precedent to the obligations of the Lenders to make their respective Loans to the Borrower under the Credit Agreement that the Grantors shall have executed and delivered this Guarantee and Collateral Agreement to secure payment of the Obligations;

          WHEREAS, the grant of the security interest, pledge and Lien contained herein has been authorized pursuant to the Bankruptcy Code by the Final Order; and

          WHEREAS, to supplement the Final Order without in any way diminishing or limiting the effect of the Final Order or the security interest, pledge and Lien granted thereunder, the parties hereto desire to more fully evidence and set forth their respective rights in connection with such security interest, pledge and Lien.

          NOW, THEREFORE, in consideration of the premises and to induce the Lenders to make their respective extensions of credit to the Borrower under the Credit Agreement, each Grantor hereby agrees with the Collateral Agent, for the ratable benefit of the Secured Creditors, as follows:

               SECTION 1. DEFINED TERMS

          1.1 Definitions . (a) Definitions . Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement, and the following terms which are defined in the New York UCC are used herein as so defined: Certificated Security, Chattel Paper, Commercial Tort Claims, Deposit Accounts, Documents, Equipment, Farm Products, Goods, Instruments, Inventory, Investment Property, Letter-of-Credit Rights and Supporting Obligations.

     (b) The following terms shall have the following meanings:

     “ Accounts ”: as defined in the New York UCC including accounts, accounts receivable and other rights of any Grantor to payment for goods sold or leased or for services rendered, whether now existing or hereafter arising and wherever arising, and whether or not they have been earned by performance.

     “ Agreement ”: as defined in the preamble.

     “ Borrower Obligations ”: the collective reference to all loans, advances, Loans, debts, liabilities and monetary obligations owing to any Agent, any Lender, any Issuing Lender, any of the Interest Expense Hedging Agreement Counterparties or any of them or any of their respective successors and assigns, of any kind or nature, present or future, arising under this Agreement, the Credit Agreement or under any other Credit Document or under any Interest Expense Hedging Agreement with any of the Interest Expense Hedging Agreement Counterparties, whether or not for the payment of money, whether arising by reason of an extension of credit, opening or amendment of a letter of credit (or payment of any draft drawn thereunder), loan, guaranty, indemnification, or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest (whether or not such interest would be an allowed claim in a bankruptcy or similar proceeding against any Grantor), charges, expenses, fees, reasonable attorneys’ fees and disbursements and paralegals’ fees, and any other sums in each case to the extent chargeable to any Grantor under this Agreement or any other Credit Document.

     “ Carve-Out ”: as defined in Section 3.1.

     “ Carve-Out Trigger Notice ”: as defined in Section 3.1.

     “ Collateral ”: as defined in Section 4.1.

     “ Collateral Account ”: as defined in Section 7.1(b).

     “ Collateral Agent ”: as defined in the recitals.

     “ Contracts ”: all contracts and agreements to which the Grantor is a party on the date hereof or becomes a party subsequent to the date hereof, as the same may be amended, supplemented or otherwise modified from time to time, including, without limitation, (i) all rights of any Grantor to receive moneys due and to become due to it thereunder or in connection therewith, (ii) all rights of any Grantor to damages arising thereunder and (iii) all rights of any Grantor to perform and to exercise all remedies thereunder.

     “ Contractual Obligation ”: as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

     “ Copyright Licenses ”: any written agreement naming any Grantor as licensor or licensee (including, without limitation, those listed in Schedule 6 ), granting any right under any Copyright, including, without limitation, the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright.

     “ Copyrights ”: (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished (including, without limitation, those listed in Schedule 6 ), all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, and (ii) the right to obtain all renewals thereof.

     “ Credit Agreement ”: as defined in the recitals.

     “ Excluded Accounts ”: (i) any Demand Deposit Account or deposit account with an average daily balance of less than $500,000 individually or $2,000,000 in the aggregate for all such accounts, (ii) tax accounts, or (iii) payroll accounts.

     “ General Intangibles ”: all “general intangibles” as such term is defined in Section 9-102(a)(42) of the New York UCC and, in any event, including, without limitation, with respect to any Grantor, all contracts, agreements, instruments and indentures in any form, and portions thereof, to which such Grantor is a party or under which such Grantor has any right, title or interest or to which such Grantor or any property of such Grantor is subject, as the same may from time to time be amended, supplemented or otherwise modified, including, without limitation, (i) all rights of such Grantor to receive moneys due and to become due to it thereunder or in connection therewith, (ii) all rights of such

Grantor to damages arising thereunder and (iii) all rights of such Grantor to perform and to exercise all remedies thereunder.

     “ Grantor ”: as defined in the recitals.

     “ Guarantor Obligations ”: with respect to any Guarantor, the collective reference to (i) the Borrower Obligations and the Operating Bank Obligations and (ii) all obligations and liabilities of such Guarantor which may arise under or in connection with this Agreement or any other Credit Document to which such Guarantor is a party, in each case whether on account of guarantee obligations, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all reasonable fees and disbursements of counsel to the Collateral Agent, or to any other Secured Creditor) that are required to be paid by such Guarantor pursuant to the terms of this Agreement or any other Credit Document.

     “ Guarantors ”: the collective reference to each Grantor other than the Borrower.

     “ Intellectual Property ”: the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks and the Trademark Licenses, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.

     “ Intercompany Note ”: any promissory note evidencing loans made by any Grantor to the Borrower or any of its Subsidiaries.

     “ Issuers ”: the collective reference to each issuer of a Pledged Security.

     “ Lenders ”: as defined in the recitals.

     “ New York UCC ”: the Uniform Commercial Code as from time to time in effect in the State of New York.

     “ Obligations ”: (i) in the case of the Borrower, the Borrower Obligations and the Operating Bank Obligations and (ii) in the case of each Guarantor, its Guarantor Obligations.

     “ Patent License ”: all agreements, whether written or oral, providing for the grant by or to any Grantor of any right to manufacture, use or sell any invention covered in whole or in part by a Patent, including, without limitation, any of the foregoing referred to in Schedule 6 .

     “ Patents ”: (i) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof and all goodwill associated therewith, including, without limitation, any of the foregoing referred to in Schedule 6 , (ii) all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, including, without

limitation, any of the foregoing referred to in Schedule 6 , and (iii) all rights to obtain any reissues or extensions of the foregoing.

     “ Pledged LLC Interests ”: all interests in any limited liability company including, without limitation, all limited liability company interests listed on Schedule 2 under the heading “Pledged LLC Interests” (as such schedule may be amended or supplemented from time to time) and the certificates, if any, representing such limited liability company interests and any interest of such Grantor on the books and records of such limited liability company or on the books and records of any securities intermediary pertaining to such interest and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such limited liability company interests.

     “ Pledged Notes ”: all promissory notes listed on Schedule 2 under the heading “Pledged Notes” (as such schedule may be amended or supplemented from time to time), all Intercompany Notes at any time issued to any Grantor and all other promissory notes issued to or held by any Grantor (other than promissory notes issued in connection with extensions of trade credit by any Grantor in the ordinary course of business or any promissory note not otherwise required to be delivered hereunder).

     “ Pledged Partnership Interests ”: in each case, whether now existing or hereafter acquired, all of each Grantor’s right, title and interest in and to:

     (i) any Issuer listed on Schedule 2 under the heading “Pledged Partnership Interests” (as such schedule may be amended or supplemented from time to time), but not any of such Grantor’s obligations from time to time as a general or limited partner, as the case may be, in any such Issuer (unless the Collateral Agent or its designee, on behalf of the Secured Creditors, shall elect to become a general or limited partner, as the case may be, in any such Issuer in connection with its exercise of remedies pursuant to the terms hereof);

     (ii) any and all moneys due and to become due to such Grantor now or in the future by way of a distribution made to such Grantor in its capacity as a general partner or limited partner, as the case may be, in any such Issuer or otherwise in respect of such Grantor’s interest as a general partner or limited partner, as the case may be, in any such Issuer;

     (iii) any other Property of any such Issuer to which such Grantor now or in the future may be entitled in respect of its interests as a general partner or limited partner, as the case may be, in any such Issuer by way of distribution, return of capital or otherwise;

     (iv) any other claim or right which such Grantor now has or may in the future acquire in respect of its general or limited partnership interests in any such Issuer;

     (v) the partnership agreement or other organizational documents of any such Issuer;

     (vi) all certificates, options or rights of any nature whatsoever that may be issued or granted by any such Issuer to such Grantor while this Agreement is in effect; and

     (vii) to the extent not otherwise included, all Proceeds of any or all of the foregoing.

     “ Pledged Securities ”: the collective reference to the Pledged Notes, the Pledged Stock, the Pledged LLC Interests and the Pledged Partnership Interests.

     “ Pledged Stock ”: the shares of Capital Stock listed on Schedule 2 (as amended from time to time).

     “ Proceeds ”: all “proceeds” as such term is defined in Section 9-102(a)(64) of the New York UCC and, in any event, shall include, without limitation, all dividends or other income from the Pledged Securities, collections thereon or distributions or payments with respect thereto.

     “ Receivables ”: any right to payment for goods sold or leased or for services rendered, whether or not such right is evidenced by an Instrument or Chattel Paper and whether or not it has been earned by performance, including without limitation, any Account.

     “ Secured Creditors ”: the collective reference to, the Agents, the Lenders, the Issuing Lenders and the Operating Banks in their separate financial arrangements with Borrower, the Agents, the Lenders or the Issuing Lenders, and the Interest Expense Hedging Agreement Counterparties, each in connection with the Secured Obligations.

     “ Secured Obligations ”: the collective reference to (i) the Borrower Obligations, (ii) the Operating Bank Obligations and (iii) the Guarantor Obligations of all Guarantors.

     “ Securities Act ”: the Securities Act of 1933, as amended.

     “ Trademarks ”: (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, excluding “Intent to Use” filings, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common-law rights related thereto, including, without limitation, any of the foregoing referred to in Schedule 6 , and (ii) the right to obtain all renewals thereof.

     “ Trademark License ”: any agreement, whether written or oral, providing for the grant by or to any Grantor of any right to use any Trademark, including, without

limitation, any of the foregoing referred to in Schedule 6 ; excluding “Intent to Use” filings.

          1.2 Other Definitional Provisions . (a) The words “hereof,” “herein”, “hereto” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section and Schedule references are to this Agreement unless otherwise specified.

          (b) References to Exhibits and Schedules are to those to this Agreement, unless otherwise indicated.

          (c) References to agreements and other contractual instruments shall be deemed to include all exhibits and appendices attached thereto and all amendments, supplements and other modifications to such instruments, but only to the extent such amendments, supplements and other modifications are not prohibited by the terms of this Agreement or the Credit Agreement.

          (d) References to Persons include their respective permitted successors and assigns and, in the case of governmental authorities, Persons succeeding to their respective functions and capacities.

          (e) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

          (f) Where the context requires, terms relating to the Collateral or any part thereof, when used in relation to a Grantor, shall refer to such Grantor’s Collateral or the relevant part thereof.

          (g) The phrase “on the date hereof” and similar phrases shall mean August 22, 2007.

SECTION 2. GUARANTEE

          2.1 Guarantee . (a) Each of the Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantees to the Collateral Agent, for the benefit of (i) any other agent under the Credit Agreement, (ii) each Lender, and (iii) each Interest Expense Hedge Agreement Counterparty (collectively, the “ Beneficiaries ” and each a “ Beneficiary ”), the prompt and complete payment and performance by Borrower when due (whether at the stated maturity, by acceleration or otherwise) of the Borrower Obligations, and each of the Guarantors further agrees to pay any and all reasonable costs and out-of-pocket expenses (including, without limitation, reasonable fees and out of pocket expenses of counsel) which may be paid or incurred by the Collateral Agent in enforcing, or obtaining advice of counsel in respect of, any rights with respect to, or collecting, any or all of the Borrower Obligations and/or enforcing any rights with respect to, or collecting against, the Guarantors under the provisions of this Section 2.

          (b) Anything herein or in any other Credit Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Credit

Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws relating to the insolvency of debtors (after giving effect to the right of contribution established in Section 2.2).

          (c) Each Guarantor agrees that the Borrower Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the Collateral Agent or any Operating Bank hereunder.

          (d) The guarantee contained in this Section 2 shall remain in full force and effect until all the Borrower Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 (other than contingent indemnification obligations for which no claim has been asserted) shall have been satisfied by payment in full, no Letter of Credit shall be outstanding (unless such Letter of Credit shall have been cash collateralized, returned or backstopped in accordance with the Credit Agreement) and the Commitments shall be terminated, notwithstanding that from time to time during the term of the Credit Agreement the Borrower may be free from any Borrower Obligations.

          (e) No payment made by the Borrower, any of the Guarantors, any other guarantor or any other Person or received or collected by the Collateral Agent or any Lender from the Borrower, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Borrower Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Borrower Obligations or any payment received or collected from such Guarantor in respect of the Borrower Obligations), remain liable for the Borrower Obligations up to the maximum liability of such Guarantor hereunder until the Borrower Obligations (other than contingent indemnification obligations for which no claim has been asserted) are paid in full, no Letter of Credit shall be outstanding (unless such Letter of Credit shall have been cash collateralized, returned or backstopped in accordance with the Credit Agreement) and the Commitments are terminated.

          (f) Each Guarantor agrees that whenever, at any time, or from time to time, it shall make any payment to any Beneficiary on account of its liability hereunder, it will promptly notify the Collateral Agent in writing that such payment is made under this Section 2 for such purpose.

          2.2 Right of Contribution . Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor’s right of contribution shall be subject to the terms and conditions of Section 2.3. The provisions of this Section 2.2 shall in no respect limit the obligations and liabilities of any Guarantor to the Collateral Agent and the Lenders, and each Guarantor shall remain liable to the Collateral Agent and the Lenders for the full amount guaranteed by such Guarantor hereunder.

          2.3 Subordination of Subrogation . Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Collateral Agent or any Operating Bank, each Guarantor agrees not to exercise any right of subrogation to any of the rights of the Collateral Agent or any Lender against the Borrower or any other Guarantor or any collateral security or guarantee or right of offset held by the Collateral Agent or any Lender for the payment of the Borrower Obligations, each Guarantor agrees not to seek or be entitled to seek any contribution or reimbursement from the Borrower or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Collateral Agent and the Lenders by the Borrower on account of the Borrower Obligations (other than contingent indemnification obligations for which no claim has been asserted) are paid in full, no Letter of Credit shall be outstanding (unless such Letter of Credit shall have been cash collateralized, returned or backstopped in accordance with the Credit Agreement) and the Commitments are terminated. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Borrower Obligations shall not have been paid in full (other than contingent indemnification obligations for which no claim has been asserted), such amount shall be held by such Guarantor in trust for the Collateral Agent and the Lenders, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Collateral Agent in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Collateral Agent, if required), to be applied against the Borrower Obligations in accordance with the terms of the Credit Agreement.

          2.4 Amendments, etc. with respect to the Borrower Obligations . Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Borrower Obligations made by the Collateral Agent or any Lender may be rescinded by the Collateral Agent or such Lender and any of the Borrower Obligations continued, and the Borrower Obligations or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Collateral Agent or any Lender, and the Credit Agreement, any other Credit Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Collateral Agent (or the Majority Lenders under the Credit Agreement or all Lenders, as the case may be) may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Collateral Agent or any Lender for the payment of the Borrower Obligations may be sold, exchanged, waived, surrendered or released. Neither the Collateral Agent nor any Lender shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Borrower Obligations or for the guarantee contained in this Section 2 or any property subject thereto.

          2.5 Guarantee Absolute and Unconditional . Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Borrower Obligations and notice of or proof of reliance by the Collateral Agent or any Lender upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Borrower Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Borrower and any of the Guarantors, on the one

hand, and the Collateral Agent and the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Borrower or any of the Guarantors with respect to the Borrower Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity or enforceability of the Credit Agreement or any other Credit Document, any of the Borrower Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Collateral Agent or any Lender, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the Borrower or any other Person against the Collateral Agent or any Lender, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Borrower or such Guarantor (other than payment or performance in full of the Secured Obligations)) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Borrower for the Borrower Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Collateral Agent or any Lender may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against the Borrower, any other Guarantor or any other Person or against any collateral security or guarantee for the Borrower Obligations or any right of offset with respect thereto, and any failure by the Collateral Agent or any Lender to make any such demand, to pursue such other rights or remedies or to collect any payments from the Borrower, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Borrower, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Collateral Agent or any Lender against any Guarantor. For the purposes hereof “demand” shall include the commencement and continuance of any legal proceedings.

          2.6 Payments . Each Guarantor hereby guarantees that payments hereunder will be paid to the Collateral Agent without set-off or counterclaim in Dollars at the office of the Collateral Agent located at 1585 Broadway, Floor 2, New York, New York 10036.

SECTION 3. PRIORITY AND LIENS

          3.1 Superpriority Claims and Liens . Each Grantor hereby covenants, represents and warrants that, upon entry of the Final Order, the Obligations of the Grantors under the Credit Documents: (i) pursuant to Section 364(c)(1) of the Bankruptcy Code, shall at all times constitute joint and several allowed administrative expense claims in the Cases having priority over all administrative expenses of the kind specified in Sections 503(b), 507(a) or 507(b) of the Bankruptcy Code; (ii) pursuant to Section 364(c)(2) of the Bankruptcy Code, shall at all times be secured by a perfected first priority Lien on all tangible and intangible property of the Grantors that is not subject to Existing Liens or post-petition Liens permitted hereunder that secure (A) post-petition Capitalized Leases or purchase money financings permitted to be entered into under

the Credit Agreement or (B) obligations not to exceed $4 million, owing to JPMorgan Chase, N.A., in connection with procurement card obligations and the cash management system of the Grantors (collectively, “Cash Management Obligations”); (iii) pursuant to Section 364(c)(3) of the Bankruptcy Code, shall be secured by a perfected Lien upon all tangible and intangible property of the Grantors that is subject to Existing Liens and to post-petition Liens permitted hereunder that secure post-petition Capitalized Leases or purchase money financings permitted to be entered into hereunder or Cash Management Obligations, junior to such Existing Liens and the Liens granted in connection with such Cash Management Obligations, Capitalized Leases and purchase money financings; and (iv) pursuant to Section 364(d)(1) of the Bankruptcy Code, shall be secured by a perfected first priority, senior priming Lien on all of the tangible and intangible property of Grantors that is subject to existing Liens that secure the Grantors’ Debt and other obligations under the Prepetition Facility and any Liens that are junior thereto (but subject to any Existing Liens to which the Liens being primed hereby are subject or become subject subsequent to the Filing Date as permitted by Section 546(b) of the Bankruptcy Code), including any Liens granted on or after the Filing Date to provide adequate protection in respect of the Prepetition Facility ( provided , that notwithstanding anything to the contrary in clauses (a)(ii) to (a)(iv) herein, in no event shall the Obligations be secured by any pledge in excess of 65% of the capital stock of its direct foreign subsidiaries or any of the capital stock or interests of indirect foreign subsidiaries (if adverse tax consequences could result to the Grantors) or joint ventures interest (if otherwise prohibited or requiring the consent of any third party)); in the case of each of clauses (i) through (iv) subject only to (x) on and after delivery of notice by the applicable Agent to the Borrower that an Event of Default has occurred and the Lenders desire to trigger the Carve-Out (a “ Carve-Out Trigger Notice ”), the payment of allowed and unpaid professional fees and disbursements incurred by the Grantors, any statutory committees appointed in the Cases, and the adhoc noteholders’ committee, on or after the date of delivery of the Carve-Out Trigger Notice in an aggregate amount not in excess of $5,000,000 plus the amount of unpaid professional fees and expenses incurred by the Grantors prior to the date of delivery of the Carve-Out Trigger Notice and (y) the payment of fees pursuant to 28 U.S.C. § 1930 ((x) and (y), together, the “ Carve-Out ”), provided that , except as otherwise provided in the Final Order, no portion of the Carve- Out shall be utilized for the payment of professional fees and disbursements incurred in connection with any challenge to the amount, extent, priority, validity, perfection or enforcement of the indebtedness of the Grantors owing to the lenders, agents or indemnified parties under the Facility or to the collateral securing the Facility. The Lenders agree that so long as no Event of Default shall have occurred and be continuing, the Grantors shall be permitted to pay compensation and reimbursement of expenses allowed and payable under 11 U.S.C. § 330 and 11 U.S.C. § 331, as the same may be due and payable, and the same shall not reduce the Carve-Out. The foregoing shall not be construed as a consent to the allowance of any fees and expenses referred to above and shall not affect the right of the Agents and the Lenders to object to the allowance and payment of such amounts.

          3.2 Real Property . Subject in all respects to terms of the Final Order, the priorities set forth in Section 3.1 above and to the Carve-Out, the Grantors grant to the Collateral Agent on behalf of the Secured Creditors a security interest in, and mortgage on, all of the right, title and interest of the Grantors in all real property owned by the Grantors, together in each case with all of the right, title and interest of the Grantors in and to all buildings, improvements, and fixtures related thereto, all general intangibles relating thereto and all proceeds thereof. Each Grantor acknowledges that, pursuant to the Final Order, the Liens in favor of the Collateral

Agent on behalf of the Secured Creditors in all of such owned real property shall be perfected without the recordation of any instruments of mortgage or assignment. Each Grantor agrees that, upon the request of the Collateral Agent, such Grantor shall promptly enter into separate fee or leasehold mortgages in recordable form with respect to such properties on terms reasonably satisfactory to the Collateral Agent.

          3.3 Set Off . Subject to Article VIII of the Credit Agreement, upon the occurrence and during the continuance of any Event of Default, each Agent and each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law and without further order of or application to the Bankruptcy Court, to set off and apply any and all deposits (general or special, time or demand, provisional or final) (other than payroll, trust and tax accounts) at any time held and other indebtedness at any time owing by each such Agent and each such Lender to or for the credit or the account of any Grantor against any and all of the obligations of such Grantor under the Credit Documents, whether or not such obligations are then due. The rights of each Secured Creditor under this Section 3.3 are in addition to other rights and remedies which such they may have upon the occurrence and during the continuance of any Event of Default under the Credit Documents and the Final Order.

          3.4 Discharge . Each Grantor agrees that (i) its obligations hereunder shall not be discharged by the entry of an order confirming the Plan of Reorganization (and Borrower and each Guarantor, pursuant to Section 1141(d)(4) of the Bankruptcy Code, hereby waives any such discharge) and (ii) the Superpriority Claim granted to the Agents and the Lenders pursuant to the Final Order and described in Section 3.1 and the Liens granted to the Collateral Agent pursuant to the Final Order and the Collateral Documents shall not be affected in any manner by the entry of an order confirming the Plan of Reorganization.

SECTION 4. GRANT OF SECURITY INTEREST

          4.1 Grant of Security Interest . Each Grantor hereby grants to the Collateral Agent, for the benefit of the Secured Creditors, a security interest in all of the following property now owned or at any time acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the “ Collateral ”), as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of such Grantor’s Obligations:

     (a) all Accounts; all Deposit Accounts; all Letter-of-Credit Rights; all Supporting Obligations;

     (b) all Chattel Paper;

     (c) all Commercial Tort Claims as described on Schedule 3 (as amended from time to time);

     (d) all Contracts;

     (e) all Documents;

     (f) all Equipment;

     (g) all General Intangibles;

     (h) all Instruments;

     (i) all Intellectual Property;

     (j) all Inventory;

     (k) all Investment Property;

     (l) all Pledged Securities;

     (m) all Receivables;

     (n) all Goods;

     (o) all books and records pertaining to the Collateral; and

     (p) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing.

     Anything herein to the contrary notwithstanding, the term “Collateral” and any other defined term constituting part of the Collateral shall not include (i) any of the outstanding capital stock of a direct Foreign Subsidiary in excess of 65% of the voting power of all classes of capital stock of such Foreign Subsidiary entitled to vote or any of the capital stock or interests of any indirect Foreign Subsidiary (if, in either case, adverse tax consequences could result to the Grantors) or joint ventures interest (if otherwise prohibited or requires the consent of any third party), (ii) any of the outstanding capital stock of Lincoln Indemnity Company, and (iii) any claim or cause of action under sections 502(d), 544, 545, 547, 548, 550 or 551 of the Bankruptcy Code (“ Avoidance Actions ”), provided that any Proceeds from Avoidance Actions shall be included in the Collateral.

     Notwithstanding the foregoing, the Grantors shall not have any obligation to perfect the Collateral Agent’s interest in Intellectual Property outside the United States under this Agreement or any other Credit Document.

          4.2 Formalities . (a) Stock Powers . Concurrently with the delivery to the Collateral Agent of each certificate representing one or more shares of Pledged Stock to the Collateral Agent, the Grantor owning such Pledged Stock shall deliver an undated stock power covering such certificate, duly executed in blank by such Grantor.

          (b) Powers; Registration of Partnership Pledge . Concurrently with the delivery to the Collateral Agent of any certificate representing any Pledged LLC Interests or Pledged

Partnership Interests, the Grantor owning such Pledged LLC Interests or Pledged Partnership Interests shall, if requested by the Collateral Agent, deliver an undated power covering such certificate, duly executed in blank by such Grantor.

SECTION 5. REPRESENTATIONS AND WARRANTIES

          To induce the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrower thereunder, each Grantor hereby represents and warrants to each Secured Creditor that:

          5.1 Representations in Credit Agreement . In the case of each Guarantor, the representations and warranties set forth in Article V and Section 2.21 of the Credit Agreement as they relate to such Guarantor or to the Credit Documents to which such Guarantor is a party, each of which is hereby incorporated herein by reference, are true and correct in all material respects, and the Secured Creditors shall be entitled to rely on each of them as if they were fully set forth herein, provided that each reference in each such representation and warranty to the Borrower’s knowledge shall, for the purposes of this Section 5.1, be deemed to be a reference to such Guarantor’s knowledge.

          5.2 Power and Authority . Upon entry of the Final Order, each Grantor has the corporate or limited liability company power and authority and the legal right to execute and deliver, to perform its obligations under, and to grant the Lien on the Collateral pursuant to, this Agreement and has taken all necessary corporate or limited liability company actions to authorize its execution, delivery and performance of, and grant of the Lien on the Collateral pursuant to, this Agreement.

          5.3 Valid and Binding Obligation . Upon the entry by the Bankruptcy Court of the Final Order, each Grantor is duly authorized to execute and deliver this Agreement to the Collateral Agent, and this Agreement constitutes the legal, valid and binding obligation of each Grantor, enforceable against such Grantor in accordance with its terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law).

          5.4 Title; No Other Liens . Except for the security interest granted to the Collateral Agent for the benefit of the Secured Creditors pursua