pre14a
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to Section 240.14a-11c or Section 240.14a-12 |
BALLY TOTAL FITNESS HOLDING CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Payment of Filing Fee (Check the appropriate box): |
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Title of each class of securities to which transaction applies: |
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Aggregate number of securities to which transaction applies: |
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount |
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on which the filing fee is calculated and state how it was determined): |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify
the filing for which the offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of its filing. |
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Form, Schedule or Registration Statement No.: |
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Date Filed: |
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BALLY TOTAL FITNESS HOLDING CORPORATION
8700 West Bryn Mawr Avenue
Chicago, Illinois 60631
Notice of Annual Meeting of Stockholders
To Be Held January 26, 2006
To our Stockholders:
The annual meeting of stockholders of Bally Total Fitness Holding Corporation (the Company)
will be held at 8:30 a.m. (local time) on January 26, 2006 at
the Renaissance Chicago OHare Hotel, 8500 West Bryn Mawr Avenue, Chicago, Illinois for the following purposes:
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The election of three Class III Directors for three-year terms expiring in 2008 (Item 1 on
the white proxy card); |
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To vote on the approval of the 2006 Omnibus Equity Compensation Plan (Item 2 on the white
proxy card); |
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To ratify the appointment of KPMG LLP as independent auditor for the Company for the fiscal
year ending December 31, 2005 (Item 3 on the white proxy card);
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To vote on a stockholder proposal regarding the repeal of certain provisions of, or
amendments to, the Companys by-laws (the Pardus
Proposal), if such proposal is presented at the meeting (Item 4 on the white proxy card); and |
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To vote on the Liberation Proposal, if properly brought before the meeting, and such other business as may properly come before the annual meeting or any adjournment thereof. |
THE COMPANYS BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITEMS 1, 2 AND 3 ON THE WHITE PROXY
CARD. THE COMPANYS BOARD OF DIRECTORS RECOMMENDS THAT YOU ABSTAIN WITH RESPECT TO ITEM
4 ON THE WHITE PROXY CARD.
Stockholders of record as of the close of business on December 20, 2005 will be entitled to
notice of and to vote at the annual meeting and any adjournment thereof. The transfer books will
not be closed.
The Board of Directors of Bally desires to have the maximum stockholder representation at the
annual meeting and respectfully requests that you vote either via the internet, touch-tone
telephone or execute, date and return promptly the enclosed white proxy card in the postage-paid
envelope provided. In order to attend the annual meeting, you must bring the enclosed entrance pass
with you. No one will be admitted without the entrance pass.
By order of the Board of Directors,
Marc D. Bassewitz, Secretary
Chicago, Illinois
December ___, 2005
YOUR VOTE IS IMPORTANT!
PLEASE EXECUTE, DATE AND RETURN PROMPTLY THE ENCLOSED
WHITE PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED OR
VOTE VIA THE INTERNET OR TOUCH-TONE TELEPHONE.
BALLY TOTAL FITNESS HOLDING CORPORATION
8700 West Bryn Mawr Avenue
Chicago, Illinois 60631
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held January 26, 2006
This proxy statement and the accompanying white proxy card are being furnished in connection
with the solicitation of proxies by the Board of Directors of Bally Total Fitness Holding
Corporation, a Delaware corporation (Bally or the Company), for use at the annual meeting of
stockholders to be held on January 26, 2006 at 8:30 a.m. (local time) and at any postponement or
adjournment of the meeting. This statement and the accompanying white proxy card are being mailed
to stockholders beginning on or about December ___, 2005.
ABOUT THE MEETING
What is the purpose of the Annual Meeting?
At the annual meeting, stockholders will elect three Class III Directors, vote on the
2006 Omnibus Equity Compensation Plan, vote on a proposal to ratify KPMG LLP as the Companys
independent auditor, vote on the Pardus Proposal which is described
on p. 40, if properly
introduced at the meeting, act upon the Liberation Proposal described
on p. 41-43, if properly brought before the meeting and act upon anything else that properly comes before the meeting. In
addition, after the meeting, there will be a brief presentation by the Chairman of the Board and a
general discussion period during which stockholders will have an opportunity to ask questions.
Who is entitled to vote?
Only stockholders of record at the close of business on the record date, December 20,
2005, are entitled to receive notice of the annual meeting and to vote the shares of common stock
that they held on that date at the meeting and any postponement or adjournment of the meeting. Each
outstanding share entitles its holder to cast one vote on each matter to be voted upon.
Who can attend the meeting?
All stockholders as of the record date, or their duly appointed proxies, may attend the
meeting. Registration will begin at 7:30 a.m. Central Time. In order to attend the annual meeting,
you must bring your entrance pass.
What are the Boards recommendations?
The Board of Directors (or the Board) recommends you:
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vote FOR the election of each Class III nominee; |
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vote FOR the adoption of the 2006 Omnibus Equity Compensation Plan; |
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vote FOR the ratification of KPMG LLP as the Companys independent auditor; and |
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ABSTAIN with respect to the Pardus Proposal. |
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vote FOR granting to the proxies discretion on the Liberation Proposal if properly brought before
the meeting and all other matters as may properly come before the meeting. |
What vote is required to approve each item?
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Election of Directors. The affirmative vote of the
holders of a majority of the shares represented in
person or by proxy at the meeting and entitled to vote
on the election of Directors will be required for the
election of Directors. A properly executed proxy marked
WITHHOLD ALL with respect to the election of one or
more Directors will not be voted with respect to the
Director or Directors indicated, although it will be
counted for purposes of determining whether there is a
quorum. |
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Approval of New Equity Plan. The affirmative vote of
the holders of a majority of the shares represented in
person or by proxy at the meeting and entitled to vote
will be required for approval of the 2006 Omnibus
Equity Compensation Plan. The rules of the New York
Stock Exchange (NYSE) further require that at least a
majority of the votes of shares of common stock
entitled to vote must be cast with respect to the
approval of the new equity plan. Pursuant the rules of
the NYSE, a broker may not vote on the adoption of or a
material amendment to an equity compensation plan such
as the 2006 Omnibus Equity Compensation Plan without
instruction from the beneficial owner of the shares
held by such broker. Such broker non-votes will not be
considered present for purpose of calculating a
majority and, therefore, will have no effect on the
outcome of the vote, except to the extent a broker
non-vote is not counted as a vote cast for purposes
of the NYSE majority vote requirement. Thus, if a
majority of the shares entitled to vote are recorded as
broker non-votes on this proposal, the broker non-votes
would prevent us from satisfying the NYSE requirement
that over 50% of the shares entitled to vote on the
proposal must actually be cast on the proposal. |
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Ratification of Auditors. The affirmative vote of the
holders of a majority of the shares represented in
person or by proxy at the meeting and entitled to vote
will be required for the ratification of KPMG as the
Companys independent auditor. The Companys By-Laws do
not require the Company to submit this proposal to the
stockholders; however, the Board of Directors believes
that it is of sufficient importance to seek
ratification. Whether the proposal is approved or
defeated, the Board of Directors will reconsider its
selection of KPMG. |
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Stockholder Proposal. The affirmative vote of the
holders of a majority of the shares represented in
person or by proxy at the meeting and entitled to vote
will be required for approval of the Pardus Proposal. |
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Other Items. For each other item which properly comes
before the meeting, if any, including the Liberation Proposal, the affirmative vote of the
holders of a majority of the shares represented in
person or by proxy at the meeting and entitled to vote
on the item will be required for approval. |
What should I do with the GREEN proxy card I may receive from certain of the Companys shareholders?
On December 5, 2005, Pardus European Special Opportunities Master Fund L.P. (Pardus) and
certain of affiliates filed a preliminary proxy statement on Schedule 14A with the Securities and
Exchange Commission (SEC) for the purpose of proposing and soliciting proxies in support of a
slate of three nominees, Charles J. Burdick, Barry R. Elson and Don R. Kornstein, to stand for
election to the Companys Board at the Annual Meeting and a binding resolution to repeal certain
provisions or amendments of the By-Laws of the Company. Pardus indicated it would solicit proxies
on a GREEN proxy card.
Ballys Board recommends that you discard the GREEN proxy card. The Board recommends that you
sign, date and return the WHITE proxy card. If you have already returned a GREEN proxy card, you
can effectively revoke it by signing, dating and returning the WHITE proxy card.
What happens if I submit a proxy card without giving specific voting instructions?
Unless you give other instructions on your white proxy card, the persons named as proxy
holders on the white proxy card will vote your shares as recommended by the Board of Directors.
With respect to any other matters that properly come before the meeting, the proxy holders will
vote using their own discretion. If you hold your shares in street name through a broker or
other nominee, your broker or nominee may not be permitted to exercise voting discretion with
respect to some of the matters to be acted upon. Thus, if you do not give your broker or nominee
specific instructions, your shares may not be voted on those matters. Shares represented by such
broker non-votes will, however, be counted in determining whether there is a quorum.
3
What constitutes a quorum?
The presence at the meeting, in person or by proxy, of the holders of a majority of the
common stock outstanding on December 20, 2005 will constitute a quorum, permitting the meeting to
conduct its business. As of the record date, [ ] shares of common stock were outstanding.
Therefore, [ ] shares represents a majority of the
common stock outstanding on December 20, 2005. Proxies received but marked as abstentions and
broker non-votes will be included in the calculation of the number of shares considered to be
present at the meeting.
Will abstentions affect the voting results?
A properly executed proxy marked ABSTAIN with respect to any matter will not be voted with
respect to such matter, although it will be counted for purposes of determining whether there is a
quorum. Accordingly, an abstention will have the effect of a negative vote with respect to any
matter requiring a majority of shares entitled to vote.
How do I vote?
If you complete and properly sign the accompanying white proxy card and return it to
LaSalle Bank N.A., our transfer agent and registrar, it will be voted as you instruct on the white
proxy card. If you attend the meeting, you may deliver your completed white proxy card in person,
or you may vote in person. You may also vote via the internet by accessing the World Wide Web site
http://www.eproxyvote.com/bft/ or by touch-tone telephone by dialing 1-866-207-3912 and following
the instructions. You may vote via the internet or telephone any time prior to 11:59 p.m. Central
Time, January 25, 2006.
Who will count the vote?
At the meeting, the results of stockholder voting will be tabulated by LaSalle Bank N.A., the
independent inspector of elections appointed by Bally for the meeting.
Can I change my vote or revoke my proxy after I return my proxy card?
Yes. Even after you have submitted your proxy, you may change your vote at any time
before the proxy is exercised by filing with the Secretary of Bally either a notice of revocation
or a duly executed proxy bearing a later date. If you vote in person at the meeting, your proxy
will be revoked. However, attendance at the meeting will not by itself revoke a previously granted
proxy.
Explanatory Note
Because the Company was in the process of restating its financial statements, we did not hold
our 2005 annual meeting earlier in 2005. Now that we have filed our Annual Report on Form 10-K for
the year ended December 31, 2004 as well as Quarterly Reports on Form 10-Q for the periods ended
June 30, 2004, September 30, 2004, March 31, 2005, June 30, 2005 and September 30, 2005, we are
able to hold our annual meeting. Given the length of time since the last annual meeting and the
January 26, 2006 date for the annual meeting, this proxy statement contains information for 2004
and information as of the latest practicable date for 2005. Complete information for 2005 will not
exist at the time of mailing and, given the proximity of the Annual Meeting to the end of 2005, the
Company could not, without unreasonable effort and expense, obtain complete information for 2005
prior to the Annual Meeting. Consequently, we will not have audited
financial statements available for the year ended December 31, 2005 prior to the Annual Meeting. If necessary, we will supplement this proxy statement at a reasonable
time after additional information for 2005 becomes available.
4
ELECTION OF DIRECTORS AND SECURITY OWNERSHIP
Proposal 1 Election of Directors
At the annual meeting, three Class III Directors are to be elected to serve for three-year
terms expiring in 2008 or until their successors have been duly elected and qualified. Set forth
below are the names of, and certain information with respect to, the persons nominated by the Board
of Directors for election as Class III Directors. It is intended that all duly executed or duly
tendered proxies in the accompanying form will be voted for the election of such nominees (or such
substitute nominees as provided below), unless such authorization has been withheld.
Authority granted to the persons named in the proxy to vote for the nominees is limited to the
three nominees proposed by the Board of Directors and named below, and proxies cannot be voted for
a greater number of persons than the number of nominees named. The Board of Directors is not aware
that any of the nominees will be unavailable for service at the date of the annual meeting. The
Company has a Nominating and Corporate Governance Committee and all nominations are approved by the
Board of Directors. The Board of Directors recommends that its three nominees for directors be
elected at the Annual Meeting. The nominees are Eric Langshur, Charles J. Burdick and Barry R.
Elson. Each of these nominees has consented to serve as a director if elected and has provided the Company with the information relating to them
that is required to be included in this proxy statement. Mr. Langshur currently serves as a
director of the Company, and has served as a director of the Company since 2004.
On November 17, 2005, Pardus, a stockholder of the Company that, according to filings made
with the SEC pursuant to Section 13(d), 13(g) and 14(a) of the Securities Exchange Act of 1934, as
amended and the attendant regulations (the Exchange Act), beneficially owns more than 5% of the
Companys common stock, nominated Charles J. Burdick, Barry R. Elson and Don R. Kornstein for
election to the Board. Mr. Burdick serves on the Pardus Capital Management (PCM) advisory board
and Mr. Kornstein was a part of Emannuel Pearlmans (a principal of Liberation Investments, L.P.and
its affiliates) insurgent board slate for Intertan, Inc. In addition, from 1994 until 2000, Mr.
Kornstein served as the Chief Executive Officer, President, and director of Jackpot Enterprises,
Inc., a company with which Emanuel Pearlman, a principal of Liberation was also involved as a
financial and strategic development advisor. Although the Company and Pardus have been in
discussions concerning the nominees, they have not reached an agreement on a slate of directors to
present for election at the upcoming annual meeting. The Company has nominated Mr. Burdick and Mr.
Elson, but has decided not to present Mr. Kornstein for election, due in part to the concern given
the relationship of Mr. Kornstein to Liberation and Mr. Burdicks relationship to Pardus, that the
interests of all shareholders and not just a particular constituency or constituencies are better
served by a slate which includes Mr. Langshur in lieu of Mr. Kornstein. We also believe that our
stockholders should be aware that Pardus has indicated an interest in participating in or leading a
recapitalization transaction involving the Company, and Messrs. Burdick and Elson may have a
conflict of interest in connection with any such transaction because of their nomination by Pardus
and Mr. Burdick also by virtue of his presence on the PCM advisory board . It is not known whether
the Company and Pardus will have further discussions with respect to the slate of directors.
If any nominee becomes unavailable for any reason or should a vacancy occur before the
election, the proxies will be voted for the election of such
other person as a director as the Board of Directors may recommend.
In general, beneficial ownership includes those shares a stockholder has the power to vote
or transfer and stock options that are exercisable currently or within 60 days. Unless otherwise
indicated, all information with respect to ownership of common stock is as of December 5, 2005. On
December 5, 2005, Bally had outstanding 38,094,479 shares of common stock. The Common Shares Owned
column may include, in certain circumstances, shares of common stock held in the name of the
Directors or executive officers spouse, minor children, or relatives sharing the Directors or
executive officers home, the reporting of which is required by applicable rules of the Securities
and Exchange Commission (the SEC), but as to which shares of common stock the Director or
executive officer may have disclaimed beneficial ownership. As used in the following tables, an
asterisk in the Percentage of Outstanding Stock column means less than 1%.
Information regarding each of the nominees proposed by the Board of Directors for election as
Class III directors, along with information concerning the present Class I and Class II continuing
directors of the Company, is set forth below:
Nominees
CLASS III Term Expiring at the Annual Meeting in 2008
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Common |
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Options |
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Percentage of |
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Beneficial |
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Outstanding |
Name |
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Owned |
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Within 60 Days |
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Ownership |
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Stock |
Eric Langshur |
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1,667 |
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1,667 |
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Charles J. Burdick |
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Barry R. Elson |
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5
Directors Continuing in Office
CLASS I Term Expiring at the Next Succeeding Annual Meeting
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Common |
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Options |
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Total |
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Percentage of |
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Exercisable |
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Beneficial |
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Outstanding |
Name |
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Owned |
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Within 60 Days |
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Ownership |
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Stock |
Paul Toback |
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135,000 |
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253,334 |
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388,334 |
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1 |
% |
Barry M. Deutsch |
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5,300 |
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1,667 |
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6,967 |
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Steven S. Rogers |
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CLASS II Term Expiring at the Annual Meeting in 2007
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Common |
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Options |
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Total |
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Percentage of |
Name, Age, Principal Occupation |
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Exercisable |
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Beneficial |
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Outstanding |
and Additional Information |
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Owned |
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Within 60 Days |
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Ownership |
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Stock |
James F. McAnally, M.D. |
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12,500 |
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20,000 |
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32,500 |
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John W. Rogers, Jr. |
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10,000 |
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3,333 |
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13,333 |
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Adam Metz |
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Director Nominees
Eric Langshur, age 42, has served as a Director since December 2004. Mr. Langshur is the
Founder and Chief Executive Officer of TLContact, Inc., a privately held company that delivers
innovative patient communication and education services to the
healthcare industry.
Prior to starting TLContact in 2000, he served as President of Bombardier Aerospace, CAS, where he
led commercial aerospace service operations for a world leader in the design and manufacture of
innovative aviation products and services for the business, regional and amphibious aircraft
markets. Prior to serving at Bombardier, Mr. Langshur spent 13 years with United Technologies Corporation, where
he held a variety of senior management and turnaround positions at Hamilton Sundstrand, Pratt &
Whitney and United Technologies corporate office. Mr. Langshur currently serves as Chairman of
Ballys Audit Committee.
Charles J. Burdick, age 54, is not currently serving as a Director. Mr. Burdick is a member
of the advisory board of Pardus Capital Management, L.P., a hedge fund, and a non executive
director of Singer & Friedlander, a financial services group. From January 2005 until summer of
2005, he was the Chief Executive Officer of HIT Entertainment Plc, a provider of pre-school
childrens entertainment. From 1996 until 2002, he was the Chief Financial Officer and then from
August 2002 until July 2004 he was the Chief Executive Officer and a director of Telewest
Communications, a cable company. Mr. Burdick was nominated by Pardus European Special
Opportunities Fund, L.P., a stockholder of the Company that, according to filings made with the SEC
pursuant to Section 13(d), 13(g) and 14(a) of the Exchange Act, beneficially owns more than 5% of the Companys
common stock.
Barry R. Elson, age 64, is not currently serving as a Director. Mr. Elson is the Acting Chief
Executive Officer and a director of Telewest Global, Inc., a provider of entertainment and
communication services. Mr. Elson became Chairman and a director of Telewest in November and then
in February 2004 he resigned as Chairman, although not as a director, and was appointed as the
Acting Chief Executive Officer of Telewest Communications and the Acting Chief Executive Officer of
Telewest Global, Inc. From July 2001 to October 2003, he was the President of Pilot Associates, a
management consulting/coaching firm. From November 2000 to June 2001, he was Chief Operating
Officer of Urban Media, a competitive local exchange carrier. Mr. Elson was nominated by Pardus
European Special Opportunities Fund, L.P., a stockholder of the Company that, according to filings
made with the SEC pursuant to Section 13(d), 13(g) and 14(a) of the Exchange Act, beneficially owns
more than 5% of the Companys common stock.
The Companys Board of Directors recommends a vote FOR the election of the nominees for Class
III Director named above.
6
Continuing Directors
Paul
A. Toback, age 42, was named Chairman of the Board in
May 2003 and joined the Board as a
Director in March 2003 and President and Chief Executive Officer since December 2002. He was
Executive Vice President from February 2002 to December 2002, Chief Operating Officer from June 2001 to December 2002 and
Senior Vice President, Corporate Development from March 1998 to June 2001. Mr. Toback started with
the Company in September 1997. He is an attorney licensed to practice in Illinois.
Barry M. Deutsch, age 42, joined the Board as a Director in May 2004. Mr. Deutsch is the Chief
Financial Officer and Vice President of Business Development of Ovation Pharmaceuticals, Inc., a
fully-integrated pharmaceutical company focused on specialty therapeutic areas. Prior to that Mr.
Deutsch served as Director, Corporate Finance of Prudential Vector Healthcare Group, a unit of
Prudential Securities Incorporated, where he served as an investment banker specializing in health
care industry transactions. Mr. Deutsch is a Certified Public Accountant.
James F. McAnally, M.D., age 56, joined the Board as a Director in December 1995. Dr. McAnally is
a private practitioner who specializes in hypertension and kidney disease. Dr. McAnally is also the
Medical Director of Nephrology Services at Trinitas Hospital in Elizabeth, New Jersey and a
Clinical Associate Professor of Medicine at Seton Hall University, School of Graduate Medical
Education.
Adam Metz, age 44, joined the Board as a Director in December 2005. Mr. Metz is a co-founding
partner of Polaris Capital, LLC, a consulting and real estate investment firm that was established
in 2002. From 2000 to 2002, Mr. Metz was the Executive Vice President and Chief Investment Officer
of Rodamco, North America, a real estate investment fund which primarily owned regional shopping
malls. During 2000, Mr. Metz was President of Urban Shopping Centers, a real estate investment
trust that was purchased by Rodamco in November 2000. Prior to his position as President, Mr. Metz served as the Chief Financial Officer of Urban
Shopping Centers.
He also serves as a director at General
Growth Properties, Inc., where he is a member of the Audit Committee.
John W. Rogers, Jr., age 47, joined the Board as a Director in April 2003. Mr. Rogers is the
Chairman and Chief Executive Officer of Ariel Capital Management, LLC, a privately held
institutional money management firm and mutual fund company which he founded in 1983. He also
serves as a director of Aon Corporation, Exelon Corporation, McDonalds Corporation and as a
trustee of Ariel Investment Trust.
Steven S. Rogers, age 48, joined the Board as a Director in December 2005. Dr. Rogers is a
professor of finance and management at the Kellogg Graduate School of Management at Northwestern
University. He also serves as a director at AMCORE Financial, Inc., S.C. Johnson & Son, Inc.,
SUPERVALU, Inc. and Duquesne Light Holdings, Inc, where he also serves on the Compensation,
Corporate Governance and Finance Committees. John W. Rogers, Jr. and Steven S. Rogers are not related.
Director Whose Term is Expiring and is Not Standing for Re-Election
J. Kenneth
Looloian, age 83, joined the Board as a Director in December 1995. Mr. Looloian is a
consultant to Di Giorgio Corporation and served as the Sr. Vice President, Chief Financial Officer
of New Jersey Bell Telephone Company and Bellcore (now Telecordia Technologies) before his
retirement. Recently, due to a medical condition, Mr. Looloian has not been actively participating in Board matters. As of November 29, 2005, Mr. Looloian owned 5,000 shares and 20,000 options
exercisable within sixty days.
7
Executive Officers
Paul A. Toback, age 42, was elected Chairman of the Board in May 2003 and has served as a Director
since March 2003 and President and Chief Executive Officer since December 2002. He was Executive
Vice President from February 2002 to December 2002, Chief Operating Officer from June 2001 to
December 2002 and Senior Vice President, Corporate Development from March 1998 to June 2001. Mr.
Toback started with the Company in September 1997. He is an attorney licensed to practice in
Illinois.
Julie Adams, age 60, was elected Senior Vice President, Membership Services of the Company in February
2003. Ms. Adams was Vice President of Membership Services from November 1997 to February 2003.
Marc D. Bassewitz, age 49, was elected Senior Vice President and General Counsel of the Company in
January 2005. Prior to joining Bally, Mr. Bassewitz served as outside counsel for the Company in
his position as a partner at Latham & Watkins LLP.
William G. Fanelli, age 43, was elected Senior Vice President, Planning and Development of the Company
in March 2005. Mr. Fanelli held the position of Acting Chief Financial Officer from April 2004 to
March 2005, was
Senior Vice President, Finance from June 2001 to April 2004 and was Senior Vice President,
Operations from November 1997 to June 2001.
8
Carl
J. Landeck, age 45, was elected Senior Vice President and Chief Financial Officer of the Company
in March 2005. Prior to joining Bally, Mr. Landeck served as Executive Vice President, Chief
Financial and Administrative Officer of Levitz Home Furnishings, Inc. from August 2001 to December
2004, and was Executive
Vice President, Finance and Chief Financial Officer of Cablevision Electronics Investments, Inc.
from January 1998 to August 2001.
James
A. McDonald, age 52, was elected Senior Vice President and Chief Marketing Officer of the Company
in May 2005. Prior to joining Bally, Mr. McDonald most recently served as the Senior Vice
President, Chief Brand Officer of RadioShack, Inc.
Harold
Morgan, age 49, was elected Senior Vice President, Chief Administration Officer in February
2003. Mr. Morgan held the position of Senior Vice President Human Resources from December 1996 to
February 2003.
John
H. Wildman, age 46, was elected Senior Vice President and Chief Operating Officer in December
2002. Mr. Wildman was Senior Vice President, Sales and Marketing from November 1996 to December
2002.
See Election of Directors and Security OwnershipDirector Nominees and Continuing Directors
for information concerning the Directors.
Beneficial Ownership of Directors and Executive Officers
The following table shows the number of shares of Bally common stock beneficially owned as of
December 5, 2005 by the directors, Named Executive Officers and all directors and executive
officers as a group. The Common Shares Owned column includes, in certain circumstances, shares
of common stock held in the name of the directors or executive officers spouse, minor children,
or relatives sharing the directors or executive officers home, the reporting of which is required
by applicable rules of the SEC, but as to which shares of common stock the director or executive
officer may have disclaimed beneficial ownership. As used in the following tables, an asterisk in
the Percentage of Outstanding Stock column means less than 1%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
Options |
|
Total |
|
Percentage of |
|
|
Shares |
|
Exercisable |
|
Beneficial |
|
Outstanding |
Beneficial Owner |
|
Owned(1) |
|
Within 60 Days |
|
Ownership |
|
Stock* |
|
Paul A. Toback (1) |
|
|
135,000 |
|
|
|
253,334 |
|
|
|
388,334 |
|
|
|
1.0 |
% |
William Fanelli (1) |
|
|
50,001 |
|
|
|
190,000 |
|
|
|
205,001 |
|
|
|
* |
* |
Cary Gaan (1) |
|
|
50,603 |
|
|
|
140,000 |
|
|
|
190,603 |
|
|
|
* |
* |
Harold Morgan (1) |
|
|
55,921 |
|
|
|
159,000 |
|
|
|
214,921 |
|
|
|
* |
* |
John H. Wildman (1) |
|
|
60,000 |
|
|
|
170,000 |
|
|
|
230,000 |
|
|
|
* |
* |
Barry M. Deutsch |
|
|
5,300 |
|
|
|
1,667 |
|
|
|
6,967 |
|
|
|
* |
* |
Eric Langshur |
|
|
|
|
|
|
1,667 |
|
|
|
1,667 |
|
|
|
* |
* |
J. Kenneth Looloian |
|
|
5,000 |
|
|
|
20,000 |
|
|
|
25,000 |
|
|
|
* |
* |
James F. McAnally, M.D. |
|
|
12,500 |
|
|
|
20,000 |
|
|
|
32,500 |
|
|
|
* |
* |
Adam Metz |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
* |
John W. Rogers, Jr. |
|
|
10,000 |
|
|
|
3,333 |
|
|
|
13,333 |
|
|
|
* |
* |
Steven S. Rogers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
* |
All Directors and executive
officers as a group (16
persons) (2) |
|
|
877,575 |
|
|
|
1,025,667 |
|
|
|
1,903,242 |
|
|
|
5.0 |
% |
|
|
|
* |
|
Based on 38,094,479 shares
of common stock outstanding. |
|
** |
|
Less than 1% of the outstanding common stock. |
9
(1) |
|
For Named Executive Officers, includes shares previously held as nontransferable restricted shares, as to which restrictions lapsed in 2005. See Compensation of Executive Officers
Summary Compensation Table Note 3. |
(2) |
|
As of December 5, 2005, Julie Adams (Senior Vice President, Membership Services), Marc D.
Bassewitz (Senior Vice President and General Counsel), Carl J. Landeck (Senior Vice President
and Chief Financial Officer) and James A. McDonald (Senior Vice President and Chief Marketing
Officer) owned 93,250, 165,000, 80,000 and 155,000 shares of common stock, respectively, and
140,000, 73,000, 98,000 and 43,000 options, respectively. |
Stockholders Who Own at Least 5% of Bally Common Stock
The following table shows all persons the Company knows to be the beneficial owners of more
than 5% of Bally common stock as of December 5, 2005:
|
|
|
|
|
|
|
|
|
Name and Address of Beneficial Owner |
|
Total Beneficial Ownership |
|
Percent of Outstanding Stock(1) |
|
Pardus Capital Management L.P. (2)(3) |
|
|
5,311,000 |
|
|
|
13.9 |
% |
1001 Avenue of the Americas, Suite 1100 |
|
|
|
|
|
|
|
|
New York, New York 10018 |
|
|
|
|
|
|
|
|
Emanuel R. Pearlman(2)(4) |
|
|
4,134,450 |
|
|
|
10.9 |
% |
Liberation Investments(2)(4) |
|
|
|
|
|
|
|
|
11766 Wilshire Blvd. Suite #870 |
|
|
|
|
|
|
|
|
Los Angeles, CA 90025 |
|
|
|
|
|
|
|
|
Mark J. Wattles(2)(5) |
|
|
3,425,100 |
|
|
|
9.0 |
% |
Wattles Capital Management, LLC(2)(5) |
|
|
|
|
|
|
|
|
7945 W. Sahara #205 |
|
|
|
|
|
|
|
|
Las Vegas, NV 89117 |
|
|
|
|
|
|
|
|
Columbia Wanger Asset Management, L.P.(WAM)
(2)(6) |
|
|
2,350,000 |
|
|
|
6.2 |
% |
WAM Acquisition GP, Inc., the general |
|
|
|
|
|
|
|
|
partner of WAM (2)(6) |
|
|
|
|
|
|
|
|
Columbia Acorn Trust (2)(6) |
|
|
|
|
|
|
|
|
227 West Monroe Street, Suite 3000, |
|
|
|
|
|
|
|
|
Chicago, IL 60606 |
|
|
|
|
|
|
|
|
Dimensional Fund Advisors Inc. (2)(7) |
|
|
2,297,400 |
|
|
|
6.0 |
% |
1299 Ocean Ave, 11th Flr, |
|
|
|
|
|
|
|
|
Santa Monica, CA 90401 |
|
|
|
|
|
|
|
|
Everest Capital Limited (2)(8) |
|
|
2,047,724 |
|
|
|
5.4 |
% |
The Bank of Butterfield Building |
|
|
|
|
|
|
|
|
65 Front Street, 6th Floor, |
|
|
|
|
|
|
|
|
P.O. Box HM2458 |
|
|
|
|
|
|
|
|
Hamilton HMJX Bermuda |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company had 38,094,479
common shares outstanding as of December 5, 2005. The
Percent of Outstanding Stock was calculated by using the disclosed number of beneficially
owned shares by the applicable beneficial owner and related entities, as a group, as the
numerator and the number of the Companys outstanding common
shares as of December 5, 2005
as the denominator. |
10
|
|
|
(2) |
|
Represents a beneficial owner of more than 5% of the common stock based on the owners
reported ownership of shares of common stock in filings made with the Securities and
Exchange Commission pursuant to Section 13(d), 13(g) and 16(a) of the Securities Exchange
Act of 1934, as amended and the attendant regulations. Information with respect to each
beneficial owner is generally as of the date of the most recent filing by the beneficial
owner with the SEC and is based solely on information contained in such filings |
|
(3) |
|
Pardus European Special Opportunities Master Fund L.P., a limited partnership formed
under the laws of the Cayman Islands (the Fund), is the holder of 5,311,000 shares of
common stock. Pardus Capital Management, L.P. (PCM), a Delaware limited partnership,
serves as the investment manager of the Fund and possesses sole power to vote and direct
the disposition of all the shares held by the Fund. PCM is deemed to beneficially own
5,311,000 shares of common stock |
|
(4) |
|
Liberation Investments refers to Liberation
Investments, L.P., Liberation Investments Ltd. and Liberation
Investment Group LLC. Liberation Investments, L.P. (LILP), a Delaware limited partnership, is the
beneficial owner of 2,662,963 shares of common stock. Liberation Investments Ltd.
(LILtd), a private offshore investment corporation, is the beneficial owner of 1,436,487
shares of common stock. Mr. Pearlman is the direct beneficial owner of 35,000 shares of
common stock, which vested upon the acquisition by Liberation of in excess of 10% of the
common stock of the Company on May 4, 2005. Liberation Investment Group LLC (LIG), the
general partner of LILP and discretionary investment adviser to LILtd, and Mr. Pearlman,
the General Manager, Chief Investment Officer and majority member of LIG, are indirect
beneficial owners of the shares held by LILP and LILtd. |
|
(5) |
|
Mark J. Wattles is the sole member and manager of Wattles Capital Management, LLC, a
Delaware limited liability company, and owns 100% of its membership interests. |
|
(6) |
|
Columbia Acorn Trust is an Investment Company under Section 8 of the Investment Company
Act of 1940. WAM is an Investment Adviser registered under Section 203 of the Investment
Advisers Act of 1940; WAM Acquisition GP, Inc. is the General Partner of the Investment
Adviser. |
|
(7) |
|
Dimensional Fund Advisors Inc. (Dimensional), an investment advisor registered under
Section 203 of the Investment Advisors Act of 1940, furnishes investment advice to four
investment companies registered under the Investment Company Act of 1940, and serves as
investment manager to certain other commingled group trusts and separate accounts. These
investment companies, trusts and accounts are Funds. In its role as investment
advisor or manager, Dimensional possesses voting and/or investment power and may be deemed
to be the beneficial owner of the shares. Dimensional disclaims beneficial ownership of
such securities. |
|
(8) |
|
Everest Capital Limited is a Bermuda company. |
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth, as of December 31, 2004, information concerning compensation
plans under which the Companys securities are authorized for issuance. The table does not reflect
grants, awards, exercises, terminations or expirations since that date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
Number of securities |
|
Weighted-average |
|
remaining available for |
|
|
to be issued upon |
|
exercise price of |
|
future issuance under |
|
|
exercise of outstanding |
|
outstanding |
|
equity compensation plans |
|
|
options, warrants and |
|
options, warrants |
|
(excluding securities |
|
|
rights |
|
and rights |
|
reflected in column (a)) |
|
|
(a) |
|
(b) |
|
(c) |
Plans approved by stockholders (1) |
|
|
4,452,341 |
|
$ |
15.47 |
|
|
1,527,042 |
|
Total |
|
|
4,452,341 |
|
$ |
15.47 |
|
|
1,527,042 |
|
11
|
|
|
(1) |
|
The number of securities remaining for future issuance at December 31, 2004 consisted
of 1,512,042 shares issuable under the Companys 1996 Long-Term Incentive Plan and 15,000
shares under the Companys 1996 Non-Employee Directors Stock Option Plan. In November
1997, June 1999, December 2000 and June 2002, the 1996 Long-Term Incentive Plan was amended
to increase the aggregate amount of shares outstanding that may be granted to an aggregate
of 8,600,000. The first two amendments, which increased the number of shares subject to the
plan by a total of 2,500,000, were approved by the Companys stockholders. |
See Compensation of Executive Officers for a description of the Inducement Plan adopted by
the Companys Compensation Committee on March 8, 2005 and descriptions of the material features of
other equity compensation plans. See Compensation of Executive Officers for a description of
grants made under the Companys 1996 Long-Term Incentive Plan and the Inducement Plan to date in
2005. As of December 5, 2005 there were
59,461 shares remaining for future
issuance under the Companys 1996 Long-Term Incentive Plan,
62,000 shares remaining for future issuance under the Inducement
Plan and
10,000 shares remaining for future
issuance under the Companys 1996 Non-Employee Directors
Stock Option Plan.
12
APPROVAL OF 2006 OMNIBUS EQUITY COMPENSATION PLAN
Proposal 2 Approval of 2006 Omnibus Equity Compensation Plan
General
Our Board of Directors has approved the Bally Total Fitness Holding Corporation 2006 Omnibus
Equity Compensation Plan (the Plan) and is submitting the Plan for stockholder approval. Under
the Plan, we will be able to grant stock options, stock units, stock awards, dividend equivalents
and other stock-based awards as a means to encourage participants to focus on and contribute to
increasing value for our stockholders. Our employees and non-employee directors, and employees of
our subsidiaries, are eligible to participate in the Plan. The Boards adoption of the Plan is
conditioned on stockholder approval. The affirmative vote of the holders of a majority of the
shares represented in person or by proxy at the meeting and entitled to vote will be required for
approval of the new equity plan. The rules of the NYSE further require that at least a majority of
the votes of shares of common stock entitled to vote must be cast with respect to the approval of
the new equity plan. The following is a summary of the material terms of the Plan. A copy of the
Plan is attached to this proxy statement as Exhibit B. This Plan is intended to replace the 1996
Long-Term Incentive Plan of Bally Total Fitness Holding Corporation (the 1996 Plan). Awards may
continue to be granted under the 1996 Plan until January 3, 2006, at which time the 1996 Plan will
terminate (although the terms of the 1996 Plan will continue to apply to grants still outstanding).
Description of the Plan
Purpose: The purpose of the Plan is to provide an incentive to our employees and non-employee
directors to contribute to our economic success by aligning their interests with the interests of
the stockholders through grants of equity-based awards. After the termination of the 1996 Plan,
there will be no executive compensation plan or program to compensate executives with stock-based
compensation, other than through the Inducement Plan, which provides for the granting of awards at
the time of hiring an executive. The Plan provides the Compensation Committee of the Board of
Directors greater flexibility in designing executive compensation by offering a broader spectrum of
awards. The Plan is necessary in order continue to provide incentives to executives that align
their interests with the interests of the stockholders.
Administration: With respect to grants made to employees, the Plan will be administered and
interpreted by the Compensation Committee of the Board of Directors or another committee appointed
by the Board of Directors to administer the Plan. With respect to grants made to non-employee
directors, the Plan will be administered by the Board or a committee to which the Board delegates
its authority. The term Committee refers to the Board, or its delegate, or the Compensation
Committee, depending on the identity of the grant recipient. The Committee has the authority to
determine the individuals to whom grants will be made, the time when grants will be made and the
type, size, and terms of each grant. The Committee has the authority to amend the terms of any
grant, to the extent that the amendment does not materially impair the rights or obligations of the
recipient, unless the recipient consents to the amendment or the amendment is required by law. The
Committee also has the authority to deal with any other matters arising under the Plan. However,
the Committee does not have authority to reprice stock options awarded under the Plan without
stockholder approval.
Eligibility: Employees and non-employee directors of the Company and employees of our
subsidiaries are eligible to participate in the Plan. For 2006, it is contemplated that
approximately 75 employees and 10 non-employee directors will receive grants under the Plan. The
Committee will select the individuals who will participate in the Plan.
Grants: The Committee may make the following types of grants under the Plan, with terms to be
established by the Committee:
|
|
|
Stock options, which may consist of incentive stock options, within the meaning of
Section 422 of the Internal Revenue Code, and nonqualified stock options. |
|
|
|
|
Stock units, the value of which is based on the value of our common stock. |
13
|
|
|
Stock awards, which are awards of shares of our common stock. |
|
|
|
|
Dividend equivalents in connection with grants of options, stock units or other stock-based awards. |
|
|
|
|
Stock appreciation rights or other stock-based awards, which are other awards based on
or measured by the value of, or payable in, shares of our common stock. |
Shares: The total aggregate number of shares of our common stock that may be issued under the
Plan is 2.5 million shares. Within the aggregate limit, the maximum
number of shares of our common stock that may be issued under the
Plan pursuant to Stock Awards, Stock Units and Other Stock-Based
Awards (as defined below) during the term of the Plan is 2 million
shares. These share limits will be adjusted by the Committee in the event of a
stock dividend, spinoff, merger or other event affecting our capitalization. Certain grants may be
paid in cash. Grants paid in cash will not count against the foregoing share limits.
For administrative purposes, the Committee will reserve shares for issuance when grants
payable in common stock are made under the Plan. If and to the extent stock options granted under
the Plan terminate or are canceled, forfeited, exchanged or surrendered without having been
exercised, and if and to the extent any stock awards, stock units, dividend equivalents or other
stock-based awards are forfeited, terminated or otherwise not paid in full, the shares reserved for
those grants will again be available for issuance under the Plan. In addition, shares surrendered
in payment of the exercise price of an option or any withholding taxes will again be available for
issuance under the Plan. Finally, to the extent that grants are paid in cash, and not in shares of
common stock, any shares previously reserved for issuance pursuant to such grants will also be
available for issuance under the Plan.
Individual Limits: All grants other than dividend equivalents will be expressed in shares.
The maximum number of shares of our common stock with respect to which all grants other than
dividend equivalents may be made under the Plan to any individual during any calendar year is
500,000. The foregoing share limit will be adjusted by the Committee in the event of a stock
dividend, spinoff, merger or other event affecting the capitalization of the Company. The
individual limit will apply without regard to whether the grants are to be paid in stock or cash.
Cash payments (other than for dividend equivalents) will equal the fair market value of the shares
to which the cash payment relates. An individual may not accrue dividend equivalents during any
calendar year in excess of $1,000,000.
Options: The Committee will select the employees and directors who will receive stock
options. The Committee will determine the number of shares that will be subject to each grant of
stock options and the terms of the options. Stock options may consist of incentive stock options
or nonqualified stock options, within the meaning of Section 422 of the Internal Revenue Code.
The exercise price of an option may be equal to or greater than the fair market value of our
common stock on the date of grant. The exercise price may be paid (1) in cash, (2) if permitted by
the Committee, in shares of our common stock having a fair market value on the date of exercise
equal to the amount of the exercise price, (3) through a broker by having the broker sell our
common stock simultaneously with the exercise of the option, or (4) by any other method permitted
by the Committee. The Committee may grant dividend equivalents with respect to options.
The term of each option will not exceed ten years. The Committee will determine when options
may be exercised. The Committee may accelerate the exercisability of outstanding options at any
time for any reason. Except as provided in the grant letter, an option may only be exercised while
the participant is an employee or a director. The grant letter will specify under what
circumstances a participant may exercise an option after termination of employment or service.
Stock Units: The Committee may grant stock units to employees and non-employee directors.
Each stock unit represents the right of the participant to receive a share of our common stock or
an amount based on the value of a share of our common stock. The Committee will determine the
number of stock units to be granted and the terms applicable to each grant. The Committee may
grant dividend equivalents with respect to stock units. The Committee will determine under what
circumstances a participant may retain stock units after termination of the
14
participants
employment or service. Stock units will be paid in cash or in shares of our common stock, or a
combination of the two, as determined by the Committee.
Stock Awards: The Committee may grant stock awards to employees and directors. The Committee
will determine the number of shares that will be granted, any vesting or other restrictions
applicable to the shares and the conditions under which any restrictions will lapse. Until any
restrictions lapse, a participant generally cannot sell, assign, transfer, pledge, or otherwise
dispose of stock awards. The Committee will determine under what circumstances a participant may
retain stock awards after termination of the participants employment or service. The Committee
will determine to what extent a participant will have the right to vote stock awards and to receive
any dividends or other distributions paid on stock awards.
Dividend Equivalents: The Committee may grant dividend equivalents in connection with grants
under the Plan. A dividend equivalent is an amount determined by multiplying the number of shares
of common stock subject to a grant by the per-share dividend paid by us on our common stock.
Dividend equivalents may be paid to participants currently or may be deferred at the discretion of
the Committee. Dividend equivalents may be accrued as a cash obligation, or may be converted to
stock units, at the discretion of the Committee. Unless the Committee determines otherwise,
deferred dividend equivalents will not accrue interest. The Committee may provide that dividend
equivalents will be payable based on the achievement of performance goals. The Committee may also
provide that a participant may use dividend equivalents to pay the exercise price of a stock
option. Dividend equivalents may be paid in cash or shares of our common stock, or a combination
of the two, at the discretion of the Committee.
Stock Appreciation Rights: The Committee may grant stock appreciation rights to anyone
eligible to participate in the Plan. Stock appreciation rights may be granted in connection with,
or independently of, any option granted under the Plan. Upon exercise of a stock appreciation
right, the grantee will receive an amount equal to the excess of the fair market value of our
common stock on the date of exercise over the base amount set forth in the grant agreement. The
payment may be made in shares of Common Stock, cash or a combination of cash and shares of our
common stock, as determined by the Committee. The Committee will determine the period when stock
appreciation rights vest and become exercisable, the base amount for stock appreciation rights and
whether Sstock appreciation rights will be granted in connection with, or independently of, any
options. The base amount of each stock appreciation right will be equal to the per share exercise
price of the related option or, if there is no related option, an amount that is at least equal to
the value of a share of our common stock on the date of grant. Stock appreciation rights may be
exercised while the grantee is our employee or an employee of a subsidiary or within a specified
period of time after termination of such employment or service.
Other Stock-Based Awards: The Committee may grant other stock-based awards that are based on
or measured by the value of, or payable in, shares of our common stock to employees or directors.
These other stock-based awards may be granted subject to performance goals or other conditions.
The Committee may also grant dividend equivalents with respect to other stock-based awards. Other
stock-based awards may be paid in cash or in shares of our common stock, or a combination of the
two, at the discretion of the Committee.
Deferrals: The Committee may permit a participant to defer receipt of cash or shares that
would otherwise be due to a participant in connection with any grant. The Committee will establish
rules and procedures for any such deferrals consistent with applicable requirements of Section 409A
of the Internal Revenue Code.
Transferability of Grants. Grants under the Plan are not transferable by the participant
except by will or the laws of descent and distribution. Grants under the Plan may not be pledged
or otherwise encumbered by a participant or otherwise subject to the claims of a participants
creditors. The Committee may provide in a grant agreement for the transfer of non-qualified stock
options to family members or charitable institutions.
Qualified Performance-Based Compensation. The Committee may determine that stock units, stock
awards, dividend equivalents, stock appreciation rights or other stock-based awards granted to an
employee will be considered qualified performance-based compensation under Section 162(m) of the
Internal Revenue Code (see discussion of Section 162(m) under Federal Income Tax Consequences
below). For such grants, the Committee
15
will establish in writing, at the beginning of the
performance period: (1) the objective performance goals that must be met in order for the grants to
be payable or the restrictions to lapse, (2) the period during which performance will be measured,
(3) the maximum amounts that may be paid if the performance goals are met, and (4) other conditions
as the Committee deems appropriate. The Committee may reduce, but not increase, the amount of
compensation that is payable upon achievement of the designated performance goals.
The Committee will use objectively determinable performance goals based on one or more of the
following criteria, either in absolute terms or in comparison to publicly available industry
standards or indices: earnings, revenue, operating margins and statistics, operating or net cash
flows, financial return and leverage ratios, total stockholder returns, market share, or strategic
business criteria consisting of one or more Company or business unit objectives based on meeting
specified revenue goals, market penetration goals, geographic business expansion goals, cost
targets, customer satisfaction goals, product development goals, goals relating to acquisitions or
divestitures, or any other objective measure derived from any of the foregoing criteria. The
performance goals may relate to the participants business unit or the performance of the Company
as a whole, or any combination.
Change of Control: If a change of control occurs, the Committee may determine that (1) all
outstanding options will become fully exercisable, (2) the restrictions on all outstanding stock
awards will lapse, and (3) payment will be made with respect to stock units, dividend equivalents
or other stock-based awards, in such amount and such form as may be determined by the Committee
provided that the payment amount will deliver an equivalent value for the settled grant.
The Committee may determine that upon a change of control in which we are not the surviving
corporation (or we survive only as a subsidiary of another corporation), all outstanding options
that are not exercised will be assumed by, or replaced with comparable options by, the surviving
corporation (or a parent or subsidiary of the surviving corporation), and other grants that remain
outstanding will be converted to similar grants of the surviving corporation (or a parent or
subsidiary of the surviving corporation).
In the event of a change of control, the Committee may require that participants surrender
their outstanding options in exchange for a payment, in cash or stock, or the Committee may
terminate outstanding options after giving participants an opportunity to exercise outstanding
options. The Committee may determine that participants holding stock units, dividend equivalents
or other stock-based awards will receive a payment in settlement of the grants, in an amount and
form determined by the Committee.
A change of control is defined as:
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Any person, other than the Company and certain of its affiliates, becomes the
beneficial owner of 50% or more of our outstanding stock or the voting power of our
outstanding securities. |
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Individuals who, as of December 2, 2005, constituted our board of
directors cease to constitute at least a majority of our board of directors;
provided, however, any change in the members of the board of directors that is
approved by at least a majority of the board of directors (other than in connection
with an actual or threatened election contest) will be disregarded. |
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Completion of a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the Company (referred to
as a corporate transaction) other than a transaction in which (1) all or substantially all our stockholders
immediately before the transaction do not, immediately after the transaction, own
more than 60% of the then outstanding shares and voting power of the surviving
company, in substantially the same proportions as their prior ownership of our
stock, (2) no person, other than the Company and certain of its affiliates,
beneficially owns 20% or more of our outstanding stock or the voting power of our
outstanding securities, and (3) individuals who were members of the incumbent board
constitute at least a majority of the members of the board of directors of the
corporation resulting from the corporate transaction. |
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Completion of a complete liquidation or dissolution of the Company. |
16
Other Corporate Transactions: In the event of an acquisition or other corporate transaction,
the Committee may make grants to employees or directors in substitution for outstanding grants made
by the predecessor corporation, on such terms as the Committee determines, including terms that
vary from the other terms and conditions of the Plan.
Amendment and Termination of the Plan: The Plan will terminate on January 26, 2016. Our
board may terminate or amend the Plan earlier at any time. However, our board will not amend the
Plan without stockholder approval if stockholder approval is required to comply with the Internal
Revenue Code or other applicable law or to comply with applicable stock exchange requirements. The
Plan may not be amended to permit repricing of options granted under the Plan without stockholder
approval.
The Plan must be reapproved by our stockholders no later than the first stockholders meeting
that occurs in the fifth year following the year in which the stockholders previously approved the
qualified performance-based compensation provisions of the Plan (as described above under
Qualified Performance-Based Compensation) if additional grants are to be made as qualified
performance-based compensation and if required by Section 162(m) of the Internal Revenue Code.
Federal Income Tax Consequences
The following description of the federal income tax consequences of grants under the Plan is a
general summary. State, local, and other taxes may also be imposed in connection with grants.
This discussion is intended for the information of stockholders considering how to vote at the
annual meeting and not as tax guidance to individuals who participate in the Plan.
Incentive Stock Options. There generally are no federal income tax consequences to a
participant or to the Company upon the grant of an incentive stock option.
A participant will not recognize income for purposes of the regular federal income tax upon
the exercise of an incentive stock option. However, for purposes of the alternative minimum tax,
in the year in which an incentive stock option is exercised, the amount by which the fair market
value of the shares acquired upon exercise exceeds the exercise price will be treated as an item of
adjustment and included in the computation of the recipients alternative minimum taxable income.
A participant will recognize income when he or she sells stock acquired upon exercise of an
incentive stock option. If the shares acquired upon exercise of an incentive stock option are
disposed of after two years from the date the option was granted and after one year from the date
the shares were transferred upon the exercise of the option, the participant will recognize
long-term capital gain or loss in the amount of the difference between the amount realized on the
sale and the exercise price. The Company will not be entitled to any corresponding tax deduction.
If a participant disposes of the shares acquired upon exercise of an incentive stock option
before satisfying both holding period requirements (a disqualifying disposition), any gain
recognized on the disposition will be taxed as ordinary income to the extent of the difference
between the fair market value of the shares on the date of exercise (or the sale price, if less)
and the exercise price. The Company generally will be entitled to a deduction in that amount. The
gain, if any, in excess of the amount recognized as ordinary income will be a long-term or
short-term capital gain, depending upon the length of time the shares were held before the
disposition.
Nonqualified Stock Options: A participant who receives a nonqualified stock option will
recognize no income at the time of the grant of the option. Upon exercise of a nonqualified stock
option, a participant will recognize ordinary income in an amount equal to the excess of the fair
market value of the shares of our stock on the date of exercise over the option price. The basis
in shares acquired upon exercise of a nonqualified stock option will equal the fair market value of
such shares at the time of exercise, and the holding period of the shares (for capital
17
gain
purposes) will begin on the date of exercise. In general, the Company will be entitled to a
business expense deduction in the same amount and at the same time as the participant recognizes
ordinary income.
Stock Units: A participant who receives a stock unit will not recognize taxable income until
the unit is paid to the participant. When the unit is paid, the participant will recognize
ordinary income in an amount equal to the fair market value of the stock and cash, if any, paid to
the participant. The Company generally will be entitled to a business expense deduction in the
same amount.
Stock Awards: A participant who receives a stock award generally will not recognize taxable
income until the stock is transferable by the participant or no longer subject to a substantial
risk of forfeiture for federal tax purposes, whichever occurs first. When the stock is either
transferable or is no longer subject to a substantial risk of forfeiture, the participant will
recognize ordinary income in an amount equal to the fair market value of the shares at that time,
less any amounts paid for the shares. A participant may elect to recognize ordinary income when a
stock award is granted in an amount equal to the fair market value of the shares at the date of
grant, determined without regard to the restrictions. The Company generally will be entitled to a
corresponding business expense deduction in the year in which the participant recognizes ordinary
income.
Dividend Equivalents, Stock Appreciation Rights and Other Stock-Based Awards: A participant
will recognize ordinary income when dividend equivalents, stock appreciation rights and other
stock-based awards are paid to the participant, in an amount equal to the cash and the fair market
value of any shares paid to the participant. The Company generally will be entitled to a
corresponding business expense deduction when the participant recognizes ordinary income.
Section 162(m): Section 162(m) of the Internal Revenue Code generally disallows a public
companys tax deduction for compensation paid to the chief executive officer and the four other
most highly compensated executive officers in excess of $1 million in any year. Compensation that
qualifies as qualified performance-based compensation is excluded from the $1 million limit, and,
therefore, remains fully deductible by the company that pays it. Assuming the Plan is approved by
our stockholders, we intend that options granted under the Plan will not be subject to the Section
162(m) deduction limit, and we intend that grants that are contingent on achievement of performance
goals as described in Qualified Performance-Based Compensation above will not be subject to the
Section 162(m) deduction limit. Other grants under the Plan may be subject to the deduction limit.
Section 409A: Section 409A of the Internal Revenue Code imposes certain restrictions on
deferred compensation. We intend that all awards provided under the Plan will satisfy the
requirements of 409A of the Internal Revenue Code. However, if an award of deferred compensation
does not comply with the requirements set forth in section 409A of the Internal Revenue Code, the
recipient of the deferred compensation could be subject to a 20% excise tax on the amount of
compensation deferred, recognize immediate income on the deferred compensation and accrue interest
with respect to the previously deferred compensation.
The Companys Board of Directors recommends a vote FOR adoption of the 2006 Omnibus Equity
Compensation Plan.
18
CORPORATE GOVERNANCE
Governance Principles
The Board of Directors Corporate Governance Guidelines, which include guidelines for
determining director independence and qualifications for directors, are published on the Investor
Information Corporate Governance section of Ballys website at www.ballyfitness.com. All of
Ballys other corporate governance materials, including the committee charters and key practices,
are also published on the Investor Information Corporate Governance section of Ballys website.
These materials are also available in print to any stockholder upon request. The Board regularly
reviews corporate governance developments and modifies its Corporate Governance Guidelines,
committee charters and key practices as warranted. Any modifications are reflected on Ballys
website.
Director Independence
The Board of Directors has adopted standards for director independence for determining whether
a Director is independent from management. These standards are based upon the listing standards of
the NYSE and applicable laws and regulations and can be found in the Companys Corporate Governance
Guidelines. The Board of Directors has affirmatively determined, based on these standards, that
the following Directors are independent: Mr. Burdick, Mr. Elson and Mr. Langshur, all of whom are
standing for election to the Board, and Messrs. Deutsch, McAnally, Metz, J. Rogers and S. Rogers,
none of whom is standing for election to the Board. The Board of Directors has also determined that
Mr. Toback, the Companys President and Chief Executive Officer, who is not standing for election
to the Board, is not independent. Accordingly, eight of the nine Directors or nominees for Director
are independent. The Board has also determined that all Board standing committees are composed
entirely of independent Directors.
Separate Sessions of Nonmanagement Directors
The Corporate Governance Guidelines of the Company provide for regular executive sessions of
the nonmanagement directors without management participation. Consistent with the rules of the New
York Stock Exchange, a nonmanagement director is a director who is not an officer of the
Company within the meaning of Rule 16a-1(f) under the Securities Act of 1933, as amended. The
independent Directors will meet in executive session at least four times annually, and the Lead
Independent Director, if appointed, shall preside over such executive sessions. If a Lead
Independent Director has not been appointed, a non-employee director selected by the non-employee
directors will preside over such sessions.
Code of Business Conduct, Practices and Ethics
All directors, officers and employees of Bally must act ethically at all times and in
accordance with the policies comprising Ballys Code of Business Conduct, Practices and Ethics (the
Code), which is published on the Investor Information Corporate Governance section of Ballys
website at www.ballyfitness.com and which is available in print to any shareowner upon request. Any
transaction or personal relationship that might involve a conflict of interest must be reviewed by
the Audit Committee and the Vice President of Internal Audit (the Administrator) prior to
consummation. Under the Boards Corporate Governance Guidelines, any waivers of any provision of
the Code for directors or executive officers must be approved by the Board or a committee of the
board and must be promptly disclosed to the Companys stockholders as required by law or the rules
of the NYSE.
19
INFORMATION RELATING TO THE BOARD OF DIRECTORS
AND CERTAIN COMMITTEES OF THE BOARD
The business and affairs of the Company are managed by or under the direction of the Board of
Directors. The Boards goals are to build long-term value for the Companys stockholders and to
assure the vitality of the Company for its customers, employees and the other individuals and
organizations that depend on the Company. To achieve these goals, the directors will monitor the
performance of the Company by regularly attending meetings of the Board and its committees and
consulting and communicating with the Chairman and other key executives, outside auditors and
external advisors such as legal counsel and investment bankers.
The Board of Directors currently consists of eight directors, seven of whom are
independent under the NYSE listing standards. The Board held
twelve regularly scheduled meetings
and no special meetings during 2004. To date, the Board
has held thirty-one regularly scheduled
meetings and no special meetings during 2005. Each director is expected to make every effort to
attend each Board meeting and each meeting of any committee on which he or she sits. Each
then-current Director attended at least seventy-five percent meetings of the Board of Directors and all committees on which
the Director served during 2004 and 2005 to date, other than
Mr. Looloian. Recently, due to a medical condition, Mr. Looloian
has not been actively participating in Board matters. All of
the Directors then in office attended the annual stockholder meeting in July 2004 and all current
Directors other than Mr. Looloian plan to attend the annual meeting to be held on January 26,
2006.
The Board of Directors has the following committees: an Audit Committee, a
Compensation Committee, a Nominating and Corporate Governance Committee, an Executive Committee and
a Special Demand Evaluation Committee. The general functions of the
Audit Committee, Compensation Committee and Nominating and Corporate
Governance Committee, the identity of
such committees members and the number of committee meetings
held by such committees during 2004 and
to date in 2005 are set forth below.
Audit Committee
The current members of the Audit Committee are Mr. Langshur (Chairman), Mr. Deutsch, Mr.
Looloian, Dr. McAnally and Mr. Metz. Mr. Langshur has been a member of the Audit Committee since
December 2004 and Chairman since November 2005, succeeding
Mr. Looloian. Mr. Metz has been a
member of the Audit Committee since December 2005. During the year, the Board examined the
membership of the Audit Committee with regard to compliance with the NYSE rules governing audit
committees. Based upon this examination, the Board confirmed that all members of the Audit
Committee are independent within the meaning of the NYSEs rules. The Audit Committee assists
the Board of Directors in fulfilling its responsibility for oversight
of the integrity of the
Companys financial statements, the Companys compliance with legal and regulatory requirements,
the independent auditors qualifications and independence, and the performance of the Companys
internal audit function and independent auditor. Additional responsibilities of the Audit Committee
are described in the revised
charter of the Audit Committee, which was approved by the Board of Directors on January 28, 2004
and amended on March 8, 2005. A copy of the charter of the Audit Committee is attached to this
proxy statement as Exhibit C and is also published on the Companys website. The Audit Committee
held eighteen meetings during 2004 and to date, has held
forty-two meetings in 2005.
The Board of Directors has determined that each member of the Audit Committee is financially
literate as such term is defined in the listing standards of the NYSE. Additionally, the Board of
Directors has determined that Mr. Deutsch is an audit committee financial expert under the
relevant rules of the SEC, and that at least Mr. Deutsch has the requisite accounting/financial
management expertise required by the listing standards of the NYSE.
Compensation Committee
The current members of the Compensation Committee are Mr. J. Rogers (Chairman), Mr. Deutsch,
Mr. Looloian, Dr. McAnally, Mr. Langshur and
Dr. S. Rogers. Mr. J. Rogers has been Chairman of the
Compensation Committee since July 2003. Mr. Langshur has been a member of the
Compensation Committee since December 2004. Stephen Swid, formerly a director, was a member of the
Compensation Committee during 2004 and 2005, until his resignation as
a director in August of 2005. Dr. S. Rogers has been a member of the Compensation Committee since December 2005. The Board has
determined that all members of the Compensation Committee are independent within the meaning of
the NYSEs rules. On January 28, 2004, the Board approved a revised Compensation Committee charter,
pursuant to which the
20
Compensation Committee is authorized and directed to (i) establish annual and
long-term performance goals and objectives for senior executives, (ii) evaluate the performance of the Chief Executive Officer and
other senior executives in light of the approved performance goals and objectives, (iii) set the
compensation of the Chief Executive Officer and other senior executives of Bally based upon the
evaluation of the performance of the Chief Executive Officer and the other senior executives,
respectively, (iv) make recommendations to the Board of Directors with respect to compensation,
incentive compensation plans and equity-based compensation plans for other Bally officers, (v)
prepare an annual self-evaluation of the Compensation Committee, (vi) administer and review Ballys
stock option, bonus and long-term incentive compensation plans, (vii) grant options and awards
under all such plans and (viii) approve all amendments to, and termination of, all such plans. The
Compensation Committee held six meetings during 2004 and to date, has
held five meetings in 2005.
Nominating and Corporate Governance Committee
The current members of the Nominating and Corporate Governance Committee are Dr. McAnally
(Chairman), Mr. Looloian, Mr. Deutsch, Mr. J. Rogers and Dr. S. Rogers. Stephen Swid, formerly a
director, was a member of the Nominating and Corporate Governance Committee during 2004 and 2005,
until his resignation as a director in August of 2005. Dr. S. Rogers has been a member of the
Nominating and Corporate Governance Committee since December 2005. The Board of Directors has
determined that all members of the Nominating and Corporate Governance Committee are independent
within the meaning of the NYSEs rules. The general functions of the Nominating and Corporate
Governance Committee include recommending to the Board of Directors nominees for election as
Directors, consideration of the performance of incumbent Directors in determining whether to
nominate them for re-election and making recommendations with respect to corporate governance and
organization and size of the Board of Directors and its committees. The Nominating and Corporate
Governance Committee is also responsible for the Companys Corporate Governance Guidelines,
including reviewing them on at least an annual basis and recommending changes as necessary. The
Nominating and Corporate Governance Committee held six meetings
during 2004 and to date, has held ten meetings in 2005.
On January 28, 2004, the Board of Directors approved a charter for the Nominating and
Corporate Governance Committee in compliance with the listing standards of the NYSE. The Companys
Corporate Governance Guidelines include policies with regard to stockholder recommendations of
nominees to the Board of Directors. On May 12, 2005, the Nominating and Corporate Governance
Committee Charter was amended to revise the criteria used to evaluate candidates for nomination as
directors.
The Nominating and Corporate Governance Committee will consider nominees to the Board of
Directors recommended by stockholders. A recommendation will be considered if submitted in writing
addressed to Bally in care of Nominating and Corporate Governance Committee, accompanied by a
description of the proposed nominees qualifications and other relevant biographical information,
and a written indication of the consent of the proposed nominee. The
Company has hired Russell Reynolds, a search firm, to help identify
and evaluate potential nominees. Candidates for nomination as
director are considered on the basis of the following criteria, among others the Nominating and
Corporate Governance Committee deems appropriate, including the specific needs of the Board at the
time:
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wisdom, capability and integrity within their field or profession; |
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broad business, management and/or public service experience; |
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general understanding of marketing, finance and other elements necessary to the success
of a publicly held company; |
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practical and mature business judgment; |
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represents no specific constituency other than the stockholders generally; |
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no conflicts of interest or legal impediments that might preclude service as a director; |
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ability and willingness to devote the time required to serve effectively as a director
and as a member of one or more committees of the Board; and |
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diversity, experience or skills complementary to those of other Board members. |
On the basis of the information gathered in this process, the Nominating and Corporate
Governance Committee will determine which nominees to recommend to the Board. Recommendations
received prior to any Nominating and Corporate Governance Committee meeting where director nominees
are to be considered will be
21
considered at that meeting. The Nominating and Corporate Governance
Committee uses the same process for evaluating all nominees, regardless of the source of the
recommendation.
Contacting the Board of Directors
Stockholders who wish to communicate with the Board of Directors may do so by sending
written communications to the Board of Directors at the following address: Board of Directors, c/o
Corporate Secretary, Bally Total Fitness Holding Corporation, 8700 West Bryn Mawr Avenue, Chicago,
Illinois 60631. Stockholders who wish to direct communications to only the independent directors of
Bally may do so by sending written communications to the independent directors at the following
address: Independent Directors, c/o Corporate Secretary, Bally Total Fitness Holding Corporation,
8700 West Bryn Mawr Avenue, Chicago, Illinois 60631. Inquiries sent by mail will be reviewed,
sorted and, if appropriate, summarized by the Companys Secretary before they will be forwarded to
the Board or an individual director.
Web-site Access to Charters
The charters for each of the standing committees of the Board of Directors as well as our
Corporate Governance Guidelines and Code of Business Conduct, Practices and Ethics may be accessed
through our web-site at www.ballyfitness.com. Additionally, copies may be requested in writing by
submitting the request to Corporate Secretary, Bally Total Fitness Holding Corporation, 8700 West
Bryn Mawr Avenue, Chicago, Illinois 60631.
Compensation of Directors
In 2004, members of the Board who were also employees of Bally did not receive any
additional compensation for service on the Board or any committees of the Board. Members of the
Board who were not employees of Bally received an annual retainer of $30,000, a $2,000 stipend for
each Board meeting attended and $1,000 for each committee meeting attended (providing such
committee meeting was not scheduled in conjunction with a Board meeting). Non-employee directors
also received additional stipends for service on committees of the Board of $1,000 per year for
committee members or $2,000 per year for committee chairman. Also, pursuant to Ballys 1996
Non-Employee Directors Stock Option Plan (the Directors Plan), each non-employee director of
Bally is granted an option to purchase 5,000 shares of common stock upon the commencement of
service on the Board, with another option to purchase 5,000 shares of common stock granted on the
second anniversary thereof. Additional grants of options may be made from time to time pursuant to
the Directors Plan. Options under the Directors Plan are generally granted with an exercise
price equal to the closing price in the Wall Street Journal on the date prior to the grant. Option
grants under the Directors Plan become exercisable in three equal annual installments commencing
one year from the date of grant and have a 10-year term.
In 2005, the Company increased the stipend for non-employee directors serving as committee
chairmen from $2,000 to $7,500 per year. In addition, as of November 30, 2005, the following
additional compensation for non-employee directors became effective: (i) for the 2005 fiscal year,
an additional $50,000 cash retainer, (ii) the audit committee chairman stipend was raised to
$25,000, (iii) subject to stockholder approval of an equity compensation plan, for fiscal years
ending after December 31, 2005, an annual grant of $30,000 of equity compensation in the form of
restricted stock and/or options, and (iv) subject to stockholder approval of an equity compensation
plan, a grant of $20,000 of restricted stock in 2006 and 2007. The
annual retainer in 2006 will revert to $30,000.
In addition to the retainers and fees listed above, the Company reimburses the directors for
their travel expenses incurred in attending meetings of the Board or its committees, as well as for
fees and expenses incurred in attending director education seminars and conferences. The directors
do not receive any other personal benefits.
22
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table sets forth, for each of the years indicated, the compensation paid by the
Company to our Chief Executive Officer and the four other most highly compensated executive
officers of Bally (the Named Executive Officers). During these years, these officers were
compensated in accordance with our plans and policies.
Summary Compensation Table
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Long-Term |
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Annual Compensation |
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Compensation Awards |
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Restricted |
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Other Annual |
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Stock |
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Securities |
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All Other |
Name and Principal |
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Salary |
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Bonus |
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Compensation |
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Awards |
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Underlying |
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Compensation |
Position |
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Year |
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($) |
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($)(1) |
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($)(2) |
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($)(3) |
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Options (#) |
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($)(4) |
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Paul A. Toback |
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2004 |
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575,000 |
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400,000 |
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Chairman, President, |
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2003 |
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475,000 |
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300,000 |
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1,206,000 |
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200,000 |
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and Chief Executive |
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2002 |
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300,000 |
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300,000 |
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14,915 |
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Officer |
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William G. Fanelli (5) |
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2004 |
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325,000 |
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200,000 |
(6) |
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1,000 |
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Acting Chief |
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2003 |
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325,000 |
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163,125 |
(6) |
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361,800 |
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120,000 |
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25,077 |
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Financial Officer |
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2002 |
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250,000 |
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160,000 |
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21,500 |
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Cary A. Gaan (7) |
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2004 |
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375,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
751,000 |
(8) |
Senior Vice President, |
|
|
2003 |
|
|
|
375,000 |
|
|
|
160,000 |
|
|
|
|
|
|
|
361,800 |
|
|
|
120,000 |
|
|
|
1,000 |
|
Secretary and General |
|
|
2002 |
|
|
|
325,000 |
|
|
|
160,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
Counsel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harold Morgan |
|
|
2004 |
|
|
|
300,000 |
|
|
|
175,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
Senior Vice President, |
|
|
2003 |
|
|
|
300,000 |
|
|
|
146,250 |
|
|
|
|
|
|
|
361,800 |
|
|
|
120,000 |
|
|
|
1,000 |
|
Chief Administrative |
|
|
2002 |
|
|
|
225,000 |
|
|
|
160,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John H. Wildman |
|
|
2004 |
|
|
|
325,000 |
|
|
|
175,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Vice |
|
|
2003 |
|
|
|
325,000 |
|
|
|
138,125 |
|
|
|
|
|
|
|
361,800 |
|
|
|
120,000 |
|
|
|
|
|
President, Chief |
|
|
2002 |
|
|
|
250,000 |
|
|
|
165,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The 2004 bonus represents the bonus earned in 2004 and paid in March 2005. The 2003 bonus
represents the bonus earned in 2003 and paid in April 2004. The 2002 bonus represents the bonus
earned in 2002 and paid in March 2003. |
|
(2) |
|
Certain incidental personal benefits to executive officers of Bally may result from expenses
incurred by Bally in |
23
|
|
|
|
|
the interest of attracting and retaining qualified personnel. These incidental
personal benefits made available to the Named Executive Officers during 2004 are not described
herein because the incremental cost to Bally of such benefits did not exceed the lesser of $50,000
or 10% of the total salary and bonus during any reported year. |
|
(3) |
|
These restricted shares were issued in the respective recipients name and are held by Bally
until the restrictions lapse. Bally has not paid cash dividends, however, were we to do so, we
would pay dividends on restricted shares at the same rate paid on all other Bally common shares.
The restrictions on these shares lapse four years after the date of issuance, upon a change in
control (as defined in the 1996 Plan) of Bally, or the respective recipients death or termination
of employment other than for cause. The restriction with respect to 100,000 of the shares issued to
Mr. Toback in 2003 lapse solely upon a change in control of Bally. On December 31, 2004, the Named
Executive Officers owned the number of shares set forth in the table below. The market value is
based on the closing price of a Bally common share of $4.24 on December 31, 2004, the last trading
day prior to the end of the 2004 fiscal year. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Toback |
|
Mr. Fanelli |
|
Mr. Gaan |
|
Mr. Morgan |
|
Mr. Wildman |
Number of shares |
|
|
290,000 |
|
|
|
125,000 |
|
|
|
82,500 |
|
|
|
90,000 |
|
|
|
95,000 |
|
Market value |
|
$ |
1,229,600 |
|
|
$ |
530,000 |
|
|
$ |
349,800 |
|
|
$ |
381,600 |
|
|
$ |
402,800 |
|
|
|
|
|
|
During 2005, the acquisitions of Bally common stock by each of Liberation Investments Group,
LLC, Liberation Investments Ltd., Liberation Investments, L.P. and Emanuel R. Pearlman
(Liberation) and Pardus Capital Management L.P. to levels in excess of 10% of Ballys outstanding
common stock constituted a change in control under the 1996 Long-Term Incentive Plan and the
Inducement Plan, resulting in the lapse of the restrictions on all previously issued shares of
restricted stock, including the shares set forth in the table above and 35,000 shares of restricted
stock granted to Mr. Pearlman in 1998 while serving as a
consultant to the Company. As of December 5, 2005, Mr. Toback, Mr. Fanelli, Mr. Gaan, Mr. Morgan and Mr. Wildman owned
135,000, 50,001, 50,603, 55,921 and 60,000 shares, respectively, with a market value of $957,150,
$354,507, $358,775, $396,480 and $425,400 respectively. The market value is based on the closing
price of a Bally common share of $7.09 on December 5, 2005.
|
|
(4) |
|
Represents amounts matched by Bally in connection with participation in Ballys savings plans. |
|
(5) |
|
Since March 28, 2005, William G. Fanelli has served as Senior Vice President of Planning and
Development. |
|
(6) |
|
Includes a $25,000 bonus for serving as Acting Chief Financial Officer. |
|
(7) |
|
Since January 1, 2005, Cary A. Gaan has served as Senior Vice President, Special Counsel to the
President. |
|
(8) |
|
Includes $750,000 paid in connection with Mr. Gaans resignation as Senior Vice President,
Secretary and General Counsel pursuant to his amended employment agreement. |
The Company has not, and will not before the date of the annual meeting, definitively determine who
will be the four most highly compensated executive officers (other than the chief executive
officer) in 2005. However, based solely on salary, the Company believes that the four most highly
compensated officers (other than the chief executive officer) will be Mr. Landeck, Mr. Morgan, Mr.
Bassewitz and Mr. McDonald. In 2005, the salaries of Mr. Toback and the four most highly
compensated officers are as follows: $575,000 for Mr. Toback, $400,000 for Mr. Landeck; $350,000
for Mr. Morgan; $350,000 for Mr. Bassewitz; and $350,000 for Mr. McDonald. To date in 2005, Mr.
Toback, Mr. Landeck, Mr. Morgan, Mr. Bassewitz and Mr. McDonald have received grants of 255,000,
155,000, 110,000, 165,000 and 155,000 shares of restricted stock,
respectively, and options for 232,000,
98,000, 113,000, 73,000 and 43,000 shares, respectively. Except for
the tax gross-up payments related to the vesting of restricted stock referred to below and
incidental personal benefits, to date in 2005, Mr. Toback and Mr. Morgan have not received any
other compensation. Except for a signing bonus of $25,000 paid to Mr.
McDonald in 2005 and incidental personal benefits, to date in 2005, Mr. Landeck, Mr.
Bassewitz and Mr. McDonald have not received any other compensation. Incidental
personal benefits made available to Mr. Toback, M. Landeck, Mr. Morgan, Mr. Bassewitz and Mr.
McDonald during 2005 are not described herein because the incremental cost to Bally of such
benefits has not to date exceeded and is not expected to exceed the lesser of $50,000 or 10% of the
total salary and bonus.
24
Employment Agreements
Employment Agreement with Paul Toback
On August 24, 2004, Bally entered into an employment agreement with Mr. Toback to provide for
him to continue as Ballys President and Chief Executive Officer through December 31, 2007. The
termination date under Mr. Tobacks prior employment agreement with Bally was December 31, 2005.
Mr. Toback and Bally terminated the prior agreement and Bally did not incur any termination
penalties in connection with the termination. As in the prior agreement, the term of this
agreement will be automatically extended each year for an additional 12 months commencing December
31, 2007 unless either party provides notice of intent not to renew at least 90 days prior to the
then-current termination date. The agreement provides for an annual base salary of $575,000,
subject to increases at the discretion of Bally, an annual incentive payment of up to 70% of Mr.
Tobacks base salary based on performance criteria established by the Board, a tax gross-up payment
for income taxes relating to the vesting of restricted stock and additional perquisites.
If Mr. Tobacks employment is terminated by the Company for other than cause and other than
within two years following a change in control, he will be entitled to receive a lump sum payment
equal to (i) the full amount of the annual bonus for the immediately preceding calendar year if
such termination occurs prior to the payment of the bonus, (ii) a lump sum equal to two times the
sum of Mr. Tobacks annual salary and target bonus, and (iii) compensation for any unused earned
vacation days. In addition, his outstanding options and restricted stock will automatically become
fully vested, the exercise period of his options will continue for the period he otherwise would
have been able to exercise his options if he remained employed and he will be entitled to continued
health coverage for a period equal to the period he was employed by the Company. Under the
employment agreement, cause is defined as the conviction of a crime, the intentional or grossly
negligent disclosure of confidential or trade secret information of the Company to anyone not
entitled to such information, the omission or dereliction of any duty of loyalty to the Company;
the failure to cure a material violation of the Companys Code of Conduct or any other written
Company policy within thirty (30) days following the Companys written notice to Mr. Toback of such
material violation and the steps required by Mr. Toback to effect such cure, or the repeated
failure to carry out the material components of his duties despite specific written notice to do so
by the Board.
In the event that Mr. Toback terminates his employment for good reason or the Company
terminates his employment for other than cause within two years following a change in control, Mr.
Toback will be paid (i) the full amount of the annual bonus for the immediately preceding calendar
year if such termination occurs prior to the payment of the bonus, (ii) a lump sum equal to three
times the sum of Mr. Tobacks annual salary and target bonus, and (iii) compensation for any unused
earned vacation days. In addition, his outstanding options and restricted stock will automatically
become fully vested, the exercise period of his options will continue for the period he otherwise
would have been able to exercise his options if he remained employed, he will be entitled to
continued health coverage for a period equal to the period he was employed by the Company and he
will be entitled to outplacement services. If it is determined that any payment, distribution or
benefit received by the executive from the Company pursuant to his agreement or any stock award or
option plan would result in the imposition of excise tax, the Company will pay the executive an
additional amount such that Mr. Toback will have sufficient funds, after paying all additional
taxes, in order to pay that excise tax. In connection with the vesting of restricted stock in
2005, the Company made a tax gross-up payment to Mr. Toback of $838,777.
In the event Mr. Toback resigns without good reason on or after July 1, 2005, he will be
entitled to receive no less than 60% of the sum of his annual salary plus target annual bonus for
the then-current calendar year, and may, upon Board approval, receive payment greater than 60% of
the sum of his annual salary and target annual bonus upon giving ninety (90) days advance written
notice of his resignation date. If Mr. Tobacks employment terminates on the expiration date of
the agreement, other than for cause, he will be entitled to receive, one times his annual salary,
payment of the full amount of his annual bonus for the immediately preceding calendar year if such
termination occurs prior to the payment of the bonus, payment of his unused vacation days and
medical benefits for a period of three years.
Employment Agreement with Cary Gaan
On November 24, 2004, Bally entered into an amendment to the employment agreement with Mr.
Gaan. The amendment provides that Mr. Gaan resigned his position as Senior Vice President,
Secretary and General
25
Counsel effective as of January 1, 2005, and assume the responsibilities and title of Senior Vice
President, Special Counsel to the President at a reduced salary. Under the Amendment, Mr. Gaan
received a payment in the amount he would have received had his employment agreement been
terminated under Section 5(c) thereto, and he is not entitled to receive any further severance
payments in connection with a termination of employment by Bally within two years following a
change in control by Bally other than for cause or by reason of Mr. Gaans death or disability,
other than a prorated target bonus and continuation of group health coverage for a period of 18
months.
Employment Agreements with Other Senior Executives
Bally has entered into employment agreements with Carl Landeck, Harold Morgan, Marc Bassewitz
and Jim McDonald, effective as of March 28, 2005, January 1, 2005, January 1, 2005 and May 2, 2005,
respectively, for terms of three years through December 31, 2007 with respect to Harold Morgan and
Marc Bassewitz, for a term of approximately three and a half years through December 31, 2008 with
respect to Carl Landeck, and for a term of approximately three years through May 1, 2008 with
respect to Jim McDonald. The term of each employment agreement will be automatically extended each
year for an additional 12 months on the anniversary date of the respective termination date unless
either party provides notice of intent not to renew at least ninety (90) days prior to the
then-current termination date. Bally in previous years entered into employment agreements with
both William Fanelli and John Wildman, effective as of January 1, 2003 for a term of three years
through December 31, 2005. Commencing January 1, 2005, the term of these older employment
agreements are extended each day by one day to create a new one year term. At any time at or after
January 1, 2005, Bally or either Mr. Fanelli or Mr. Wildman may deliver notice to the other party
that the employment period shall expire on the last day of the one year period commencing on the
date of delivery of such notice.
The foregoing agreements provide for an annual base salary ($325,000 for both Mr. Fanelli and
Mr. Wildman; $400,000 for Mr. Landeck; $350,000 for Mr. Morgan; $350,000 for Mr. Bassewitz; and
$350,000 for Mr. McDonald), subject to increases at the discretion of Bally, and a bonus payable at
the discretion of Bally. In the event of a termination of employment by the executive for good
reason or by the Company for other than cause within two years following a change in control of
Bally, the executive will be paid (i) the full amount of the annual bonus for the immediately
preceding calendar year if such termination occurs prior to the payment of the bonus, plus (ii) a
lump sum equal to two times the executives annual salary and target bonus, plus (iii) compensation
for any unused earned vacation days. If it is determined that any payment, distribution or benefit
received by the executive from the Company pursuant to his agreement or any stock award or option
plan would result in the imposition of excise tax, the Company will pay the executive an additional
amount related to the excise tax. In addition, Mr. Morgan may voluntarily end his employment
within 120 days after Mr. Toback is no longer the Chief Executive Officer of the Company and be
paid a lump sum equal to no less than 60% of the sum of his annual salary plus target annual bonus
for the then-current calendar year, and may, upon Board approval, receive payment greater than 60%
of the sum of his annual salary and target annual bonus upon giving sixty (60) days advance
written notice of his resignation date. Mr. Morgan is also entitled to certain tax gross-up
payments for income taxes relating to the vesting of his shares of restricted stock. In connection
with the vesting of restricted stock in 2005, the Company made a tax gross-up payment to Mr. Morgan
of $296,641. Mr. McDonald will also receive a guaranteed minimum bonus of $150,000 for fiscal
2005, payable in March 2006, and received a $25,000 signing bonus upon commencement of his
employment. Mr. Landeck will also receive a guaranteed minimum bonus of $100,000 for fiscal 2005,
payable in March 2006. In November 2005, the Company amended the employments contracts with
Messrs. Toback, Landeck, Bassewitz, Morgan and McDonald to (i) include specific language regarding
the Company-provided disability insurance memorializing the Companys standard policy and (ii)
eliminate an exception from the definition of Change in Control for issuances of equity by the
Company.
Termination of Payments to Lee Hillman and John Dwyer
Effective December 11, 2002, Lee Hillman resigned as Chairman and Chief Executive Officer.
Effective April 28, 2004, John Dwyer resigned as Executive Vice President, Chief Financial Officer
and Director. In connection with the resignations of Mr. Hillman and Mr. Dwyer, each of them
entered into a severance agreement with the Company. Mr. Hillmans agreement provided that he
would receive certain benefits through December 31, 2005. Mr. Dwyers agreement provided that he
would be available to consult with the Company through December 31, 2005. On February 8, 2005, the
Company announced that its Audit Committee investigation found multiple
26
accounting errors in the Companys financial statements and concluded that both Mr. Hillman, as the
former Chief Executive Officer and Director, and Mr. Dwyer, as the former Chief Financial Officer,
were primarily responsible. In addition, the investigation found, among other things, that certain
accounting policies and positions were suggested and implemented without a reasonable empirical
basis and concluded that Mr. Dwyer made a false and misleading statement to the SEC. As a result
of these findings, the Company decided to make no further payments to either Mr. Hillman or Mr.
Dwyer under each of the respective severance agreements.
Long Term Incentive Plan
In January 1996, the Board of Directors of the Company adopted the 1996 Long-Term Incentive
Plan (the Incentive Plan). The Incentive Plan provides for the grant of non-qualified stock
options, incentive stock options and compensatory restricted stock awards (collectively Awards)
to officers and key employees of the Company. Initially, 2,100,000 shares of common stock were
reserved for issuance under the Incentive Plan. The Incentive Plan expires on January 3, 2006.
In November 1997, June 1999, December 2000 and June 2002 the Incentive Plan was amended to
increase the aggregate number of shares of common stock that may be granted under the Incentive
Plan to an aggregate of 8,600,000 shares. At December 5, 2005, 59,461 shares of common stock were
available for future grant under the Incentive Plan. Awards may not be granted under the Incentive
Plan after January 3, 2006.
Pursuant to the Incentive Plan, non-qualified stock options are generally granted with an
exercise price equal to the fair market value of the common stock at the date of grant. Incentive
stock options must be granted at not less than the fair market value of the common stock at the
date of grant. Option grants become exercisable at the discretion of the Compensation Committee,
generally in three equal annual installments commencing one year from the date of grant. Option
grants in 2004, 2003 and 2002 have 10-year terms.
There were no grants made to the Named Executive Officers under the 1996 Long Term Incentive
Plan in 2004. On March 8, 2005, the Companys Compensation Committee approved the grant of a total
of 1,027,000 stock options and shares of restricted stock under the Companys 1996 Long-Term
Incentive Plan, including 395,000 stock options and 245,000 shares of restricted to the named
executive officers as of December 31, 2004. The exercise price of the stock options was set at a
20% premium to the closing price of the Companys common stock on the NYSE at March 7, 2005. The
restrictions applicable to those restricted shares lapsed in May 2005 under the terms of the Plans
change in control provisions. See Summary Compensation Table, Note 3.
On November 29, 2005, having not previously made any grants in respect of 2005, the Companys
Compensation Committee approved the grant of a total of 1,022,000 stock options and shares of
restricted stock under the Companys 1996 Long-Term Incentive Plan, including 150,000 stock options
and 330,000 shares of restricted stock to the named executive officers as of December 31, 2004. The
exercise price of the stock options was set at $7.01, the closing price of the Companys common
stock on the NYSE at November 28, 2005.
Inducement Plan
On March 8, 2005, the Companys Compensation Committee adopted an Inducement Plan as a means
of providing equity compensation in order to induce the acceptance and continuation of employment
of newly hired officers and key employees of the Company and its affiliates. The Company adopted
the Inducement Plan because of the 1996 long-Term Incentive Plans potential lack of sufficient
shares available to provide necessary equity inducement for new employees. Stockholder approval of
the Inducement Plan was not required under the rules of the NYSE.
Under the Inducement Plan, the Company (with the approval of the Board of Directors, the
Compensation Committee and/or their delegates, hereinafter Administrator) may grant common stock
as a material inducement to eligible employees, either from time to time in the discretion of the
Administrator or automatically upon the occurrence of specified events. The Administrator in its
sole discretion determines whether an award may be
27
granted, the number of shares of common stock awarded, the date an award may be exercised, vesting
periods, and exercise price.
The Inducement Plan became effective upon its adoption and continues for a 10-year term ending
March 8, 2015. The Inducement Plan provides for the issuance of up to 600,000 shares of the
Companys common stock, and as of November 29, 2005, 385,000 restricted shares and stock options
covering an additional 153,000 shares have been granted which
includes the grant of 55,000 restricted shares and 23,000 stock options
under the Plan to the Companys Chief Financial Officer pursuant
to his original employment arrangement with the Company. The restrictions applicable to 330,000 of
these restricted shares lapsed in May and September 2005 under the terms of the Plans change in
control provision. See Summary Compensation Table, Note 3.
Management Retirement Savings Plan
The Bally Total Fitness Holding Corporation Management Retirement Savings Plan (the
Retirement Plan) was a deferred compensation plan designed to permit a select group of management
or highly compensated employees to enhance the security of themselves and their beneficiaries
following retirement or other termination of their employment. The Retirement Plan was intended to
be an unfunded employee pension benefit plan under the Employee Retirement Income Security Act of
1974, as amended, and was maintained by Bally. The Board, in its sole discretion, designated those
members of management or highly compensated employees who were eligible to participate in the
Retirement Plan.
The Company terminated the Retirement Plan as of August 23, 2004, per the decision of a
majority of participants. In accordance with its agreements, Bally funded the matching
contributions for 2003 to each participants account and no matching contributions were made for
2004. In addition, as of August 23, 2004, all matching contributions (whether vested or unvested
at the time) became 100% vested. As a result, all monies in the plan were distributed to the
participants. The distribution was not subject to the 10% withdrawal penalty but the monies
distributed were classified as taxable income to each participant for the year 2004 as required by
the Internal Revenue Service. Income received from the plan did not meet the government
requirements for rollover into an IRA, 401(k) or other tax deferred retirement savings due to the
nonqualified nature of the Retirement Plan.
Annual Incentive Compensation for Fiscal Year 2004
The Company provides annual cash incentive compensation (the Cash Bonus) for executive
officers and other employees in accordance with the established methodologies approved by the
Compensation Committee. The purpose of the Cash Bonus is to provide an additional performance
incentive for certain senior executive and other key employees of Bally (the Participants), as
determined by the Compensation Committee and based upon the recommendation of Ballys management.
Each Participant has an annual target Cash Bonus amount that is a percentage of his or her
base salary. For 2004, the Compensation Committee set target Cash Bonus levels consistent with
prior years at 70% of base salary for the CEO and 50% of base salary for senior vice presidents.
Fifty percent of the Cash Bonus was paid in accordance with achievement of financial performance
targets, consisting of a percentage of EBIDTA and gross committed revenues, as defined by the
Compensation Committee, and 50% of the Cash Bonus was paid in accordance with the achievement of
personal performance targets, as defined by the Compensation Committee. Consistent with prior
years, the actual Cash Bonus payments may range from 0% to 150% of the target Cash Bonus level,
depending on the level of achievement versus the established goals. For 2004, the Company paid the
following Cash Bonuses under the plan: $400,000 to Mr. Toback: $175,000 to Mr. Fanelli: $100,000
to Mr. Gaan: $175,000 to Mr. Wildman and $175,000 to Mr. Morgan. The Cash Bonus amounts for 2004
were awarded on March 8, 2005.
Annual Incentive Compensation for Fiscal Year 2005
Because the Cash Bonuses are determined in accordance with achievement of financial targets in
2005, the Compensation Committee will not determine the Cash Bonuses for 2005 until complete
financial information for 2005 becomes available. Thus, the annual incentive compensation for
fiscal year 2005 is not available at the time of the filing of this proxy statement and will not
become available before the date of the annual meeting.
28
Stock Option and SAR Grants
No grants were made in fiscal 2004. As described above, on March 8, 2005, the Companys
Compensation Committee approved stock option grants, including the grant of 395,000 options under
the Companys 1996 Long Term Incentive Plan to the named executive officers as of December 31,
2004. The exercise price of the options was set at a 20% premium to the closing price of the
Companys common stock on the NYSE at March 7, 2005. As described above, effective as of November
29, 2005, having not previously made any grants in respect of 2005, the Companys Compensation
Committee approved the grant of a total of 150,000 stock options to the named executive officers as
of December 31, 2004. The exercise price of the stock options was set at $7.01, the closing price
of the Companys common stock on the NYSE at November 28, 2005.
Stock Option and SAR Exercises
The following table sets forth certain information concerning exercises of stock options
during 2004 and the first 11 months of 2005 by each of the Named Executive Officers and their stock
options outstanding as of December 31, 2004 and November 30, 2005. There have been no stock
appreciation rights granted by Bally to date.
Aggregated Option Exercises in Last Fiscal Year and Option Values at End of Last Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
Value of |
|
|
|
|
|
|
|
|
|
|
Underlying Unexercised |
|
Unexercised In-the-Money |
|
|
|
|
|
|
|
|
|
|
Options at |
|
Options at |
|
|
|
|
|
|
|
|
|
|
December 31, 2004 |
|
December 31, 2004 (1) |
|
|
Shares |
|
Value |
|
|
|
|
|
|
|
|
|
|
Acquired on |
|
Realized |
|
Exercisable |
|
Unexercisable |
|
Exercisable |
|
Unexercisable |
Name |
|
Exercise (#) |
|
($) |
|
(#) |
|
(#) |
|
($) |
|
($) |
Paul A. Toback |
|
|
0 |
|
|
|
0 |
|
|
|
186,668 |
|
|
|
303,332 |
|
|
|
0 |
|
|
|
0 |
|
Cary A. Gaan (2) |
|
|
0 |
|
|
|
0 |
|
|
|
100,000 |
|
|
|
105,000 |
|
|
|
0 |
|
|
|
0 |
|
William G. Fanelli (3) |
|
|
0 |
|
|
|
0 |
|
|
|
175,000 |
|
|
|
140,000 |
|
|
|
1,725 |
|
|
|
0 |
|
John H. Wildman |
|
|
0 |
|
|
|
0 |
|
|
|
165,000 |
|
|
|
140,000 |
|
|
|
4,025 |
|
|
|
0 |
|
Harold Morgan |
|
|
0 |
|
|
|
0 |
|
|
|
155,000 |
|
|
|
160,000 |
|
|
|
4,025 |
|
|
|
0 |
|
|
|
|
(1) |
|
Based on the closing price of common stock on the New York Stock Exchange on December 31, 2004,
which was $4.24 per share. |
|
(2) |
|
Cary A. Gaan served as Senior Vice President, Secretary and General Counsel of the Company from
1977 through December 31, 2004. Mr. Gaan currently serves as Senior Vice President, Special
Counsel to the President. |
|
(3) |
|
William G. Fanelli served as acting Chief Financial Officer from April 2004 through March 2005.
Mr. Fanelli currently serves as Senior Vice President, Planning and Development. |
29
Aggregated
Option Exercises as of December 5, 2005 and Option Values as of
December 5, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
Value of |
|
|
|
|
|
|
|
|
|
|
Underlying Unexercised |
|
Unexercised In-the-Money |
|
|
|
|
|
|
|
|
|
|
Options at |
|
Options at |
|
|
|
|
|
|
|
|
|
|
December
5, 2005 |
|
December
5, 2005 (1) |
|
|
Shares |
|
Value |
|
|
|
|
|
|
|
|
|
|
Acquired on |
|
Realized |
|
Exercisable |
|
Unexercisable |
|
Exercisable |
|
Unexercisable |
Name |
|
Exercise (#) |
|
($) |
|
(#) |
|
(#) |
|
($) |
|
($) |
|
Paul A. Toback |
|
|
0 |
|
|
|
0 |
|
|
|
253,334 |
|
|
|
298,666 |
|
|
|
76,000 |
|
|
|
532,560 |
|
Carl J. Landeck |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
98,000 |
|
|
|
0 |
|
|
|
315,340 |
|
Harold Morgan |
|
|
36,000 |
|
|
|
99,243 |
|
|
|
159,000 |
|
|
|
143,000 |
|
|
|
44,550 |
|
|
|
255,040 |
|
Marc D. Bassewitz |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
73,000 |
|
|
|
0 |
|
|
|
163,340 |
|
James A. McDonald |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
43,000 |
|
|
|
0 |
|
|
|
85,440 |
|
|
|
|
(1) |
|
Based on the closing price of Bally common stock on the New York
Stock Exchange on December 5, 2005, which was $7.09 per share. |
Compensation Committee Interlocks and Insider Participation
During 2004, the following directors (none of whom was or had been an officer or employee of
the Company or any of its subsidiaries) served on the Companys Compensation Committee: John W.
Rogers, Jr., Barry M. Deutsch (since May 2004), Martin Franklin (resigned April 2004), J. Kenneth
Looloian, James F. McAnally and Stephen C. Swid (resigned August 2005). During 2005, the following
directors (none of whom was or had been an officer or employee of the Company or any of its
subsidiaries) served on the Companys Compensation Committee: John W. Rogers, Jr., Barry M.
Deutsch, J. Kenneth Looloian, James F. McAnally, Eric Langshur, Steven S. Rogers (since December
2005), and Stephen C. Swid (resigned August 2005). During 2004, the following directors (none of
whom was or had been an officer or employee of the Company or any of its subsidiaries) served on
the Companys Compensation Committee: John W. Rogers, Jr., Barry M. Deutsch (since May 2004),
Martin Franklin (resigned April 2004), J. Kenneth Looloian, James F. McAnally and Stephen C. Swid
(resigned August 2005). There were no interlocks during 2004 or to date in 2005 with other
companies within the meaning of the SECs rules.
30
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Companys Board of Directors assists the Board of Directors in
fulfilling its responsibility for oversight of the integrity of the Companys financial
statements, the Companys compliance with legal and regulatory requirements, the independent
auditors qualifications and independence, and the performance of the Companys internal audit
function and independent auditor. Management has the primary responsibility for the financial
statements and the reporting process, including the systems of internal and disclosure controls
(including internal controls over financial reporting). The independent auditors are responsible
for performing an independent audit of the Companys consolidated financial statements in
accordance with generally accepted auditing standards and for issuing a report thereon.
In August 2004, the Audit Committee of the Board undertook an independent investigation of
certain aspects of the past financial statements filed by the Company with the assistance of
independent legal counsel at Bingham McCutchen LLP (Bingham) who consulted with accounting
experts PricewaterhouseCoopers LLP (PwC) and Marshall Wallace, each retained by Bingham.
In November 2004, the Audit Committee announced that based on the results of its
investigation and in consultation with KPMG LLP, the Companys independent registered public
accounting firm, it had determined financial statements and other information pertaining
to years-ended December 31, 2000, 2001, 2002 and 2003 and for the first quarter of 2004 should be
restated and should no longer be relied upon.
The Audit Committee completed its investigation on February 8, 2005 and reported its
results to the SEC. As a result of the above events and circumstances, the Company undertook a
comprehensive review of its previously filed consolidated financial
statements since the year 2000,
and on November 30, 2005, filed its annual report on Form 10-K for 2004 that contained restated
financial information for years ended December 31, 2000 and 2001 (unaudited) and restated financial
statements for years ended December 31, 2002 and 2003
(audited) along with its audited consolidated
financial statements for the year ended December 31, 2004. On November 30, 2005, the
Company filed a series of Forms 10-Q for 2004 and 2005, including a Form 10-Q for the first
quarter of 2005 that contained restated financial statements (unaudited) for the first quarter of
2004. The Audit Committee has overseen the internal review and the restatement of the financial
statements.
During the review and pursuant to managements evaluation of internal controls pursuant to
Section 404 of the Sarbanes-Oxley Act of 2002, the Company also identified material weaknesses in
its internal controls. Management has concluded that the companys disclosure controls and
procedures were not effective as of December 31 2004,
March 31, 2005, June 30, 2005 or September 30, 2005
due to material weaknesses in internal control over financial reporting. Management also
has concluded that the Company did not maintain effective internal control over financial reporting
as of December 31, 2004. In order to remediate the internal controls over financial reporting,
management has implemented or is in the process of implementing
various measures. The Audit
Committee is overseeing this process and is receiving regular reports from management.
The Audit Committee has reviewed and discussed with management and with KPMG the Companys
financial statements for years ended December 31, 2002 and 2003, as restated and the Companys
financial statements for the year ended December 31, 2004, each of which was audited by KPMG.
Management represented to the Audit Committee that the Companys consolidated financial statements
were prepared in accordance with generally accepted accounting principles. The Audit Committee
discussed with the independent auditors matters required to be discussed by Statement on Auditing
Standards No. 61 (Communications with Audit Committees), as amended. The Audit Committee has
received the written disclosures and the letter from KPMG required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees). In addition, the Audit Committee
has discussed with the independent auditors the auditors independence from the Company and its
management.
Recently, due a medical condition, Mr. Looloian has not been actively participating in Audit
Committee matters. Mr. Langshur was appointed by the Board of Directors in November 2005 to serve
as Chairperson of the Audit Committee.
In performing all of these functions, the Audit Committee acts only in an oversight capacity
and necessarily relies on the work and assurances of the Companys management and independent
auditors. In reliance on the reviews and discussions referred to in this Report and in light of its
role and responsibilities, the Audit Committee recommended to the Board of Directors, and the Board
approved, including the audited financial statements of the Company in the Companys Annual Report
on Form 10-K for the fiscal year ended December 31, 2004 for filing with the SEC.
Members of the Audit Committee,(1)
Eric Langshur, Chairman
Barry M. Deutsch
J. Kenneth Looloian
James F. McAnally, M.D.
(1) Adam Metz joined the Board of Directors and the Audit Committee on December 1, 2005 and
thus did not participate in any committee activities for the periods discussed in the Report. Due
to his illness, Mr. Looloian has not reviewed the contents of the Report.
31
REPORT OF THE COMPENSATION COMMITTEE
Overview
The Compensation Committee is responsible for establishing compensation guidelines for
officers and employees, and administering the Companys stock option and other incentive plans.
The total direct compensation for the Companys executives is made up of three elements: base
salary, annual performance based bonus and long-term incentive program in the form of options and
restricted stock. Additionally, executives receive indirect compensation through participation in
employee benefit plans available to all employees of the Company, such as health, life, disability
plans, tax qualified retirement plans and, until August 2004, the Management Retirement Savings
Plan, which was a non-qualified retirement plan that was terminated at that time. The compensation
package for the Companys executives is designed to provide executives with market competitive
annual salaries, performance based annual bonus as a means of motivating them to achieve short-term
business objectives, and equity based compensation as a means of rewarding executives for increased
stockholder value over the longer term.
In setting the compensation for executives the Committee engaged the services of an outside
compensation consulting firm. This consulting firm identified a peer group of companies based on
similar revenues, lines of business and geographic locations as the Company. The Committee then
examined base salaries, bonus compensation and long-term incentives relative to this peer group
towards a goal of having direct total compensation to adequately incent
the officer group at competitive compensation levels.
Base Salary
In setting executives salaries for 2004, the Committee reviewed the compensation survey as
compared to the selected peer group. Each executive was then evaluated based on their role and
responsibilities within the Company, attainment of individual objectives during the preceding year
and the Companys overall performance. For 2004, the Committee determined to make no change to
the salaries of the four most highly compensated officers of the Company other than the Chief
Executive Officer (or the named executive officers), in accordance with their employment
agreements.
Annual Bonus Plan
In 2004 the officers and other employees were eligible to receive bonuses based achievement of
both Company and individual performance goals established by the Committee, with 50% weight for
corporate and individual objectives. The individual executives target award is set based on their
position and job level. For 2004 the target bonus for the named executive officers was 50% of base
salary and the target bonus for Mr. Toback, our Chairman and Chief Executive Officer, was 70% of
base salary. In 2004 the corporate objectives were based on the Company achieving a percentage of
targeted EBITDA and gross committed revenues determined by the Compensation Committee. The
Companys actual performance in 2004 was below targeted thresholds. However, the Committee
determined that each named executive officer met and exceeded their targeted individual performance
goals. The Committee determined that in light of the extraordinary circumstances facing the
Company described above which were not contemplated at the time the corporate performance goals
were established, that annual bonuses should be awarded at a level slightly higher than target for
the named executive officers. Accordingly, the named executive officers received bonuses for 2004
which were approximately 62% of Mr. Fanellis base salary, 27% of Mr. Gaans base salary, 58% of
Mr. Morgans base salary and 54% of Mr. Wildmans base salary. A portion of Mr. Fanellis bonus
was in recognition of his acting as Chief Financial Officer and a portion of Mr. Gaans bonus was
in recognition of his retirement as General Counsel of the Company.
Long Term Incentives
The Compensation Committee believes stock ownership by executives is important to aligning
executives interest to those of stockholders. Equity compensation takes the form of stock options
and restricted stock. The Committee believes it is important that the Company grant a mixture of
long term equity instruments that in the aggregate provide both reward for value appreciation as
well as retention and tangible value for services during and
32
after the vesting period. As other organizations have determined we feel by awarding both stock
options and restricted stock, we have aligned the executives more appropriately than by rewarding
only one type of stock based equity instrument. The employment agreements of the Companys
executives also provide for the grant of stock options and/or restricted stock and these grants
provide a significant inducement for the hiring and retention of key employees.
Options granted to executives typically have a term of ten years and vest over a three year
period. The exercise price is generally equal to or greater than the price of our stock on the day
prior to the option being granted. The options are used as a value appreciation instrument as the
executive realizes value only if the stock price increases. This aligns the interests of the
executives with the interests of the stockholders. For 2004 performance, executives were granted
options in 2005. Those options were issued with an exercise price which was 20% over the closing
price of our common stock on the date of grant. In addition, on November 29, 2005, having not
previously made any grants in respect of 2005, executives were granted options, the exercise price
of which was set at $7.01, the closing price of the Companys common stock on the NYSE at November
28, 2005. The Companys Compensation Committee has also determined to consider implementation of
incentive and retention agreements and arrangements in connection with the Companys announced
exploration of strategic alternatives.
Restricted stock awards are used by the Compensation Committee as an incentive and retention
device to reward the executive over the long term and be aligned with the stockholders in
optimizing the value of the Company. Such awards can be granted with performance vesting
restrictions or with time vesting restrictions. Restricted Stock issued with time vesting
restrictions typically vest after four years provided the executive is employed by the Company on
the vesting date. All shares of restricted stock granted for 2004 performance were actually
granted in 2005 under the 1996 Long Term Incentive Plan and were generally to vest over four years. However, during 2005,
the acquisition of Bally common stock by certain investors in excess of 10% of Ballys outstanding
common stock constituted a change in control under the 1996 Long-Term Incentive Plan, resulting
in the lapse of the restrictions on all previously granted shares of restricted stock. On November
29, 2005, having not previously made any grants in respect of 2005, executives were granted
restricted stock.
The 1996 Long Term Incentive Plan did not have sufficient shares available to provide long
term incentives for newly hired executives. Because the Compensation Committee believes it is
important to continue to provide incentives to executives that align their interests with the
interests of the stockholders, the Committee adopted the Inducement Plan.
The Compensation Committee continues to monitor recipients of options and restricted stock and
the number of equity awards granted to executives based on past performance in order to insure that
such awards provide for the proper future incentive as well as to be competitive within the
marketplace for key talent. We continue to monitor our use of stock options and the potential
dilution effects as we determine equity awards.
Chief Executive Officer Compensation
The Compensation Committee considered the following factors in determining the base salary for
2004 for Paul Toback, our Chairman and Chief Executive Officer: the Companys performance relative
to its profit plan for 2004, the leadership provided through a challenging number of events during
the past year and the level of compensation paid to the highest paid executive at companies within
the selected peer group. Based on these factors, the Committee established Mr. Tobacks 2004 base
salary at $575,000. This placed Mr. Tobacks base salary at slightly below the median of base
salaries at peer group companies.
In August 2004, the Committee approved a new employment agreement for Mr. Toback. The
agreement provides for, among other things, a base salary of $575,000 and for him to continue as
the Companys President and Chief Executive Officer through December 31, 2007. The agreement was
amended in November 2005 to (i) include specific language regarding the Company-provided disability
insurance memorializing the Companys standard policy and (ii) eliminate an exception from the
definition of Change in Control for issuances of equity by the Company.
For 2004, Mr. Toback was
eligible to earn a cash bonus ranging up to 70% of his base salary based on Company and individual
performance goals as described above. As mentioned above, the Compensation Committee considered
bonus payments to the named executive officers, including Mr. Toback, and considered the
performance
33
of the Company as compared to the Company and individual performance goals for the 2004. Based on
the Companys performance, the Committee determined that the Company performance goals were not met
for 2004. The Committee however, analyzed additional factors, including total cash compensation
necessary to meet the objectives of hiring and retaining top executive talent; substantial progress
in addressing regulatory matters; and accomplishment of executive management leadership objectives.
The Committee determined to weigh the actions of management initiated for investment in the
long-term growth of the Company against decisions that could have been made for short-term results.
Accordingly, the Committee determined that based on these quantitative and qualitative factors
some level of annual bonus should be made to Mr. Toback, at a level slightly above the targets
established. For 2004, the Committee determined that based on the Companys performance Mr. Toback
earned a bonus of $400,000, which represented 70% of his base salary for fiscal year 2004.
For his 2004 performance, Mr. Toback was also awarded options to purchase 170,000 shares of
the Companys common stock at an exercise price equal to $4.21 per share, which represents a premium
of 20% over the trading price of the Companys stock on the date the options were granted. In
addition, Mr. Toback was awarded 120,000 shares of restricted stock under the Companys 1996 Long
Term Incentive Plan, which were generally to vest after four years from the date of grant. However, during 2005, the
acquisitions of Bally common stock by Liberation in excess of 10% of Ballys outstanding common
stock constituted a change in control under the 1996 Long-Term Incentive Plan, resulting in the
lapse of the restrictions on all shares of restricted stock previously issued to Mr. Toback. In connection with the
vesting of restricted stock in 2005, the Company made a tax gross-up payment to Mr. Toback of
$838,777 to compensate him for the taxes payable due to the vesting
of restricted stock. In addition, effective as of November 29, 2005, having not
previously made any grants in respect of 2005, the Companys Compensation Committee approved the
grant of 62,000 stock options and 135,000 shares of restricted stock
to Mr. Toback under the Companys 1996
Long-Term Incentive Plan. The exercise price of the stock options was set at $7.01, the closing
price of the Companys common stock on the NYSE at November 28, 2005.
162(m) Discussion
Section 162(m) of the Internal Revenue Code limits the tax deduction of a publicly held
company allowed for compensation paid its named executive officers to $1,000,000, unless such
amounts are performance based. Generally, the Compensation Committee desires to maintain the tax
deductibility of the compensation paid to executive officers to the extent it is feasible and
consistent with the objectives of the Companys compensation programs. The Compensation Committee
continues to consider ways to maximize the deductibility of executive compensation, but intends to
retain the discretion the Compensation Committee deems necessary to compensate executive officers
in a manner commensurate with performance and the competitive environment for executive talent.
Accordingly, the Compensation Committee may determine to pay compensation to the named executive
officers which may not be deductible under 162(m).
Review of all Components of Executive Compensation
The Compensation Committee has reviewed all cash and equity components of the Companys named
executive officers, including salary, bonus, and long-term equity compensation. In addition, the
Compensation Committee has reviewed and considered other indirect elements of the named executive
officers compensation including participation in tax qualified and non-qualified retirement plans
such as the Management Retirement Plan, as well as certain perquisites available to the named
executive officers. These perquisites are not a significant element of the executives
compensation. When considering any one component of the named executive officers total
compensation, the Compensation Committee considers such component based on the aggregate amounts
and mix of all the components, taken as a whole.
Based on this review, the Committee finds that the total compensation paid to the named
executive officers in 2004 and to date in 2005 was reasonable and not excessive.
34
|
|
|
|
|
Members of the Compensation
Committee,(1) |
|
|
|
|
|
John W. Rogers, Jr., Chairman |
|
|
Barry M. Deutsch |
|
|
J. Kenneth Looloian |
|
|
James F. McAnally, M.D. |
|
|
Eric Langshur |
|
|
|
(1) |
|
Steven S. Rogers joined the Board of Directors and the Compensation Committee on December 1, 2005
and thus did not participate in any committee activities for the
periods discussed in the Report. Due to his illness,
Mr. Looloian has not reviewed the contents of the Report. |
35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
During
2004 and through November 30, 2005, Bally paid approximately
$3.3 million and $3.2 million, respectively for goods and services from a company which
employed a relative of Mr. Wildman. Bally believes that the terms of these arrangements were at
least as favorable to Bally as those which could be obtained from unrelated parties.
INDEPENDENT AUDITORS
On March 25, 2004, we were notified by Ernst & Young LLP (E&Y), our principal accountant,
that it had resigned. E&Ys resignation became effective on May 10, 2004 with the filing of the
Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2004. On May 18, 2004, the
Company engaged KPMG LLP (KPMG) as its principal accountants for the year ending December 31,
2004. The decision to engage KPMG was made by the Audit Committee of the Board of Directors.
Subsequently, in November 2004, we engaged KPMG to audit our consolidated financial statements for
2003 and 2002.
During the two years ended December 31, 2003, through May 10, 2004, there were no
disagreements between us and E&Y on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to E&Ys
satisfaction, would have caused them to make reference to the subject matter of the disagreement in
connection with this report. There were no reportable events as defined in Item 304(a)(1)(v) of
Regulation S-K.
E&Ys reports on our consolidated financial statements for the years ended December 31, 2003
and 2002 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty or audit scope.
Principal Accountant Fees and Services
Fees Paid to the Principal Accountant-2004
As discussed above, KPMG was named our independent registered public accounting firm in May
2004. The table below sets forth all fees paid or accrued for the services of KPMG in 2004:
|
|
|
|
|
Audit fees:(1) |
|
$ |
7,988,800 |
|
Audit-related fees:(2) |
|
|
37,750 |
|
|
|
|
|
Total audit and audit-related fees |
|
$ |
8,026,550 |
|
Tax fees |
|
|
0 |
|
All other fees: |
|
|
0 |
|
|
|
|
|
Total fees |
|
$ |
8,026,550 |
|
|
|
|
|
|
|
|
(1) |
|
Audit fees include work performed in connection with the audit of
the consolidated financial statements for the years ended
December 31, 2004, 2003 and 2002. It also includes fees for
professional services that are normally provided by our
registered public accounting firm in connection with statutory
and regulatory filings. |
|
(2) |
|
Audit related fees include work performed in connection with
separate audits of subsidiaries and affiliated entities not
required by statute or regulation. |
Fees Paid to the Principal Accountant-2003
As discussed above, E&Y resigned as our independent registered public accounting firm
effective May 10, 2004. During 2004, E&Y had reviewed our interim condensed consolidated financial
statements for the quarter ended
March 31, 2004. Fees were paid to E&Y for the above services during 2003 and through the date of
their resignation as our independent registered public accounting firm.
37
|
|
|
|
|
Audit fees:(1) |
|
$ |
1,844,000 |
|
Audit-related fees:(2) |
|
|
24,000 |
|
|
|
|
|
Total audit and audit-related fees |
|
$ |
1,868,000 |
|
Tax fees |
|
|
0 |
|
All other fees:(3) |
|
|
2,500 |
|
|
|
|
|
Total fees |
|
$ |
1,870,500 |
|
|
|
|
|
|
|
|
(1) |
|
Audit fees include work performed in connection with the audit of the consolidated
financial statements for the years ended December 31, 2003 and 2002. It also
includes fees for professional services that are normally provided by our
registered public accounting firm in connection with statutory and regulatory
filings. |
|
(2) |
|
Audit related fees include work performed in connection with separate audits of
subsidiaries and affiliated entities not required by statute or regulation. |
|
(3) |
|
All other fees consist of a subscription to EY On-Line, an accounting research tool. |
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent
Registered Public Accounting Firm
The Audit Committee has responsibility for retaining, setting fees, and overseeing the work of
the registered public accounting firm. The retention of the firm is subject to stockholder
ratification. In recognition of this responsibility, the Audit Committee has established a policy
to pre-approve all audit and permissible non-audit services provided by the registered public
accounting firm. The Audit Committee has delegated pre-approval authority to the chairman of the
committee. The chairman must report any pre-approval decisions to the Audit Committee at its next
scheduled meeting for approval by the Audit Committee as a whole.
38
RATIFICATION
OF THE APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITOR FOR THE
COMPANY FOR THE FISCAL
YEAR ENDING DECEMBER 31, 2005
Proposal 3 Ratification of the Appointment of KPMG LLP as Independent Auditor for the Company for
the Fiscal Year Ending December 31, 2005.
In accordance with the Audit Committees charter, the Audit Committee has appointed KPMG LLP
as the Companys independent auditor for the fiscal year ending December 31, 2005. KPMG has been
the Companys independent auditor since May 18, 2004, and is considered by management to be
well-qualified.
Stockholder ratification of the Audit Committees selection of KPMG is not required by the
Companys By-Laws; however, the Board of Directors believes that it is of sufficient importance to
seek ratification. In the event the stockholders do not ratify the appointment of KPMG, the Board
of Directors will reconsider its selection of KPMG. In addition, even if the stockholders ratify
the selection of KPMG, the Audit Committee may in its discretion appoint a different independent
auditor at any time during the year if the Audit Committee determines that a change is in the best
interest of the Company.
Representatives of KPMG are expected to be present at the annual meeting of stockholders to
respond to stockholders questions and to have the opportunity to make any statements they consider
appropriate.
The Companys Board of Directors recommends a vote FOR ratification of KPMG LLP as independent
auditor for the Company for the fiscal year ending December 31, 2005.
39
STOCKHOLDER PROPOSAL
Proposal 4 Pardus Proposal
On November 17, 2005, Pardus European Special Opportunities Master Fund L.P., the beneficial
owner of 5,311,000 shares of the Companys common stock, whose address is c/o Pardus Capital
Management L.P., 1001 Avenue of the Americas, Suite 1100, New York, New York, 10018, delivered a
notice of stockholder proposal to be presented at the upcoming annual meeting of stockholders on
January 26, 2006 as follows:
RESOLVED, that each provision or amendment of the By-laws of Bally Total Fitness Holding
Corporation (the Company) adopted by the Board of Directors of the Company without the
approval of the Companys stockholders subsequent to May 25, 2005 (purportedly the last date
of reported changes) and prior to the approval of this resolution be, and they hereby are,
repealed, effective as of the time this resolution is approved by the Companys
stockholders.
The
Companys Board of Directors recommends you ABSTAIN with respect
to the Pardus
Proposal for the following reasons:
No provisions of or amendments to the Companys by-laws have been adopted by the Board of
Directors without the approval of the Companys stockholders subsequent to May 25, 2005. The
Company does not plan to adopt any provisions of or amendments to the Companys by-laws on or prior
to the annual meeting of stockholders without the approval of the Companys stockholders in the
future.
For the
foregoing reasons, the Companys Board of Directors recommends
you ABSTAIN with respect to the Pardus Proposal.
40
OTHER BUSINESS
In addition to the matters described above, after the meeting there will be a brief
presentation by the Chairman of the Board and a general discussion period during which stockholders
will have an opportunity to ask questions.
Liberation Proposal
On November 21, 2005, Liberation Investments, L.P. and Liberation Investments, Ltd. delivered
a notice of intention to present a stockholder proposal (the Liberation Notice of Stockholder
Proposal) at the upcoming annual meeting of stockholders on
January 26, 2006 but has neither delivered a proxy statement or
form of proxy to holders of a majority of the shares entitled to vote
nor indicated that it intends to do so. Liberation
Investments, L.P., Liberation Investments, Ltd., Liberation Investment Group LLC and Emanuel R.
Pearlman (collectively, Liberation), collectively beneficially own 4,134,450 shares of the
Companys common stock, including 35,000 shares of restricted stock which vested in 2005 as a
result of the acquisitions of Bally common stock by Liberation. Liberations address is 11766
Wilshire Blvd., Suite No. 870, Los Angeles, California 90025. The Liberation Notice of Stockholder
Proposal indicated an intention to present the following stockholder proposal at the upcoming
annual meeting of stockholders on January 26, 2006:
RESOLVED, that the stockholders of the Company do hereby amend Article IV, Section
1, Article IV, Section 2 and Article VIII, Section 5 of the Amended and Restated
Bylaws of Bally Total Fitness Holding Corporation by deleting such sections in their
entirety and replacing them as follows (text to be added to the existing text of the
Bylaws hereby is underscored herein):
Article IV, Section 1, is amended and restated to read:
The officers of the Corporation shall be chosen by the Board of Directors,
provided that the stockholders shall be empowered to remove the Corporations
Chief Executive Officer and President from office by the affirmative vote of the
holders of a majority of the Corporations issued and outstanding stock then
entitled to vote. The Corporations officers shall be a Chief Executive Officer,
who shall also be the Corporations President, a Secretary and a Treasurer. The
Board of Directors, in its discretion, may also choose a Chairman of the Board of
Directors (who must be a director) and one or more Vice Presidents, Assistant
Secretaries, Assistant Treasurers and other officers. Any number of offices may be
held by the same person, unless otherwise prohibited by law, the Certificate of
Incorporation or these Bylaws. The officers of the Corporation need not be
stockholders of the Corporation nor, except in the case of the Chairman of the
Board of Directors, need such officers be directors of the Corporation.
Article IV, Section 2, is amended and restated to read:
The Board of Directors at its first meeting held after each annual meeting of
stockholders shall elect the officers of the Corporation who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors or the
stockholders, as the case may be. All officers of the Corporation shall hold
office until their successors are chosen and qualified, or until their earlier
resignation or removal by the Board of Directors or the stockholders. Any
officer elected by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. The Corporations
Chief Executive Officer and President may also be removed by the stockholders as
provided in Section 1 of this Article IV, and no person removed as Chief Executive
Officer and President shall thereafter be appointed or reappointed by the Board of
Directors to serve as an officer of the Corporation. Any vacancy occurring in
any office of the Corporation shall be filled by the Board of Directors. The
salaries of all officers who are directors of the Corporation shall be fixed by the
Board of Directors.
41
Article VIII, Section 5, is amended and restated to read:
Section 2 of Article III, Section 1 of Article IV, Section 2 of Article IV
and this Section 5 of Article VIII of these Bylaws may only be altered, amended,
changed or repealed by action of the stockholders of the Corporation.
FURTHER RESOLVED, that Paul A. Toback is hereby removed as the Chief Executive
Officer and President of the Company, effective immediately.
The Companys Board of Directors recommends you vote AGAINST the Liberation Proposal for the
following reasons:
Emanuel Pearlman and Liberation have been attempting to insert themselves into Ballys
corporate board room for over a year. They have initiated repeated demands, inquiries, proposals,
lawsuits and threats of lawsuits and made unsubstantiated claims to the press and in Securities and
Exchange Commission filings all of which appear to be designed primarily to disrupt and distract
Bally management from focusing on executing the Companys new business plan and enhancing value for
all stockholders. Mr. Pearlmans and Liberations latest maneuvera proposal which would, among
other things, give stockholders the power to remove the Companys chief executive officeris the
most egregious of their tactics, both as to the substance of the proposal and its true purpose.
The Board of Directors believes that it is not a good faith proposal intended to enhance
stockholder value.
The Board of Directors has determined that it must retain its authority to manage the business
and affairs of the Company, including through the selection, supervision and removal of the
Companys Chief Executive Officer. First, the Board of Directors believes this proposal is illegal
under the Delaware General Corporation Law, specifically Section 141(a), which provides that [t]he
business and affairs of [a Delaware corporation] shall be managed by or under the direction of the
Board of Directors . . . . What is more, the Board of Directors believes this proposal
contravenes Article Fifth of Ballys Certificate of Incorporation, which provides, in relevant
part, that:
The Board of Directors shall have the power to make, adopt, alter, amend, change or
repeal the Bylaws of the Corporation by resolution adopted by the affirmative vote
of a majority of the entire Board of Directors.
As previously disclosed, the Company has filed a complaint for declaratory relief on these
issues with the Delaware Court of Chancery and has asked the court to confirm that this proposal
violates both Section 141(a) and Article Fifth of the Companys Certificate of Incorporation. The
Company has also filed a complaint arising from this proposal with the United States District Court
for the District of Delaware accusing Liberation of violations of Section 14(a) of the Securities
Exchange Act of 1934 (the Exchange Act) and Rule 14a-9 thereunder as well as Section 13(d) of the
Exchange Act. These proceedings are currently pending, and, while the Company is unable to make
predictions about their outcome, the Board of Directors believes that the Company will ultimately
be successful on the merits in each case.
Aside from the illegality of this proposal, the Board of Directors believes it is ill advised
from a governance perspective. Unlike the Companys stockholders, the Board of Directors is
intimately familiar with Ballys operations as well as the exigencies that confront the Company on
a day-to-day basis. Consequently, the Board of Directors is in the best position to evaluate the
performance of the Companys Chief Executive Officer and reach conclusions as to his retention,
supervision and removal. For similar reasons, the overwhelming majority of public companies in the
United States vest authority over the chief executive in their boards of directors rather than
their stockholders, and the Company has no unique characteristics that would warrant imposing such
a drastic overhaul of mainstream governance principles with respect to it. In addition, none of
Institutional Shareholder Services, the Council of Institutional Investors or similar proxy voting
and corporate governance service providers has ever publicly supported the widespread adoption of
direct stockholder authority over chief executives as a means to improve corporate governance.
42
The Board of Directors has previously affirmed its unqualified support and continues to
support current Chief Executive Officer Paul A. Toback. Mr. Toback has been doing an outstanding
job as the Companys chief executive. He has made substantial progress toward rectifying the
accounting issues he inherited from prior management, including recently completing the process of
restating Ballys financial statements for each of its reporting periods commencing January 1,
2000, through March 31, 2004. Ironically, many of the accounting issues facing the Company today
arose when Mr. Pearlman was the special financial consultant to Ballys former chief executive
officer. Mr. Toback has strengthened the Companys senior management teamespecially in the
vitally important areas of finance and accounting. Bally has recruited a new CFO, Treasurer,
Controller, Assistant Controller, Chief Marketing Officer, Head of Customer Relationship Marketing,
Chief Information Officer and Head of Training.
Mr. Toback has also begun to implement Ballys new business plan, the initial effects of which
are reflected in the positive trend line in the Companys operating income. Under Mr. Tobacks
leadership, the Company has scaled back its club expansion plans and begun to focus on improving
operating margins and cash flows from Ballys existing fitness centers. The Company has radically
changed the way it sells and accounts for memberships. In the past, Bally only offered multi-year
membership contracts. Todays Bally membership model is far more flexible, and consumer friendly.
Beginning in 2003, the Company introduced pay as you go programs, which now represent up to 20
percent of all new customers. More recently Bally introduced the Build Your Own Membership plan,
which simplifies the enrollment process, eliminates the long, complicated contracts and enables
customers to choose the membership type, amenities, and pricing structure they prefer. The BYOM
(sm) program is now available nationwide. Further, the Company is now implementing its new club staffing and accountability model
referred to as the New Club Model. The Company also recently engaged J.P. Morgan Securities Inc.
to explore a range of strategic alternatives to enhance stockholder value, which may include, but
are not limited to, a recapitalization, the sale of securities or assets of the Company or the sale
or merger of Bally with another entity or strategic partner. Further, the Company is now implementing its new club staffing and accountability model referred to
as the New Club Model. The Company also recently engaged J.P. Morgan Securities Inc. to explore
a range of strategic alternatives to enhance stockholder value, which may include, but are not
limited to, a recapitalization, the sale of securities or assets of the Company or the sale or
merger of Bally with another entity or strategic partner.
During this critical stage of implementation of Ballys new business plan, the Board of
Directors strongly believes it would be imprudentindeed, foolhardyto remove the most important
officer of the Company, whose continued leadership will be a key component of Ballys successful
emergence from this transitional period.
If the Liberation Proposal properly comes before the meeting, the proxy holders will use their
discretionary authority and vote against the proposal.
Management knows of no other business to be presented for action at the annual meeting. If
other matters properly come before the annual meeting or any adjournment thereof, the persons named
as proxies will vote upon them in accordance with their best judgment.
CERTAIN LEGAL PROCEEDINGS
Stockholder Derivative Lawsuits in Illinois State Court
On June 8, 2004, two stockholder derivative lawsuits were filed in the Circuit Court of Cook
County, Illinois, by two Bally stockholders, David Schacter and James Berra, purportedly on behalf
of the Company against Paul Toback, J. Kenneth Looloian, James McAnally and John Rogers, Jr., who
are current directors and/or officers, and Lee Hillman, John Dwyer, Stephen Swid, George Aronoff,
Martin Franklin and Liza Walsh, who are now former officers and/or directors. These lawsuits
allege claims for breaches of fiduciary duty against those individuals in connection with the
Companys restatement regarding the timing of recognition of prepaid dues. The two actions were
consolidated on January 12, 2005. By stipulation of the parties, the consolidated lawsuit has been
stayed pending restatement of the Companys financial statements. Under the current schedule, an
amended consolidated complaint is due by January 29, 2006. It is not yet possible to determine the
ultimate outcome of these actions.
Stockholder Derivative Lawsuits in Illinois Federal Court
On April 5, 2005, a stockholder derivative lawsuit was filed in the United States District
Court for the Northern District of Illinois, purportedly on behalf of the Company against certain
current and former officers and directors of the Company by another of the Companys stockholders,
Albert Said. This lawsuit asserts claims for breaches of fiduciary duty in failing to supervise
properly its financial and corporate affairs and accounting practices. Plaintiff also requests
restitution and disgorgement of bonuses and trading proceeds under Delaware law and the
Sarbanes-Oxley Act of 2002. By stipulation of the parties, the lawsuit has been stayed pending
restatement of the Companys financial statements. Under the current schedule, an amended
consolidated complaint is due by January 29, 2006. It is not yet possible to determine the
ultimate outcome of this action.
Liberation Proposal Litigation
On December 5, 2005 the Company filed a complaint for declaratory judgment in the Delaware
Court of Chancery against Liberation Investments, L.P., Liberation Investments, Ltd., Liberation
Investment Group LLC and Emanuel R. Pearlman and has asked the court to confirm that the Liberation
Proposal violates both Section 141(a) of the Delaware General
Corporation Law and Article Fifth of the Companys Certificate of
Incorporation. On December 5, 2005, the Company also filed a complaint against Liberation
Investments, L.P., Liberation Investments, Ltd., Liberation Investment Group LLC and Emanuel R.
Pearlman in the United States District Court for the District of Delaware accusing Liberation of
violations of Section 14(a) of the Exchange Act and Rule
14a-9 thereunder as well as Section 13(d) of the Exchange Act. These proceedings are currently
pending, and, while the Company is unable to make predictions about their outcome, the Board of
Directors believes that the Company will ultimately be successful on the merits in each case.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Bally is required to identify any director, executive officer or beneficial
owner of more than ten percent of the common stock, or any other person subject to Section 16 of
the Exchange Act, that failed to file on a timely basis, as disclosed in their forms, reports
required by Section 16(a) of the Exchange Act. Based on a review of forms submitted to us, during
2004 and as of November 30, 2005, no persons were late in filing these forms. All other such filing
requirements were complied with by our directors and executive officers.
EXPENSE OF SOLICITATION
The cost of this solicitation will be borne by Bally. In addition to the use of the mail,
proxy solicitation may be made by telephone, facsimile, e-mail and personal interviews by regular
employees of Bally. Bally has retained MacKenzie Partners, Inc., 105 Madison Avenue, New York, New
York 10016, to assist in the soliciting of proxies and will pay that firm a fee of approximately
$_______, plus out-of-pocket expenses for such services. Bally will
43
also reimburse brokerage houses and others for their reasonable expenses in forwarding proxy
materials to beneficial owners of common stock.
Appendix A to this proxy statement sets forth certain information relating to the Companys
directors, director nominee, and officers of the Company who may be soliciting proxies on the
Companys behalf.
STOCKHOLDER PROPOSALS FOR THE 2006 ANNUAL MEETING
Bally expects to hold its next annual meeting of stockholders before December 31, 2006.
Stockholder proposals for inclusion in the proxy materials relating
to the next annual meeting should
be received by Bally at its principal executive offices on or before
March 31, 2006. Under the
Companys by-laws, in order to bring a proposal before the annual meeting, a stockholder must give
the Company notice of the proposal not less than 60 days before the date of the meeting. If,
however, less than 70 days prior notice or prior disclosure of the meeting date is given to
stockholders, stockholders may notify the Company of a proposal up until the tenth day following
the notice or disclosure. In accordance with our by-laws, we expect
to give at least 70 days notice of the annual meeting. Stockholder proposals should be directed to Corporate Secretary, Bally
Total Fitness Holding Corporation, 8700 West Bryn Mawr Avenue, Chicago, Illinois 60631.
ANNUAL REPORT
Bally will provide without charge to any stockholder as of the record date who so requests in
writing a copy of its Form 10-K and, if specifically requested, the exhibits thereto. Requests for
such copies should be directed to Corporate Secretary, Bally Total Fitness Holding Corporation,
8700 West Bryn Mawr Avenue, Chicago, Illinois 60631.
|
|
|
|
|
By order of the Board of Directors, |
|
|
|
|
|
Marc D. Bassewitz, Secretary |
Chicago, Illinois
December [ ], 2005
Please execute, date and return promptly
the enclosed white proxy card in the
postage-paid envelope provided or
vote via the internet or touch-tone telephone.
44
Appendix A
INFORMATION CONCERNING PERSONS WHO MAY BE DEEMED PARTICIPANTS IN
THE COMPANYS SOLICITATION OF PROXIES
The following sets forth the name, principal business address and the present principal
occupation or employment, and the name, principal business and address of any corporation or other
organization in which their employment is carried on, of the directors, director nominee and
officers of the Company who, under SEC rules, may be deemed participants in the Companys
solicitation of proxies from its stockholders in connection with the annual meeting.
Directors and Nominees
The principal occupations of the Companys directors and director nominees who may be
deemed participants in the Companys solicitation are set forth in the section of this proxy
statement entitled Election of Directors and Security
OwnershipDirector Nominees andContinuing Directors. The business addresses of the
Companys directors and director nominees are as follows:
|
|
|
Name |
|
Business Address |
|
Paul A. Toback |
|
Bally Total Fitness Holding Corporation |
|
|
8700 West Bryn Mawr Avenue |
|
|
Chicago, Illinois 60631 |
|
|
|
Barry M. Deutsch |
|
Ovation Pharmaceuticals, Inc. |
|
|
Four Parkway North, Suite 200 |
|
|
Deerfield, Illinois 60015 |
|
|
|
Eric Langshur |
|
TLContact, Inc. |
|
|
3047 North Lincoln Avenue, Suite 210 |
|
|
Chicago, Illinois 60657 |
|
|
|
James F. McAnally, M.D. |
|
Trinitas Hospital Medical Office Bldg. |
|
|
240 Williamson Street, Suite 307 |
|
|
Elizabeth, New Jersey 07202 |
|
|
|
Adam Metz |
|
Polaris Capital LLC |
|
|
1033 Skokie Blvd., Suite 660 |
|
|
Northbrook, Illinois 60062 |
|
|
|
John W. Rogers, Jr. |
|
Ariel Capital Management, LLC |
|
|
Ariel Mutual Funds |
|
|
200 East Randolph, Suite 2900 |
|
|
Chicago, Illinois 60601 |
|
|
|
Steven S. Rogers |
|
J.L. Kellogg Graduate School of Management |
|
|
2001 Sheridan Road |
|
|
Evanston, Illinois 60201 |
Officers
The names and principal occupations of the Companys officers who may be deemed
participants in the Companys solicitation of proxies are set forth in the section of this proxy
statement entitled Election of Directors and Security Ownership. The business address is 8700
West Bryn Mawr Avenue, Chicago, Illinois 60631. The officers who may be deemed participants in
the solicitation are as follows:
Paul A. Toback
William J. Fanelli
Harold Morgan
John H. Wildman
Julie Adams
Marc D. Bassewitz
Carl J. Landeck
James A. McDonald
Information Regarding Ownership of the Companys Securities by Participants
None of the persons listed above under Directors and Nominees and Officers owns any of the
Companys securities of record but not beneficially. The number of shares of Common Stock of the
Company held by directors, the director nominees and the officers as of November 29, 2005, is set
forth in the Election of Directors and Security Ownership section of the proxy statement.
Information Regarding Transactions in the Companys Securities by Participants
The following table sets forth purchases and sales during the past two years of shares of
Common Stock of the Company by the persons listed above under Directors and Nominees and
Officers. Unless otherwise indicated, all transactions were in the public market and none of the
purchase price or market value of those shares is represented by funds borrowed or otherwise
obtained for the purpose of acquiring or holding such securities. To the extent that any part of
the purchase price or market value of any of those shares is represented by funds borrowed or
otherwise obtained for the purpose of acquiring or holding such securities, the amount of the
indebtedness as of the latest practicable date is set forth below. If those funds were borrowed or
obtained otherwise than pursuant to a margin account or bank loan in the regular course of business
of a bank, broker or dealer, a description of the transaction and the parties is set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase (Sales) of Common |
|
|
Name |
|
Date |
|
Stock (number of shares) |
|
Note |
|
Paul A. Toback |
|
|
03/08/2005 |
|
|
|
120,000 |
|
|
|
2 |
|
|
|
|
03/08/2005 |
|
|
|
170,000 |
|
|
|
3 |
|
|
|
|
11/29/2005 |
|
|
|
135,000 |
|
|
|
2 |
|
|
|
|
11/29/2005 |
|
|
|
62,000 |
|
|
|
3 |
|
|
|
|
12/02/2005 |
|
|
|
(421,804 |
) |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barry M. Deutsch |
|
|
05/05/2004 |
|
|
|
5,000 |
|
|
|
3 |
|
|
|
|
06/10/2004 |
|
|
|
5,000 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric Langshur |
|
|
12/16/2004 |
|
|
|
5,000 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James F. McAnally |
|
|
03/15/2004 |
|
|
|
2,500 |
|
|
|
1 |
|
|
|
|
05/11/2004 |
|
|
|
5,000 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adam Metz |
|
|
12/2/2005 |
|
|
|
5,000 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase/(Sales) of Common |
|
|
Name |
|
Date |
|
Stock (number of shares) |
|
Note |
|
John W. Rogers, Jr. |
|
|
04/16/2005 |
|
|
|
5,000 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven S. Rogers |
|
|
12/2/2005 |
|
|
|
5,000 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Fanelli |
|
|
05/11/2004 |
|
|
|
800 |
|
|
|
1 |
|
|
|
|
05/11/2004 |
|
|
|
4,200 |
|
|
|
1 |
|
|
|
|
03/08/2005 |
|
|
|
30,000 |
|
|
|
2 |
|
|
|
|
03/08/2005 |
|
|
|
60,000 |
|
|
|
3 |
|
|
|
|
11/29/2005 |
|
|
|
40,000 |
|
|
|
2 |
|
|
|
|
11/29/2005 |
|
|
|
20,000 |
|
|
|
3 |
|
|
|
|
12/2/2005 |
|
|
|
(205,966 |
) |
|
|
7 |
|
|
|
|
12/5/2005 |
|
|
|
(10,000 |
) |
|
|
7 |
|
|
|
|
12/2/2005 |
|
|
|
15,000 |
|
|
|
8 |
|
|
|
|
12/5/2005 |
|
|
|
10,000 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harold Morgan |
|
|
03/08/2005 |
|
|
|
55,000 |
|
|
|
2 |
|
|
|
|
03/08/2005 |
|
|
|
80,000 |
|
|
|
3 |
|
|
|
|
11/29/2005 |
|
|
|
55,000 |
|
|
|
2 |
|
|
|
|
11/29/2005 |
|
|
|
23,000 |
|
|
|
3 |
|
|
|
|
12/2/2005 |
|
|
|
(201,000 |
) |
|
|
7 |
|
|
|
|
12/2/2005 |
|
|
|
(36,000 |
) |
|
|
7 |
|
|
|
|
12/2/2005 |
|
|
|
35,000 |
|
|
|
8 |
|
|
|
|
12/2/2005 |
|
|
|
1,000 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John H. Wildman |
|
|
03/08/2005 |
|
|
|
30,000 |
|
|
|
2 |
|
|
|
|
03/08/2005 |
|
|
|
60,000 |
|
|
|
3 |
|
|
|
|
11/29/2005 |
|
|
|
60,000 |
|
|
|
2 |
|
|
|
|
11/29/2005 |
|
|
|
25,000 |
|
|
|
3 |
|
|
|
|
12/2/2005 |
|
|
|
(35,000 |
) |
|
|
7 |
|
|
|
|
12/2/2005 |
|
|
|
(185,000 |
) |
|
|
7 |
|
|
|
|
12/2/2005 |
|
|
|
35,000 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Julie Adams |
|
|
03/08/2005 |
|
|
|
15,000 |
|
|
|
2 |
|
|
|
|
03/08/2005 |
|
|
|
40,000 |
|
|
|
3 |
|
|
|
|
11/29/2005 |
|
|
|
40,000 |
|
|
|
2 |
|
|
|
|
11/29/2005 |
|
|
|
20,000 |
|
|
|
3 |
|
|
|
|
12/2/2005 |
|
|
|
(25,000 |
) |
|
|
7 |
|
|
|
|
12/2/2005 |
|
|
|
25,000 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marc D. Bassewitz |
|
|
03/08/2005 |
|
|
|
10,000 |
|
|
|
2 |
|
|
|
|
03/08/2005 |
|
|
|
100,000 |
|
|
|
5 |
|
|
|
|
03/08/2005 |
|
|
|
25,000 |
|
|
|
3 |
|
|
|
|
03/08/2005 |
|
|
|
25,000 |
|
|
|
6 |
|
|
|
|
11/29/2005 |
|
|
|
40,000 |
|
|
|
2 |
|
|
|
|
11/29/2005 |
|
|
|
20,000 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl J. Landeck |
|
|
05/26/2005 |
|
|
|
100,000 |
|
|
|
5 |
|
|
|
|
05/26/2005 |
|
|
|
75,000 |
|
|
|
6 |
|
|
|
|
11/29/2005 |
|
|
|
55,000 |
|
|
|
5 |
|
|
|
|
11/29/2005 |
|
|
|
23,000 |
|
|
|
6 |
|
|
|
|
12/5/2005 |
|
|
|
75,000 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James A. McDonald |
|
|
05/26/2005 |
|
|
|
100,000 |
|
|
|
5 |
|
|
|
|
05/26/2005 |
|
|
|
20,000 |
|
|
|
6 |
|
|
|
|
11/29/2005 |
|
|
|
55,000 |
|
|
|
2 |
|
|
|
|
11/29/2005 |
|
|
|
23,000 |
|
|
|
3 |
|
|
|
|
(1) |
|
Open market purchase |
|
(2) |
|
Grant of restricted stock award under the 1996 Long-Term Incentive Plan |
|
(3) |
|
Grant of stock options under the 1996 Long-Term Incentive Plan |
|
(4) |
|
Automatic grant of stock options under 1996
Non-Employee Directors Stock Option Plan upon joining the Board
or two-year
anniversary of service as director |
|
(5) |
|
Grant of restricted stock award under the Inducement Plan |
|
(6) |
|
Grant of stock options under the Inducement Plan |
|
(7) |
|
Open market sale |
|
(8) |
|
Exercise of stock options |
Miscellaneous Information Concerning Participants
Except as described in this Appendix A or otherwise disclosed in this proxy statement, to
the best of the Companys knowledge, no person listed above under Directors and Nominees and
Officers or any of his associates beneficially owns (within the meaning of Rule 13d-3 under the
Exchange Act), directly or indirectly, any shares or other securities of the Company or any of its
subsidiaries. Furthermore, except as described in this Appendix I or otherwise disclosed in this
proxy statement, to the best of the Companys knowledge, no such person or any of his associates is
either a party to any transaction or series of similar transactions since December 1, 2004 or any
currently proposed transaction or series of similar transactions (i) to which the Company or any of
its subsidiaries was or is to be a party, (ii) in which the amount involved exceeds $60,000 and
(iii) in which such person or associate had or will have a direct or indirect material interest.
To the best of the Companys knowledge, except as described in this Appendix A or
otherwise disclosed in this proxy statement, no person listed above under Directors and Nominees
and Officers or any of his associates has entered into any arrangement or understanding with any
person with respect to (i) any future employment with the Company or its affiliates or (ii) any
future transactions to which the Company or any of its affiliates will or may be a party. Except as
described in this Appendix A or otherwise disclosed in this proxy statement, to the best of the
Companys knowledge, there are no contracts, arrangements or understandings by any of the persons
listed under Directors and Nominees and Officers within the past year with any person with
respect to any of the Companys securities, including, but not limited to, joint ventures, loan or
option arrangements, puts or calls, guarantees against loss or guarantees of profit, division of
losses or profits, or the giving or withholding of proxies. Except as described in this Appendix A
or otherwise disclosed in this proxy statement, to the best of the Companys knowledge, no persons
listed under Directors and Nominees and Officers has any substantial interest, direct or
indirect, by security holdings or otherwise, in any matter to be acted upon at the annual meeting
of Bally stockholders (and no other person who is a party to an arrangement or understanding
pursuant to which a nominee for election as director is proposed to be elected, has any such
interest).
Appendix B
BALLY TOTAL FITNESS HOLDING CORPORATION
2006 OMNIBUS EQUITY COMPENSATION PLAN
1. Purpose
The purpose of the Bally Total Fitness Holding Corporation 2006 Omnibus Equity Compensation
Plan (the Plan) is to provide (i) designated employees of Bally Total Fitness Holding Corporation
(the Company) and its subsidiaries, and (ii) non-employee members of the board of directors of
the Company with the opportunity to receive grants of stock options, stock units, stock awards,
dividend equivalents and other stock-based awards. The Company believes that the Plan will
encourage the participants to contribute materially to the growth of the Company, thereby
benefitting the Companys stockholders, and will align the economic interests of the participants
with those of the stockholders. The Plan shall be effective as of
January 26, 2006, subject
to approval by the stockholders of the Company.
2. Definitions
Whenever used in this Plan, the following terms will have the respective meanings set forth
below:
|
(a) |
|
Board means the Companys Board of Directors. |
|
|
(b) |
|
Change of Control shall mean the happening of any of the following events: |
(i) An acquisition by any individual, entity, or group (within the meaning of
Sections 13(d)(3) or 14(d)(2) of the Exchange Act (an Entity) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act), of 50% or more of either (A) the
then-outstanding shares of common stock of the Company (the Outstanding Company Common Stock), or
(B) the combined voting power of the then-outstanding voting securities of the Company entitled to
vote generally in the election of the directors (the Outstanding Company Voting Securities);
excluding, however, the following: (x) any acquisition by the Company, (y) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation
controlled by, or under common control with, the Company or (z) any acquisition by any corporation
pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii).
(ii) A change in the composition of the Board such that the individuals who, as of
December 2, 2005 constituted the Board (such Board shall be hereinafter referred to as the
Incumbent Board) cease for any reason to constitute at least a majority of the Board;
provided, however, that for purposes of this definition, any individual who becomes
a member of the Board subsequent to December 2, 2005, whose election, or nomination for election,
by the Companys stockholders was approved by a vote of at least a majority of those individuals
who are members of the Board and who were also members of the Incumbent Board (or deemed to be such
pursuant to this provision), shall be considered as though such individual were a member of the
Incumbent Board; and provided further, however, that any such individual whose
initial assumption of office occurs as a result of or in connection with either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of the Regulation 14A
promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of an Entity other than the Board shall not be considered as a member of
the Incumbent Board;
(iii) The consummation of a merger, reorganization, consolidation, or sale or other
disposition of all or substantially all of the assets of the Company other than a transaction which
results in (A) all or substantially all of the stockholders of the Company who were beneficial
owners of the Outstanding Common Stock or Outstanding Company Voting Securities immediately prior
to such transaction beneficially owning immediately after the transaction more than 60% of the
outstanding shares of common stock and the combined voting power of the then-outstanding voting
securities of the corporation resulting from such transaction (including, without limitation, a
corporation or other person which as a result of such transaction owns the Company or all or
substantially all of the Companys assets either directly or through one or more subsidiaries (a
Parent Company)
in substantially the same proportions as their ownership, immediately prior to such Corporate
Transaction, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be); (B) no Entity (other than the Company, any employee benefit plan (or related
trust) of the Company, the Corporation resulting from the transaction or, if reference was made to
a Parent Company for purposes of determining whether (A) was satisfied in connection with the
applicable transaction, such Parent Company) beneficially owning directly or indirectly 20% or more
of the outstanding shares of common stock of the corporation resulting from such transaction or the
combined voting power of the outstanding voting securities of such corporation entitled to vote
generally in the election of directors unless such ownership resulted solely from ownership of
securities of the Company prior to the transaction and (C) individuals who were members of the
Incumbent Board immediately after the consummation of the transaction constituting at least a
majority of the members of the board of directors of the corporation resulting from such
transaction.
(iv) A liquidation or dissolution of the Company.
(c) Code means the Internal Revenue Code of 1986, as amended.
(d) Committee means (i) with respect to Grants to Employees, the Compensation
Committee of the Board or another committee appointed by the Board to administer the Plan, (ii)
with respect to Grants made to Non-Employee Directors, the Board, and (iii) with respects to Grants
that are intended to be qualified performance-based compensation under section 162(m) of the Code
as well as Grants to Employees who are officers, a committee that consists of two or more persons
appointed by the Board, all of whom shall be outside directors as defined under section 162(m) of
the Code and related Treasury regulations and non-employee directors as defined under Rule 16b-3
promulgated under the Exchange Act. The Board or committee, as applicable, that has authority with
respect to a specific Grant shall be referred to as the Committee with respect to that Grant.
(e) Company means Bally Total Fitness Holding Corporation and any successor
corporation.
(f) Company Stock means the common stock of the Company or such other securities
of the Company that may be substituted for common stock pursuant to Section 5(e).
(g) Disability means that the Participant qualifies to receive long-term
disability payments under the Companys long-term disability program, as it may be amended from
time to time.
(h) Dividend Equivalent means an amount determined by multiplying the number of
shares of Company Stock subject to a Grant by the per-share cash dividend, or the per-share fair
market value (as determined by the Committee) of any dividend in consideration other than cash,
paid by the Company on its Company Stock.
(i) Effective
Date of the Plan means January 26, 2006, subject to approval of
the Plan by the stockholders of the Company.
(j) Employee means an employee of the Employer (including an officer or director
who is also an employee).
(k) Employer means the Company and its subsidiaries.
(l) Exchange Act means the Securities Exchange Act of 1934, as amended.
(m) Exercise Price means the per share price at which shares of Company Stock may
be purchased under an Option, as designated by the Committee.
(n) Fair Market Value of Company Stock means as of any given date, unless the
Committee determines otherwise with respect to a particular Grant, (i) if the principal trading
market for the Company Stock is
a national securities exchange such as the New York Stock Exchange or the Nasdaq National
Market, the last reported sale price of Company Stock on the relevant date or (if there were no
trades on that date) the latest preceding date upon which a sale was reported, (ii) if the Company
Stock is not principally traded on such exchange or market, the mean between the last reported
bid and asked prices of Company Stock on the relevant date, as reported on Nasdaq or, if not so
reported, as reported by the National Daily Quotation Bureau, Inc. or as reported in a customary
financial reporting service, as applicable and as the Committee determines, or (iii) if the Company
Stock is not publicly traded or, if publicly traded, is not subject to reported transactions or
bid or asked quotations as set forth above, the Fair Market Value per share shall be as
determined by the Committee.
(o) Grant means an Option, Stock Unit, Stock Award, SAR, Dividend Equivalent or
Other Stock-Based Award granted under the Plan.
(p) Grant Agreement means the written instrument that sets forth the terms and
conditions of a Grant, including all amendments thereto.
(q) Incentive Stock Option means an Option that is intended to meet the
requirements of an incentive stock option under section 422 of the Code or any successor provision
thereto.
(r) Non-Employee Director means a member of the Board who is not an employee of
the Employer.
(s) Nonqualified Stock Option means an Option that is not intended to be an
Incentive Stock Option.
(t) Option means a right granted to a Participant to purchase shares of Company
Stock, as described in Section 7.
(u) Other Stock-Based Award means any Grant based on, measured by or payable in
Company Stock (other than a Grant described in Sections 7, 8, 9 or 10 of the Plan), as described in
Section 11.
(v) Participant means an Employee or Non-Employee Director designated by the
Committee to participate in the Plan.
(w) Plan means this Bally Total Fitness Holding Corporation 2006 Omnibus Equity
Compensation Plan, as in effect from time to time.
(x) SAR means a stock appreciation right as described in Section 10.
(y) Stock Award means an award of Company Stock as described in Section 9.
(z) Stock Unit means an award of a phantom unit representing a share of Company
Stock, as described in Section 8.
3. Administration
(a) Committee. The Plan shall be administered and interpreted by the
Committee. In its sole discretion, the Board may at anytime and from time to time exercise any and
all rights and duties of the Committee under the Plan except with respect to a matter that under
Rule 16b-3 of the Exchange Act or section 162(m) of the Code or any regulations or rules issued
thereunder is required to be determined in the sole discretion of the Committee. Committee members
may resign at any time by delivering written notice to the Board. Vacancies in the Committee may
only be filled by the Board. To the extent permitted by applicable law, ministerial functions may
be performed by an administrative committee comprised of Company employees appointed by the
Committee. Any delegation hereunder shall be subject to the restrictions and limits that the
Committee specifies at the time of such
delegation, and the Committee may at any time rescind the authority so delegated or appoint a
new delegate. At all times, the delegate appointed under this Section 3 shall serve in such
capacity at the pleasure of the Committee.
(b) Committee Authority. A majority of the Committee shall constitute a
quorum. The acts of a majority of the members present at any meeting at which a quorum is present,
and acts approved in writing by a majority of the Committee in lieu of a meeting, shall be deemed
the acts of the Committee. Each member of the Committee is entitled to, in good faith, rely or act
upon any report or other information furnished to that member by any officer or other employee of
the Company or any subsidiary, the Companys independent certified public accountants, or any
executive compensation consultant or other professional retained by the Company to assist in the
administration of the Plan. The Committee shall have the sole authority to (i) determine the
Participants to whom Grants shall be made under the Plan, (ii) determine the type, size and terms
and conditions of the Grants to be made to each such Participant, (iii) determine the time when the
grants will be made and the duration of any applicable exercise or restriction period, including
the criteria for exercisability and the acceleration of exercisability; provided, however, that the
Committee shall not have the authority to accelerate the vesting or waive the forfeiture of any
performance based awards granted pursuant to Section 12, (iv) amend the terms and conditions of any
previously issued Grant, subject to the provisions of Section 18 below, and (v) deal with any other
matters arising under the Plan.
(c) Committee Determinations. The Committee shall have full power and
express discretionary authority to administer and interpret the Plan, to make factual
determinations and to adopt or amend such rules, regulations, agreements and instruments for
implementing the Plan and for the conduct of its business as it deems necessary or advisable, in
its sole discretion. The Committees interpretations of the Plan and all determinations made by
the Committee pursuant to the powers vested in it hereunder shall be conclusive and binding on all
persons having any interest in the Plan or in any awards granted hereunder. All powers of the
Committee shall be executed in its sole discretion, in the best interest of the Company, not as a
fiduciary, and in keeping with the objectives of the Plan and need not be uniform as to similarly
situated Participants.
4. Grants
(a) Grants under the Plan may consist of Options as described in Section 7, Stock
Units as described in Section 8, Stock Awards as described in Section 9, and SARs or Other
Stock-Based Awards as described in Section 10. All Grants shall be subject to such terms and
conditions as the Committee deems appropriate and as are specified in writing by the Committee to
the Participant in the Grant Agreement.
(b) All Grants shall be made conditional upon the Participants acknowledgement, in
writing or by acceptance of the Grant, that all decisions and determinations of the Committee shall
be final and binding on the Participant, his or her beneficiaries and any other person having or
claiming an interest under such Grant. Grants under a particular section of the Plan need not be
uniform as among the Participants.
(c) The Committee may make Grants that are contingent on, and subject to,
stockholder approval of the Plan or an amendment to the Plan.
5. Shares Subject to the Plan
(a) Shares Authorized. The total aggregate number of shares of Company
Stock that may be issued under the Plan is 2,500,000 shares, subject to adjustment as described in
subsection (e) below.
(b) Limit on Stock Awards, Stock Units and Other Stock-Based Awards. Within
the aggregate limit described in subsection (a), the maximum number of shares of Company Stock that
may be issued under the Plan pursuant to Stock Awards, Stock Units and Other Stock-Based Awards
during the term of the Plan is 2,000,000 shares, subject to adjustment as described in subsection (e)
below.
(c) Source of Shares; Share Counting. Shares issued under the Plan may be
authorized but unissued shares of Company Stock or reacquired shares of Company Stock, including
shares purchased by the Company on
the open market for purposes of the Plan. If and to the extent Options or SARs granted under
the Plan terminate, expire, or are canceled, forfeited, exchanged or surrendered without having
been exercised, and if and to the extent that any Stock Awards, Stock Units, or Other Stock-Based
Awards are forfeited or terminated prior to vesting, or otherwise are not paid in full, the shares
reserved for such Grants shall again be available for purposes of the Plan. Shares of Company
Stock surrendered in payment of the Exercise Price of an Option shall again be available for
purposes of the Plan. Shares of Company Stock withheld for payment of applicable tax withholding
obligations with respect to the exercise or other taxation of a Grant shall again be available for
purposes of the Plan. If SARs are exercised, only the net number of shares actually issued upon
exercise of the SARs shall be considered issued under the Plan for purposes of this subsection (c).
To the extent that Grants are paid in cash, and not in shares of Company Stock, any shares
previously reserved for issuance pursuant to such Grants shall again be available for purposes of
the Plan. Notwithstanding the foregoing, no shares shall become available pursuant to this section
5(c) to the extent that the transaction resulting in the return of shares occurs more than ten
years after the date of the most recent stockholder approval of the Plan or such return of shares
would constitute a material revision of the Plan subject to stockholder approval under then
applicable rules of the New York Stock Exchange (or any applicable exchange or quotation system).
(d) Individual Limits. All Grants under the Plan shall be expressed in
shares of Company Stock. The maximum aggregate number of shares of Company Stock with respect to
which all Grants may be made under the Plan to any individual during any calendar year shall be
500,000 shares, subject to adjustment as described in subsection (e) below. A Participant may not
accrue Dividend Equivalents during any calendar year in excess of
$1,000,000. The individual
limits of this subsection (d) shall apply without regard to whether the Grants are to be paid in
Company Stock or cash. All cash payments (other than with respect to Dividend Equivalents) shall
equal the Fair Market Value of the shares of Company Stock to which the cash payments relate.
(e) Adjustments. If there is any change in the number or kind of shares of
Company Stock outstanding (i) by reason of a stock dividend, spinoff, recapitalization, stock
split, or combination or exchange of shares, (ii) by reason of a merger, reorganization or
consolidation, (iii) by reason of a reclassification or change in par value, or (iv) by reason of
any other extraordinary or unusual event affecting the outstanding Company Stock as a class without
the Companys receipt of consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Companys payment of an extraordinary
dividend or distribution, the maximum number of shares of Company Stock available for issuance
under the Plan, the maximum number of shares of Company Stock for which any individual may receive
Grants in any year, the number of shares covered by outstanding Grants, the kind of shares issued
and to be issued under the Plan, and the price per share or the applicable market value of such
Grants shall be appropriately adjusted by the Committee, as it may deem reasonably necessary, to
reflect any increase or decrease in the number of, or change in the kind or value of, issued shares
of Company Stock to preclude, to the extent practicable, the enlargement or dilution of rights and
benefits under such Grants; provided, however, that any fractional shares resulting from such
adjustment shall be eliminated. Any adjustments determined by the Committee shall be final,
binding and conclusive. Any adjustment affecting a Grant made pursuant to Section 12 shall be made
consistent with the requirements of section 162 (m) of the Code.
6. Eligibility for Participation
(a) Eligible Persons. All Employees, including Employees who are officers
or members of the Board, and all Non-Employee Directors shall be eligible to participate in the
Plan.
(b) Selection of Participants. The Committee shall select the Employees and
Non-Employee Directors to receive Grants and shall determine the number of shares of Company Stock
subject to each Grant.
7. Options
(a) General Requirements. The Committee may grant Options to an Employee or
Non-Employee Director upon such terms and conditions as the Committee deems appropriate under this
Section 7. The Committee shall determine the number of shares of Company Stock that will be
subject to each Grant of Options to Employees and Non-Employee Directors.
(b) Type of Option, Price and Term.
(i) The Committee may grant Incentive Stock Options or Nonqualified Stock Options or
any combination of the two, all in accordance with the terms and conditions set forth herein.
Incentive Stock Options may be granted only to Employees of the Company or its parents or
subsidiaries, as defined in section 424 of the Code. Nonqualified Stock Options may be granted to
Employees or Non-Employee Directors.
(ii) The Exercise Price of Company Stock subject to an Option shall be determined by
the Committee and may be equal to or greater than the Fair Market Value of a share of Company Stock
on the date the Option is granted; provided, however, that an Incentive Stock Option may not be
granted to an Employee who, at the time of grant, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any parent or subsidiary, as
defined in section 424 of the Code, unless the Exercise Price per share is not less than 110% of
the Fair Market Value of the Company Stock on the date of grant.
(iii) The Committee shall determine the term of each Option, which shall not exceed
ten years from the date of grant. However, an Incentive Stock Option that is granted to an
Employee who, at the time of grant, owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary, as defined in
section 424 of the Code, may not have a term that exceeds five years from the date of grant.
(c) Exercisability of Options.
(i) Options shall become exercisable in accordance with such terms and conditions as
may be determined by the Committee and specified in the Grant Agreement. The Committee may
accelerate the exercisability of any or all outstanding Options at any time for any reason.
(ii) The Committee may provide in a Grant Agreement that the Participant may elect
to exercise part or all of an Option before it otherwise has become exercisable. Any shares so
purchased shall be restricted shares and shall be subject to a repurchase right in favor of the
Company during a specified restriction period, with the repurchase price equal to the lesser of (A)
the Exercise Price or (B) the Fair Market Value of such shares at the time of repurchase, or such
other restrictions as the Committee deems appropriate.
(iii) Options granted to persons who are non-exempt employees under the Fair Labor
Standards Act of 1938, as amended, may not be exercisable for at least six months after the date of
grant (except that such Options may become exercisable, as determined by the Committee, upon the
Participants death, Disability or retirement, or upon a Change of Control or other circumstances
permitted by applicable regulations).
(d) Termination of Employment or Service. Except as provided in the Grant
Agreement, an Option may only be exercised while the Participant is employed by the Employer, or
providing service as a Non-Employee Director. The Committee shall determine in the Grant Agreement
under what circumstances and during what time periods a Participant may exercise an Option after
termination of employment or service.
(e) Exercise of Options. A Participant may exercise an Option that has
become exercisable, in whole or in part, by delivering a notice of exercise to the Company. The
Participant shall pay the Exercise Price for the Option (i) in cash, (ii) if permitted by the
Committee, by delivery of or attestation to ownership of shares of Company Stock owned by the
Participant and having a Fair Market Value on the date of exercise equal to the Exercise Price,
(iii) by payment through a broker in accordance with procedures permitted by Regulation T of the
Federal Reserve Board, or (iv) by such other method as the Committee may approve. Shares of
Company Stock used to exercise an Option shall have been held by the Participant for the requisite
period of time to avoid adverse accounting consequences to the Company with respect to the Option.
Payment for the shares pursuant to the Option, and any required withholding taxes, must be received
by the time specified by the Committee depending on the type of payment being made, but in all
cases prior to the issuance of the Company Stock.
(f) Limits on Incentive Stock Options. Each Incentive Stock Option shall
provide that, if the aggregate Fair Market Value of the stock on the date of the grant with respect
to which Incentive Stock Options are exercisable for the first time by a Participant during any
calendar year, under the Plan or any other stock option plan of the Company or a parent or
subsidiary, as defined in section 424 of the Code, exceeds $100,000, then the Option, as to the
excess, shall be treated as a Nonqualified Stock Option.
(g) The Participant shall give the Company prompt notice of any disposition of
shares of Company Stock acquired by exercise of an Incentive Stock Option within two years from the
date of grant of such Option or one year after the transfer of such shares of Company Stock to the
Participant.
8. Stock Units
(a) General Requirements. The Committee may grant Stock Units to an
Employee or Non-Employee Director, upon such terms and conditions as the Committee deems
appropriate under this Section 8. Each Stock Unit shall represent the right of the Participant to
receive a share of Company Stock or an amount based on the value of a share of Company Stock. All
Stock Units shall be credited to bookkeeping accounts on the Companys records for purposes of the
Plan.
(b) Terms of Stock Units. The Committee may grant Stock Units that are
payable on terms and conditions determined by the Committee, which may include payment based on
achievement of performance goals. Stock Units may be paid at the end of a specified vesting or
performance period, or payment may be deferred to a date authorized by the Committee in a manner
that complies with section 409A of the Code. The Committee shall determine the number of Stock
Units to be granted and the requirements applicable to such Stock Units.
(c) Payment With Respect to Stock Units. Payment with respect to Stock
Units shall be made in cash, in Company Stock, or in a combination of the two, as determined by the
Committee. The Grant Agreement shall specify the maximum number of shares that can be issued under
the Stock Units.
(d) Requirement of Employment or Service. The Committee shall determine in
the Grant Agreement under what circumstances a Participant may retain Stock Units after termination
of the Participants employment or service, and the circumstances under which Stock Units may be
forfeited.
9. Stock Awards
(a) General Requirements. The Committee may issue shares of Company Stock to
an Employee or Non-Employee Director under a Stock Award, upon such terms and conditions as the
Committee deems appropriate under this Section 9. Shares of Company Stock issued pursuant to Stock
Awards may be issued for cash consideration or for no cash consideration, and subject to
restrictions or no restrictions, as determined by the Committee. The Committee may establish
conditions under which restrictions on Stock Awards shall lapse over a period of time or according
to such other criteria as the Committee deems appropriate, including restrictions based upon the
achievement of specific performance goals. The Committee shall determine the number of shares of
Company Stock to be issued pursuant to a Stock Award.
(b) Requirement of Employment or Service. The Committee shall determine in
the Grant Agreement under what circumstances a Participant may retain Stock Awards after
termination of the Participants employment or service, and the circumstances under which Stock
Awards may be forfeited or repurchased by the Company.
(c) Restrictions on Transfer. While Stock Awards are subject to
restrictions, a Participant may not sell, assign, transfer, pledge or otherwise dispose of the
shares of a Stock Award except upon death as described in Section 15(a). Each certificate for a
share of a Stock Award shall contain a legend giving appropriate notice of the restrictions in the
Grant. The Participant shall be entitled to have the legend removed when all restrictions on such
shares have lapsed. The Company may retain possession of any certificates for Stock Awards until
all restrictions on such shares have lapsed.
(d) Right to Vote and to Receive Dividends. The Committee shall determine
to what extent, and under what conditions, the Participant shall have the right to vote shares of
Stock Awards and to receive any dividends or other distributions paid on such shares during the
restriction period.
10. Stock Appreciation Rights and Other Stock-Based Awards
(a) SARs. The Committee may grant SARs to an Employee or Non-Employee
Director separately or in tandem with an Option. The following provisions are applicable to SARs:
(i) Base Amount. The Committee shall establish the base amount of the SAR
at the time the SAR is granted. The base amount of each SAR shall be equal to the per share
Exercise Price of the related Option or, if there is no related Option, an amount that is at least
equal to the Fair Market Value of a share of Company Stock as of the date of Grant of the SAR.
(ii) Tandem SARs. The Committee may grant tandem SARs either at the time
the Option is granted or at any time thereafter while the Option remains outstanding; provided,
however, that, in the case of an Incentive Stock Option, SARs may be granted only at the date of
the grant of the Incentive Stock Option. In the case of tandem SARs, the number of SARs granted to
a Participant that shall be exercisable during a specified period shall not exceed the number of
shares of Company Stock that the Participant may purchase upon the exercise of the related Option
during such period. Upon the exercise of an Option, the SARs relating to the Company Stock covered
by such Option shall terminate. Upon the exercise of SARs, the related Option shall terminate to
the extent of an equal number of shares of Company Stock.
(iii) Exercisability. A SAR shall be exercisable during the period
specified by the Committee in the Grant Agreement and shall be subject to such vesting and other
restrictions as may be specified in the Grant Agreement. The Committee may grant SARs that are
subject to achievement of performance goals or other conditions. The Committee may accelerate the
exercisability of any or all outstanding SARs at any time for any reason. The Committee shall
determine in the Grant Agreement under what circumstances and during what periods a Participant may
exercise a SAR after termination of employment or service. A tandem SAR shall be exercisable only
while the Option to which it is related is exercisable.
(iv) Grants to Non-Exempt Employees. SARs granted to persons who are
non-exempt employees under the Fair Labor Standards Act of 1938, as amended, may not be exercisable
for at least six months after the date of grant (except that such SARs may become exercisable, as
determined by the Committee, upon the Participants death, Disability or retirement, or upon a
Change of Control or other circumstances permitted by applicable regulations).
(v) Value of SARs. When a Participant exercises SARs, the Participant shall
receive in settlement of such SARs an amount equal to the value of the stock appreciation for the
number of SARs exercised. The stock appreciation for a SAR is the amount by which the Fair Market
Value of the underlying Company Stock on the date of exercise of the SAR exceeds the base amount of
the SAR as described in subsection (i).
(vi) Form of Payment. The Committee shall determine whether the stock
appreciation for a SAR shall be paid in the form of shares of Company Stock, cash or a combination
of the two. For purposes of calculating the number of shares of Company Stock to be received,
shares of Company Stock shall be valued at their Fair Market Value on the date of exercise of the
SAR. If shares of Company Stock are to be received upon exercise of a SAR, cash shall be delivered
in lieu of any fractional share. To the extent payment for a SAR is to be made in cash, the Grant
Agreement shall, to the extent necessary to comply with the requirements to section 409A of the
Code, specify the date of payment, which may be different than the date of the exercise of the SAR.
If the date of payment for a SAR is later than the date of exercise, the Grant Agreement may
specify that the Participant be entitled to earnings on such amount until paid.
(b) Other Stock-Based Awards. The Committee may grant other awards not
specified in Sections 7, 8 or 9 above that are based on or measured by Company Stock to Employees
and Non-Employee Directors, on such
terms and conditions as the Committee deems appropriate. Other Stock-Based Awards may be
granted subject to achievement of performance goals or other conditions and may be payable in
Company Stock or cash, or in a combination of the two, as determined by the Committee in the Grant
Agreement.
11. Dividend Equivalents.
(a) General Requirements. When the Committee makes a Grant under the Plan
or anytime between the date of a Grant and the date the Grant is exercised, vests or expires, the
Committee may grant Dividend Equivalents in connection with the Grant, under such terms and
conditions as the Committee deems appropriate under this Section 11. Dividend Equivalents may be
paid to Participants currently or may be deferred, as determined by the Committee. All Dividend
Equivalents that are not paid currently shall be credited to bookkeeping accounts on the Companys
records for purposes of the Plan. Dividend Equivalents may be accrued as a cash obligation, or may
be converted to Stock Units for the Participant, and deferred Dividend Equivalents may accrue
interest, all as determined by the Committee. The Committee may provide that Dividend Equivalents
shall be payable based on the achievement of specific performance goals. Dividend Equivalents
granted with respect to Options or SARs that are intended to be qualified performance based
compensation shall be payable, with respect to pre-exercise periods, regardless of whether such
Option or SAR is subsequently exercised.
(b) Payment with Respect to Dividend Equivalents. Dividend Equivalents may
be payable in cash or shares of Company Stock or in a combination of the two, as determined by the
Committee.
12. Qualified Performance-Based Compensation
(a) Designation as Qualified Performance-Based Compensation. The Committee
may determine that Stock Units, Stock Awards, Dividend Equivalents or Other Stock-Based Awards
granted to an Employee shall be considered qualified performance-based compensation under section
162(m) of the Code, in which case the provisions of this Section 12 shall apply and control over
any contrary provision in this Plan. The Committee may also grant Options or SARs under which the
exercisability of the Options is subject to achievement of performance goals as described in this
Section 12 or otherwise.
(b) Performance Goals. When Grants are made under this Section 12, the
Committee shall establish in writing (i) the objective performance goals that must be met, (ii) the
period during which performance will be measured, (iii) the maximum amounts that may be paid if the
performance goals are met, and (iv) any other conditions that the Committee deems appropriate and
consistent with the requirements of section 162(m) of the Code for qualified performance-based
compensation. The performance goals shall satisfy the requirements for qualified
performance-based compensation, including the requirement that the achievement of the goals be
substantially uncertain at the time they are established and that the performance goals be
established in such a way that a third party with knowledge of the relevant facts could determine
whether and to what extent the performance goals have been met. The Committee shall not have
discretion to increase the amount of compensation that is payable, but may reduce the amount of
compensation that is payable, pursuant to Grants identified by the Committee as qualified
performance-based compensation.
(c) Criteria Used for Objective Performance Goals. The Committee shall use
objectively determinable performance goals based on one or more of the following criteria: stock
price, earnings per share, price-earnings multiples, net earnings, operating earnings, revenue,
number of days sales outstanding in accounts receivable, productivity, margin, EBITDA (earnings
before interest, taxes, depreciation and amortization), net capital employed, return on assets,
stockholder return, return on equity, return on capital employed, growth in assets, unit volume,
sales, cash flow, market share, relative performance to a comparison group designated by the
Committee, or strategic business criteria consisting of one or more objectives based on meeting
specified revenue goals, market penetration goals, customer growth, geographic business expansion
goals, cost targets or goals relating to acquisitions or divestitures. The performance goals may
relate to one or more business units or the performance of the Company as a whole, or any
combination of the foregoing. Performance goals need not be uniform as among Participants.
(d) Timing of Establishment of Goals. The Committee shall establish the
performance goals in writing either before the beginning of the performance period or during a
period ending no later than the earlier of (i) 90 days after the beginning of the performance
period or (ii) the date on which 25% of the performance period has been completed, or such other
date as may be required or permitted under applicable regulations under section 162(m) of the Code.
(e) Certification of Results. The Committee shall certify the performance
results for the performance period specified in the Grant Agreement after the performance period
ends. The Committee shall determine the amount, if any, to be paid pursuant to each Grant based on
the achievement of the performance goals and the satisfaction of all other terms of the Grant
Agreement.
(f) Death, Disability or Other Circumstances. The Committee may provide in
the Grant Agreement that Grants under this Section 12 shall be payable, in whole or in part, in the
event of the Participants death or Disability, a Change of Control or under other circumstances
consistent with the Treasury regulations and rulings under section 162(m) of the Code.
13. Deferrals
The Committee may permit or require a Participant to defer receipt of the payment of cash or
the delivery of shares that would otherwise be due to the Participant in connection with any Grant.
The Committee shall establish rules and procedures for any such deferrals, consistent with
applicable requirements of section 409A of the Code. Notwithstanding any provision of the Plan to
the contrary, in the event that following the Effective Date the Committee determines that a Grant
may be subject to section 409A of the Code and related Department of Treasury guidance, the
Committee may adopt such amendments to the Plan and the applicable Grant Agreements or take any
other actions that the Committee determines are necessary or appropriate to (a) exempt the Grant
from section 409A of the Code and/or preserve the intended tax treatment of the benefits with
respect to the Grant, or (b) comply with the requirements of section 409A of the Code and the
applicable guidance.
14. Withholding of Taxes
(a) Required Withholding. All Grants under the Plan shall be subject to
applicable federal (including FICA), state and local tax withholding requirements. The Company may
require that the Participant or other person receiving or exercising Grants pay to the Company the
amount of any federal, state or local taxes that the Company is required to withhold with respect
to such Grants, or the Company may deduct from other wages paid by the Company the amount of any
withholding taxes due with respect to such Grants.
(b) Election to Withhold Shares. If the Committee so permits, a Participant
may elect to satisfy the Companys tax withholding obligation with respect to Grants paid in
Company Stock by having shares withheld, at the time such Grants become taxable, up to an amount
that does not exceed the minimum applicable withholding tax rate for federal (including FICA),
state and local tax liabilities. The election must be in a form and manner prescribed by the
Committee.
15. Transferability of Grants
(a) Restrictions on Transfer. No right or interest of a Participant in any
Grant may be pledged, encumbered or hypothecated to or in favor of any party other than the Company
or a subsidiary. Except as described in subsection (b) or (c) below, only the Participant may
exercise rights under a Grant during the Participants lifetime, and a Participant may not transfer
those rights except by will or by the laws of descent and distribution. When a Participant dies,
the personal representative or other person entitled to succeed to the rights of the Participant
may exercise such rights. Any such successor must furnish proof satisfactory to the Company of his
or her right to receive the Grant under the Participants will or under the applicable laws of
descent and distribution.
(b) Transfer of Nonqualified Stock Options to or for Family Members.
Notwithstanding the foregoing, the Committee may provide, in a Grant Agreement, that a Participant
may transfer Nonqualified Stock
Options to family members, charitable institutions or one or more trusts or other entities for
the benefit of or owned by family members, consistent with the applicable securities laws,
according to such terms as the Committee may determine; provided that the Participant receives no
consideration for the transfer of an Option and the transferred Option shall continue to be subject
to the same terms and conditions as were applicable to the Option immediately before the transfer.
16. Consequences of a Change of Control
(a) In the event of a Change of Control, the Committee may take any one or more of
the following actions with respect to or all outstanding Grants, without the consent of any
Participant: (i) the Committee may determine that outstanding Options and SARs shall be fully
exercisable, and restrictions on outstanding Stock Awards and Stock Units shall lapse, as of the
date of the Change of Control or at such other time as the Committee determines, (ii) the Committee
may require that Participants surrender their outstanding Options and SARs in exchange for one or
more payments by the Company, in cash or Company Stock as determined by the Committee, in an amount
equal to the amount by which the then Fair Market Value of the shares of Company Stock subject to
the Participants unexercised Options and SARs exceeds the Exercise Price, if any, and on such
terms as the Committee determines, (iii) after giving Participants an opportunity to exercise their
outstanding Options and SARs, the Committee may terminate any or all unexercised Options and SARs
at such time as the Committee deems appropriate, (iv) with respect to Participants holding Stock
Units, Other Stock-Based Awards or Dividend Equivalents, the Committee may determine that such
Participants shall receive one or more payments in settlement of such Stock Units, Other
Stock-Based Awards or Dividend Equivalents, in such amount and form and on such terms as may be
determined by the Committee, or (v) the Committee may determine that Grants that remain outstanding
after the Change of Control shall be converted to similar grants of, or assumed by, the surviving
corporation (or a parent or subsidiary of the surviving corporation or successor). Such
acceleration, surrender, termination, settlement or conversion shall take place as of the date of
the Change of Control or such other date as the Committee may specify.
(b) Other Transactions. The Committee may provide in a Grant Agreement that
a sale or other transaction involving a subsidiary or other business unit of the Company shall be
considered a Change of Control for purposes of a Grant, or the Committee may establish other
provisions that shall be applicable in the event of a specified transaction.
17. Requirements for Issuance of Shares
No Company Stock shall be issued in connection with any Grant hereunder unless and until all
legal requirements applicable to the issuance of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition any Grant made to
any Participant hereunder on such Participants undertaking in writing to comply with such
restrictions on his or her subsequent disposition of such shares of Company Stock as the Committee
shall deem necessary or advisable, and certificates representing such shares may be legended to
reflect any such restrictions. Certificates representing shares of Company Stock issued under the
Plan will be subject to such stop-transfer orders and other restrictions as may be required by
applicable laws, regulations and interpretations, including any requirement that a legend be placed
thereon. No Participant shall have any right as a stockholder with respect to Company Stock
covered by a Grant until shares have been issued to the Participant.
18. Amendment and Termination of the Plan
(a) Amendment. The Board may amend or terminate the Plan at any time;
provided, however, that the Board shall not amend the Plan without approval of the stockholders of
the Company if such approval is required in order to comply with the Code or applicable laws, or to
comply with applicable stock exchange requirements. No amendment or termination of this Plan
shall, without the consent of the Participant, materially impair any rights or obligations under
any Grant previously made to the Participant under the Plan, unless such right has been reserved in
the Plan or the Grant Agreement, or except as provided in Sections 13 above or 19(b) below.
Notwithstanding anything in the Plan to the contrary, the Board may amend the Plan in such manner
as it deems appropriate in the event of a change in applicable law or regulations.
(b) No Repricing Without Stockholder Approval. Notwithstanding anything in
the Plan to the contrary, the Committee may not reprice Options, nor may the Board amend the Plan
to permit repricing of Options, unless the stockholders of the Company provide prior approval for
such repricing. The term repricing shall have the meaning given that term in section 303A(8) of
the New York Stock Exchange Listed Company Manual, as in effect from time to time.
(c) Stockholder Approval for Qualified Performance-Based Compensation. If
Grants are made under Section 12 above, the Plan must be reapproved by the Companys stockholders
no later than the first stockholders meeting that occurs in the fifth year following the year in
which the stockholders previously approved the provisions of Section 12, if additional Grants are
to be made under Section 12 and if required by section 162(m) of the Code or the regulations
thereunder.
(d) Termination of Plan. The Plan shall terminate on the day immediately
preceding the tenth anniversary of its Effective Date, unless the Plan is terminated earlier by the
Board or is extended by the Board with the approval of the stockholders. The termination of the
Plan shall not impair the power and authority of the Committee with respect to an outstanding
Grant.
19. Miscellaneous
(a) Grants in Connection with Corporate Transactions and Otherwise. Nothing
contained in this Plan shall be construed to (i) limit the right of the Committee to make Grants
under this Plan in connection with the acquisition, by purchase, lease, merger, consolidation or
otherwise, of the business or assets of any corporation, firm or association, including Grants to
employees thereof who become Employees, or for other proper corporate purposes, or (ii) limit the
right of the Company to grant stock options or make other stock-based awards outside of this Plan.
Without limiting the foregoing, the Committee may make a Grant to an employee of another
corporation who becomes an Employee by reason of a corporate merger, consolidation, acquisition of
stock or property, reorganization or liquidation involving the Company in substitution for a grant
made by such corporation. The terms and conditions of the Grants may vary from the terms and
conditions required by the Plan and from those of the substituted stock incentives, as determined
by the Committee
(b) Compliance with Law. The Plan, the exercise of Options and the
obligations of the Company to issue or transfer shares of Company Stock under Grants shall be
subject to all applicable laws and to approvals by any governmental or regulatory agency as may be
required. With respect to persons subject to section 16 of the Exchange Act, it is the intent of
the Company that the Plan and all transactions under the Plan comply with all applicable provisions
of Rule 16b-3 or its successors under the Exchange Act. In addition, it is the intent of the
Company that Incentive Stock Options comply with the applicable provisions of section 422 of the
Code, that Grants of qualified performance-based compensation comply with the applicable
provisions of section 162(m) of the Code and that, to the extent applicable, Grants comply with the
requirements of section 409A of the Code. To the extent that any legal requirement of section 16
of the Exchange Act or section 422, 162(m) or 409A of the Code as set forth in the Plan ceases to
be required under section 16 of the Exchange Act or section 422, 162(m) or 409A of the Code, that
Plan provision shall cease to apply. The Committee may revoke any Grant if it is contrary to law
or modify a Grant to bring it into compliance with any valid and mandatory government regulation.
The Committee may also adopt rules regarding the withholding of taxes on payments to Participants.
The Committee may, in its sole discretion, agree to limit its authority under this Section.
(c) Enforceability. The Plan shall be binding upon and enforceable against
the Company and its successors and assigns.
(d) Funding of the Plan; Limitation on Rights. This Plan shall be unfunded.
The Company shall not be required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Grants under this Plan. Nothing contained in
the Plan and no action taken pursuant hereto shall create or be construed to create a fiduciary
relationship between the Company and any Participant or any other person. No Participant or any
other person shall under any circumstances acquire any property interest in any specific assets of
the Company. To the extent that any person acquires a right to receive payment from the
Company hereunder, such right shall be no greater than the right of any unsecured general creditor
of the Company.
(e) Rights of Participants. Nothing in this Plan shall entitle any
Employee, Non-Employee Director or other person to any claim or right to receive a Grant under this
Plan. Neither this Plan nor any action taken hereunder shall be construed as giving any individual
any rights to be retained by or in the employment or service of the Employer.
(f) No Fractional Shares. No fractional shares of Company Stock shall be
issued or delivered pursuant to the Plan or any Grant. The Committee shall determine whether cash,
other awards or other property shall be issued or paid in lieu of such fractional shares or whether
such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.
(g) Employees Subject to Taxation Outside the United States. With respect
to Participants who are subject to taxation in countries other than the United States, the
Committee may make Grants on such terms and conditions as the Committee deems appropriate to comply
with the laws of the applicable countries, and the Committee may create such procedures, addenda
and subplans and make such modifications as may be necessary or advisable to comply with such laws.
(h) Governing Law. The validity, construction, interpretation and effect of
the Plan and Grant Agreements issued under the Plan shall be governed and construed by and
determined in accordance with the laws of the state of Delaware, without giving effect to the
conflict of laws provisions thereof.
(i) Indemnification. To the extent allowable pursuant to applicable law,
each member of the Committee or of the Board shall be indemnified or held harmless by the Company
from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by such
member in connection with or resulting from any claim, action, suit or proceeding to which he or
she may be involved by reason of any action or failure to act pursuant to the Plan and against and
from any and all amounts paid by him or her in satisfaction of judgment in such action, suit or
proceeding against him or her; provided he or she gives the Company an opportunity to handle and
defend the same before he or she undertakes to handle and defend it on his or her own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled pursuant to the Companys Certificate of Corporation or Bylaws
as a matter of law, or otherwise, any power that the Company may have to indemnify them or hold
them harmless.
(j) Relationship to other Benefits. No payment pursuant to the Plan shall
be taken into account in determining any benefits pursuant to any pension, retirement, savings,
profit sharing, group insurance, welfare or other benefit plan of the Company or any subsidiary
except to the extent otherwise expressly provided in writing in such other plan or in agreement
thereunder.
(k) Expenses. The expenses of administering the Plan shall be borne by the
Company.
Appendix C
BALLY TOTAL FITNESS HOLDING CORPORATION
(together with its subsidiaries, the Company)
AMENDED
AUDIT COMMITTEE CHARTER
The Board of Directors of the Company (the Board) adopted and approved this amended charter
(Charter) of the Audit Committee (the Audit Committee) on March 8, 2005.
I OVERVIEW
|
A. |
|
The Audit Committee represents and assists the Board in fulfilling its
responsibility for oversight of: |
|
1. |
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the integrity of the Companys financial statements; |
|
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2. |
|
the Companys compliance with legal and regulatory requirements; |
|
|
3. |
|
the independent auditors qualifications and independence; and |
|
|
4. |
|
the performance of the Companys internal audit function and
independent auditor. |
|
B. |
|
The independent auditor directly reports to the Audit Committee. The Audit
Committee is also charged with preparing an audit committee report as required by the
rules of the Securities and Exchange Commission (the SEC) to be included in the
Companys annual proxy statement. |
|
|
C. |
|
The Audit Committees responsibility is limited to oversight. Although the
Audit Committee has the responsibilities set forth in this charter, it is not the
responsibility of the Audit Committee to plan or conduct audits or to determine that
the Companys financial statements and disclosure are complete and accurate and are in
accordance with generally accepted accounting principles and applicable laws, rules and
regulations. These are the responsibilities of management, the disclosure committee of
the Company (the Disclosure Committee), the internal auditor (or others responsible
for the internal audit function, including contracted non-employee or audit or
accounting firms engaged to provide internal audit services) (the Internal Auditors)
and the independent auditor. |
|
|
D. |
|
The Company shall provide for appropriate funding, as determined by the Audit
Committee, for payment of compensation to the independent auditor for the purpose of
rendering or issuing an |
|
|
|
audit report or performing other audit, review or attest services, for payment of
compensation to any advisers employed by the Audit Committee and for ordinary
administrative expenses of the Audit Committee that are necessary or appropriate in
carrying out its duties. |
II COMPOSITION
|
A. |
|
The Audit Committee will consist of at least three members of the Board that
the Board, in its business judgment, determines are (or become within a reasonable time
after being appointed to the Audit Committee) financially literate. The Board will
include one member who qualifies as an audit committee financial expert, as defined by
the SEC. The Board also must determine, in its business judgment, that at least one
member of the Audit Committee has accounting or related financial management expertise
in accordance with NYSE listing standards. The Board may presume that a member meeting
the criteria for an audit committee financial expert satisfies this requirement.
Members may be removed from the Audit Committee, with or without cause, by the Board. |
|
|
B. |
|
Each member must be free of any relationship to the Company that may interfere
with his or her exercise of judgment independent of management and the Company and must
satisfy the SECs and NYSEs requirements for independent director. |
III CHAIR
The Board will appoint one member of the Audit Committee as chairperson, who will be
responsible for leadership of the Audit Committee, including preparing the agenda, presiding
over the meetings, making committee assignments and reporting to the Board. The chairperson
will also maintain regular liaison with the Companys chief executive officer, chief
financial officer and manager of internal audit as well as the lead partner for the
independent auditor. The chairperson is hereby delegated the authority to act on behalf of
the Audit Committee in his or her discretion and specifically to approve non-audit services
provided to the Company by the independent auditor, subject to restrictions, if any, on
delegation of the Audit Committees duties and responsibilities provided by law, regulation
and the terms of this Charter.
IV RESPONSIBILITIES
The following tasks are the responsibility of the Audit Committee.
|
A. |
|
Select, retain and terminate when appropriate, the independent auditor, set the
independent auditors compensation, and pre-approve all audit services to be provided
by the independent auditor. The retention of the independent auditor by the Audit
Committee shall be subject to stockholder ratification. |
|
|
B. |
|
Oversee the work of the independent auditor (including resolution of any
disagreements between Company management and the independent auditor regarding
financial reporting) for the purpose of preparing or issuing an audit report or related
work or performing other audit, review or attest services for the Company. |
|
C. |
|
Pre-approve all permitted non-audit services to be performed by the independent
auditor (including the fees and terms thereof). |
|
|
D. |
|
Establish procedures for the confidential and anonymous receipt, retention, and
treatment of complaints received by the Company regarding accounting, internal
accounting controls, or auditing matters. |
|
|
E. |
|
Engage independent counsel and other advisers as it determines necessary to
fulfill its responsibilities. |
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|
F. |
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Determine the amounts necessary to pay: |
|
1. |
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the independent auditor; |
|
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2. |
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any advisers employed by the Audit Committee; and |
|
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3. |
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the administrative expenses of the Audit Committee. |
|
G. |
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Review determinations of the Disclosure Committee regarding significant
deficiencies or material weaknesses in the Companys Disclosure Controls (as defined in
the Disclosure Committee Charter). |
|
|
H. |
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Recommend to the Board whether the financial statements should be included in
the Companys annual report on Form 10-K and provide the Company with the report of the
Audit Committee with respect to the audited financial statements for inclusion in each
of the Companys annual proxy statements. |
|
|
I. |
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At least annually: |
|
1. |
|
conduct a performance evaluation of the Audit Committee; |
|
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2. |
|
evaluate the adequacy of this Charter; |
|
|
3. |
|
consider the independence of the independent auditor, including
whether the provision by the independent auditor of permitted non-audit
services is compatible with independence; and |
|
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4. |
|
review and approve recommended changes to the Disclosure
Committee Charter proposed by the Disclosure Committee. |
|
J. |
|
Receive and respond appropriately to any report from the independent auditor of
information that an illegal act, whether or not material to the financial statements of
the Company, has or may have occurred. |
|
|
K. |
|
Review and discuss with management and the independent auditor: (i) major
issues regarding accounting principles and financial statement presentations, including
any significant changes in the Companys selection or application of accounting
principles, and major issues as to the adequacy of the Companys internal controls and
any special audit steps adopted in light of material control deficiencies; (ii) any
analyses prepared by management or the independent auditor setting forth significant
financial reporting issues and judgments made in connection with the preparation of the
Companys financial statements, including analyses of the effects of alternative GAAP
methods on the Companys financial statements; and (iii) the effect of regulatory and
accounting initiatives, including any off-balance sheet structures, on the Companys
financial statements. |
|
L. |
|
Review with the independent auditor any problems or difficulties the
independent auditor may have encountered during the course of the audit work, including
any restrictions on the scope of activities or access to required information or any
significant disagreements with management and managements responses to such matters.
The Audit Committee shall obtain from the independent auditor assurances that Section
10A(b) of the Exchange Act has not been implicated. |
|
M. |
|
Before the independent auditor files its audit report with the SEC, review and
discuss with the independent auditor a report from the independent auditor regarding: |
|
1. |
|
all critical accounting policies and practices used in the annual report; |
|
|
2. |
|
all alternative treatments within GAAP for policies and
practices of material items that were discussed with management, including the
ramifications of their use and the treatment preferred by the independent
auditor; and |
|
|
3. |
|
other material written communications between the independent
auditor and management. |
|
N. |
|
At least annually, review the independence and quality control procedures of
the independent auditor and the experience and qualifications of the independent
auditors senior personnel that are providing audit services to the Company. In
conducting its review, the Audit Committee shall: |
|
1. |
|
obtain and review a report by the independent auditor
describing the independent auditors internal quality-control procedures and
any material issues raised by the most recent internal quality-control review,
or peer review, of the independent auditor or by any inquiry or investigation
by governmental or professional authorities, within the preceding five years,
respecting one or more independent audits carried out by the firm, and any
steps taken to deal with any such issues; and |
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discuss with the independent auditor its independence from the
Company and obtain and review a written statement prepared by the independent
auditor describing all relationships between the independent auditor and the
Company, consistent with the Independence Standards Board Standard 1, and
consider the impact that any relationship or services may have on the
objectivity and independence of the independent auditor . |
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Assure the timely rotation of the lead audit partner as required by law. |
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Review with management, the Disclosure Committee and the independent auditor,
before publication, the annual and quarterly financial statements of the Company,
including: |
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the Companys disclosures under Managements Discussion and
Analysis of Financial Condition and Results of Operations; |
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any material changes in accounting principles or practices used
in preparing the financial statements prior to the filing of a report on Form
10-K or 10-Q with the SEC; and |
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the items required by Statement of Auditing Standards No. 61 in
the case of the annual statements and Statement of Auditing Standards No. 71 in
the case of the quarterly statements. |
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Discuss with management and the Disclosure Committee the Companys earnings
press releases prior to release, as well as guidelines for financial information and
earnings guidance provided publicly. |
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Discuss with management the Company policies with respect to risk assessment,
risk management, and the Companys significant risk exposures and the action that
management has taken to limit, monitor and control such expenses and review contingent
liabilities and risks and major legislative and regulatory developments that could be
material to the Company. |
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Periodically meet separately with management, Internal Auditors (or other
personnel responsible for the internal audit function) and the independent auditor. |
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Review with the independent auditor, the Internal Auditors, the Disclosure
Committee and management: |
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the adequacy and effectiveness of the systems of internal
controls (including any significant deficiencies and significant changes in
internal controls reported to the Audit Committee by the independent auditor or
management), accounting practices, and disclosure controls and procedures (and
management reports thereon), of the Company and its subsidiaries; and |
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current accounting trends and developments. |
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Set policies for hiring employees or former employees of the independent auditor. |
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Report (i) regularly to the Board regarding the activities of the Audit
Committee; (ii) any issues that arise with respect to the quality or integrity of the
Companys financial statements, the Companys compliance with legal or regulatory
requirements, the performance and independence of the Companys independent auditor,
and the performance of the Companys internal audit function; and (iii) any other
matter the Audit Committee determines is necessary or advisable to report to the Board. |
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Discuss with management, the Disclosure Committee and the independent auditor
any related-party transactions brought to the Audit Committees attention which could
reasonably be expected to be disclosed in the Companys financial statements or other
documents filed with the SEC. |
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Discuss with management and the independent auditor any correspondence from or
with regulators or governmental agencies, any employee complaints or any published
reports that raise material issues regarding the Companys financial statements,
financial reporting process, accounting policies or internal audit function. |
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Discuss with the Companys General Counsel or outside counsel any legal matters
brought to the Audit Committees attention that could reasonably be expected to have a
material impact on the Companys financial statements. |
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Oversee the implementation of the Code of Business Conduct, Practices and
Ethics (the Code) and review any allegation that an executive officer or director may
have violated the Code and report its findings to the Board. |
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Meetings |
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The Audit Committee shall meet at least four (4) times during each fiscal year and more
frequently as the Audit Committee deems desirable. |
BALLY TOTAL FITNESS HOLDING CORPORATION
8700 West Bryn Mawr Avenue
Chicago, Illinois 60631
www.ballyfitness.com
BALLY TOTAL FITNESS HOLDING CORPORATION
8700 West Bryn Mawr Avenue, Chicago, Illinois 60631
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Marc D. Bassewitz and Harold Morgan, or either of them,
proxies of the undersigned with full power of substitution, to vote all shares of the undersigned
at the annual meeting of stockholders of Bally Total Fitness Holding Corporation to be held at 8:30
a.m. (local time) on January 26, 2006 at the Renaissance Chicago
OHare Hotel, 8500 West Bryn Mawr Avenue, Chicago, Illinois, or at
any postponement or adjournment thereof.
The Board of Directors unanimously recommends a vote FOR proposal numbers 1, 2 and 3.
The Board of Directors recommends you ABSTAIN from voting for or against proposal
number 4.
This proxy, when properly executed, will be voted in the manner directed herein by the undersigned
stockholder. If no direction is made, this proxy will be voted as follows: for proposal numbers 1,
2 and 3, abstain from voting for or against proposal number 4, and in favor of granting
discretionary authority in proposal number 5. SEE REVERSE SIDE.
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(Comments/Change of Address) |
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(If you have written in the above space, please mark the
corresponding box on the reverse side.) |
FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY BY MAIL
ENTRANCE PASS 2005 ANNUAL MEETING OF STOCKHOLDERS
This is an entrance pass for the 2005 Annual Meeting
of Stockholders of Bally Total Fitness Holding Corporation.
In order to attend the annual meeting, you must bring this pass with you.
BALLY TOTAL FITNESS HOLDING CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. l
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Control Number
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For
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Withhold
All
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For All
Except |
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The Board of Directors unanimously recommends a vote FOR ALL the below nominees. |
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Election of the following Class III Director |
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nominees for three-year terms expiring in 2008: |
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Eric Langshur |
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Charles J. Burdick |
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Barry R. Elson |
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Nominee Exception |
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The Board of Directors unanimously recommends a vote FOR the approval of the 2006 Omnibus Equity
Compensation Plan. |
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For
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Against
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Abstain |
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Approval of the 2006 Omnibus Equity Compensation Plan |
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The Board of Directors unanimously recommends a vote FOR
the ratification of the appointment of KPMG LLP. |
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For
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Ratification of the appointment of KPMG LLP as
independent auditor for the Company for the fiscal year
ending December 31, 2005 |
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The Board of Directors unanimously recommends that you vote to ABSTAIN with respect to the below stockholder proposal. |
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For
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Pardus Proposal |
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The Board of
Directors unanimously recommends that you vote FOR the granting of
discretion on the Liberation Proposal, if properly brought before the
meeting and all other proposals that properly come before the meeting. |
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For
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5.
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In their discretion on all other matters as
may properly come before the annual meeting, including
any motion to adjourn or postpone the meeting or other
matters incidental to the conduct of the meeting. |
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Comments/ Change
of Address
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[ ] |
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Signature |
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Title or Authority |
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Signature (if held jointly) |
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Note: Please sign as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee, or
guardian, please give full title as such. |
é FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY BY MAIL é
BALLY TOTAL FITNESS HOLDING CORPORATION
PROXY VOTING INSTRUCTION CARD
Your vote is important. Casting your vote in one of the three ways described on this instruction
card votes all shares of Common Stock of Bally Total Fitness Holding Corporation that you are
entitled to vote.
Please consider the issues discussed in the proxy statement and cast your vote by:
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Accessing the World Wide Web site http://www.eproxyvote.com/bft/ to vote via
the internet. |
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Using a touch-tone telephone to vote by phone toll free from the U.S. or
Canada. Simply dial 1-866-207-3912 and follow the instructions. When you are
finished voting, your vote will be confirmed, and the call will end. |
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Completing, dating, signing and mailing the white proxy card in the
postage-paid envelope included with the proxy statement. |
You can vote by phone or via the internet any time prior to 11:59 p.m. Central Time, January 26,
2006. You will need the control number printed at the top of this instruction card to vote by phone
or via the internet. If you do so, you do not need to mail in your proxy card.