EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THE EMPLOYMENT AGREEMENT made and entered into as of the first day of
January 1998, among Bally Total Fitness Holding Corporation, a Delaware
corporation ("BTFHC") and John W. Dwyer ("Employee").
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements herein contained, the parties agree as follows:
1. Employment.
(a) BTFHC hereby employs Employee in the capacity of Executive Vice
President, Chief Financial Officer. BTFHC may employ Employee in such other
capacities of equal status and responsibility as the Chief Executive Officer of
BTFHC, or his designated representative, shall reasonably determine, and
Employee hereby accepts such employment upon the terms and conditions herein set
forth.
(b) During the term of his employment, Employee will devote his best
efforts to his employment and perform such duties consistent with his status as
a senior executive in such capacities as the Chief Executive Officer of BTFHC
shall reasonably assign to him. Employee will devote his entire working time and
attention to the business and related interests of, and will be loyal to, BTFHC,
and Employee agrees to render service on behalf of BTFHC and its subsidiaries or
affiliates.
(c) Employee shall not, without prior written consent of BTFHC,
directly or indirectly, during the term of this Employment Agreement:
(i) Other than in the performance of duties naturally inherent
to BTFHC's business and in furtherance thereof, render services of a
business, professional or commercial nature to any other person or firm,
whether for compensation or otherwise, but this shall not be construed
as preventing the Employee from investing his assets in such form or
manner as will not require any services on the part of the Employee in
the operation of the affairs of the companies in which such investments
are made and which are not in violation of subparagraph (ii) below or
from engaging in Boards of Directors (subject to the approval of BTFHC's
Chief Executive Officer) or charitable activities so long as such
activities do not interfere with the performance of Employee's duties
hereunder;
(ii) Engage in any activity competitive with or adverse to
BTFHC's business or welfare, whether alone, as a partner, or as an
officer, director, employee or shareholder of any other corporation, or
otherwise, directly or indirectly, except that the ownership of not more
than one percent (1%) of the stock of any publicly traded corporation
shall not be deemed violative of this subparagraph (ii);
1
(iii) Be engaged by any entity which conducts business with or
acts as consultant or advisor to BTFHC, whether alone, as a partner, or
as an officer, director, employee or shareholder, or otherwise, directly
or indirectly, except that ownership of not more than one percent (1%)
of the stock of any publicly traded corporation shall not be deemed
violative of this subparagraph (iii).
2. Term. The term of this Employment Agreement shall begin on the
effective date stated above ("commencement date") and shall continue for three
(3) years through December 31, 2000, unless terminated by either party pursuant
to paragraphs 7 or 8.
3. Compensation.
(a) In consideration of the services to be rendered by the Employee
hereunder, BTFHC agrees to pay to the Employee, and the Employee agrees to
accept, as compensation, the sum of Three Hundred Thousand Dollars and No/100
Cents ($300,000.00) (the "Base Salary" ) for each twelve month period following
the effective date of this Employment Agreement, which shall be paid on the
regularly recurring pay periods established by BTFHC. The Base Salary shall be
subject to periodic review for consideration of increase by BTFHC.
(b) It is further understood by the parties that, pursuant to the
policies of BTFHC, discretionary bonus payments may be made in addition to the
Base Salary above provided.
4. Vacation and Other Benefits. Employee shall be entitled to a
reasonable vacation each year of his employment with BTFHC as well as other
employment benefits, including hospitalization, life insurance, death and
retirement plans, an automobile allowance or the use of an automobile, and the
like, afforded to senior executives of BTFHC of comparable status and tenure and
consistent with that afforded under BTFHC's policies.
5. Expenses. BTFHC shall pay all reasonable expenses incurred by
Employee in the performance of his responsibilities and duties for BTFHC.
Employee shall submit to BTFHC periodic statements of all expenses so incurred.
Subject to such audits BTFHC may deem necessary, BTFHC shall reimburse Employee
the full amount of any such expenses advanced by Employee promptly in the
ordinary course.
6. Covenants and Confidential Information.
(a) Employee agrees that for the applicable period specified below,
he will not, directly or indirectly, do any of the following:
(i) Be engaged as a partner, officer, director, employee,
shareholder or consultant by any entity which is engaged in the
operation of health or fitness clubs within five (5) miles of any
facility which (on the date Employee ceases to be employed hereunder) is
owned, managed or under development to be owned or managed by BTFHC, its
subsidiaries, affiliates
2
and/or its successors and assigns, or is owned by a franchisee of BTFHC,
its subsidiaries, affiliates and/or its successor and assigns
("Facility"); provided, however, that the ownership of not more than one
percent (1%) of the stock in a publicly-traded corporation shall not be
deemed violative of this subparagraph 6(a)(i);
(ii) Induce any person who is an employee, officer, or agent of
BTFHC, to terminate said relationship or employ, assist in employing or
otherwise associate in business with any present, former or future
employee or officer of BTFHC;
(iii) Disclose, divulge, discuss, copy or otherwise use or suffer
to be used in any manner, in competition with, or contrary to the
interests of BTFHC, the customer lists, inventions, ideas, discoveries,
manufacturing methods, product research or engineering data or other
trade secrets of BTFHC, it being acknowledged by Employee that all such
information regarding the business of BTFHC compiled or obtained by, or
furnished to, Employee while he shall have been employed by or
associated with BTFHC is confidential information and the exclusive
property of BTFHC.
(b) The provisions of subparagraphs 6(a)(i), 6(a)(ii) and 6(a)(iii)
shall be operative during the Term hereof except as hereafter provided in this
subparagraph 6(b).
(i) In the event of a "Change in Control" (as defined in
subparagraph 9(c)), the provisions of subparagraphs 6(a)(i) and 6(a)(ii)
shall be operative only so long as the Employee remains an employee of
BTFHC.
(ii) In any event, including a Change in Control or in the event
Employee is terminated for illness or incapacity (as provided in
subparagraph 7(a)) or for "Cause" (as defined in subparagraph 8(a)), the
provisions of subparagraph 6(a)(iii) shall be operative until such time
as the information becomes public knowledge other than through the act
of Employee.
(iii) In the event Employee is terminated for Cause or for
illness or incapacity (as provided in subparagraph 7(a)), the provisions
of subparagraphs 6(a)(i) and 6(a)(ii) shall be operative during the Term
of this Agreement and for one (1) additional year.
(c) Employee expressly agrees and understands that the remedy at law
for any breach by him of this paragraph 6 will be inadequate and that the
damages flowing from such breach are not readily susceptible to being measured
in monetary terms. Accordingly, it is acknowledged that BTFHC shall be entitled
to immediate injunctive relief and if the court so permits, may obtain a
temporary order restraining any threatened or further breach. Nothing contained
in this paragraph 6 shall be deemed to limit BTFHC's remedies at law or in
equity for any breach by Employee of the provisions of this paragraph 6 which
may be pursued or availed of by BTFHC. Any covenant on Employee's part contained
hereinabove, which may not be specifically enforceable, shall nevertheless, if
breached, give rise to a cause of action for monetary damages.
3
(d) Employee has carefully considered the nature and extent of the
restrictions upon him and the rights and remedies conferred upon BTFHC under
this paragraph 6, and hereby acknowledges and agrees that the same are
reasonable in time and territory, are designed to eliminate competition which
otherwise would be unfair to BTFHC, do not stifle the inherent skill and
experience of Employee, would not operate as a bar to Employee's sole means of
support, are fully required to protect the legitimate interests of BTFHC and do
not confer a benefit upon BTFHC disproportionate to the detriment to Employee.
(e) For the purposes of this paragraph 6, the term "BTFHC" shall be
deemed to include BTFHC and its subsidiaries and affiliates and the successors
and assigns of it and its subsidiaries and affiliates, involved in the operation
or management of a fitness center.
(f) The covenants contained in this paragraph 6 shall be construed to
extend to separate counties and adjacent counties, if applicable, of the states
of the United States in which BTFHC and its subsidiaries, affiliates and its and
their successors and assigns has a fitness center, and to the extent that any
such covenant shall be illegal and/or unenforceable with respect to any one of
said counties, said covenants shall not be affected thereby with respect to each
other county, such covenants with respect to each county being construed as
severable and independent.
7. Illness, Incapacity or Death During Employment.
(a) If the Employee is unable to perform his services by reason of
illness or incapacity resulting in a failure to discharge his duties under this
Employment Agreement for six (6) or more consecutive months, then upon three (3)
days notice, BTFHC may terminate the employment of Employee under this
Employment Agreement and Employee, upon such termination, shall be (i) paid his
Base Salary on a pro-rata basis to the date of termination through the three (3)
day notice period; plus (ii) any previously declared but unpaid bonuses; plus
(iii) reimbursement of all expenses reasonably incurred by Employee in
performing his responsibilities and duties for BTFHC through and including such
three (3) day notice period; plus (iv) any other payment or benefit which
Employee is then entitled to receive under any employment benefit plan,
retirement plan or similar arrangement then maintained by BTFHC, in the amount
and to the extent determined under the terms and conditions of any such plan.
In the event of such termination, the Employee shall have the right, at
his option, to the assignment of any and all insurance policies or health
protection plans if said policies and plans permit assignment out of the group
to the Employee.
(b) In the event that BTFHC elects to terminate this Employment
Agreement pursuant to Section 7(a) by reason of illness or incapacity, then
Employee shall be entitled to the long-term disability (LTD) benefits provided
to senior officers by BTFHC but in any event at no less than sixty percent (60%)
of Base Salary as of the date of termination, without reference to set-off or
caps existing in any LTD plan.
4
(c) In the event of Employee's death, all obligations of BTFHC under
this Employment Agreement shall terminate other than the payment of that portion
of his Base Salary on a pro-rata basis accrued to the date of death, any
previously declared but unpaid bonuses, plus reimbursement of all expenses
reasonably incurred by Employee in performing his responsibilities and duties
for BTFHC prior to and including such date.
8. Termination.
(a) The employment of Employee under this Employment Agreement, and
the term hereof, may be terminated by BTFHC for cause at any time. For purposes
hereof, the term "cause" means:
(i) Employee's fraud or dishonesty;
(ii) Employee's willful misconduct or gross negligence in the
performance of his duties hereunder, including willful failure to
perform such duties as may properly be assigned him hereunder; or
(iii) Employee's material breach of any material provision of
this Employment Agreement.
(b) Any termination shall not be in limitation of any other right or
remedy BTFHC or Employee may have under this Employment Agreement or otherwise.
9. Optional Termination Upon Change of Control.
(a) In the event that there is a "Change in Control" (as defined in
this paragraph 9) of BTFHC and the successor in control, without cause,
terminates this Employment Agreement, Employee shall be paid a lump sum equal to
twenty-four (24) months Base Salary or an amount equal to his Base Salary for
the balance of the three year term, whichever is greater, and the greater of the
average of twice the bonuses paid to Employee by BTFHC for 1997 or the bonus, if
any, for the prior year. If the successor in control changes Employee's title or
substantially changes his duties or functions from those which he previously
performed hereunder or requires Employee to perform the majority of his duties
at a location outside of the metropolitan area of Chicago, Illinois, the
successor in control shall be deemed to have constructively terminated
Employee's services without cause and Employee shall be entitled to payment set
forth in the first sentence of this paragraph.
In the event that there is a Change in Control (as defined in this
paragraph 9) of BTFHC, Employee may, at his option, terminate this Employment
Agreement at any time thereafter upon thirty (30) days written notice to BTFHC.
If Employee exercises this right to terminate, he shall be paid the following
amounts: (i) a lump sum amount equal to one-half (1/2) of his annual Base Salary
as in effect at the time of exercise (or, if greater, at the time of the Change
in Control); plus, (ii) his Base Salary on a pro-rata basis through and
including the date of his employment termination; plus (iii) any
5
previously declared but unpaid bonuses; plus (iv) reimbursement of all expenses
reasonably incurred by Employee in performing his responsibilities and duties
for BTFHC through and including the date of his employment termination; plus (v)
any other payment or benefit which Employee is then entitled to receive under
any employment benefit plan, retirement plan or similar arrangement then
maintained by BTFHC, in the amount and to the extent determined under the terms
and conditions of any such plan. All such payments shall be made no later than
thirty (30) days after the last day of Employee's employment. In addition,
Employee shall have the right, at his election, to the assignment of any and all
insurance policies and/or health protection plans if said policies and plans
permit assignment to Employee.
A "Change in Control" shall, except as provided below, mean a change in
control of BTFHC of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934 (as in effect on the effective date of this Employment
Agreement, the "Exchange Act"), whether or not BTFHC is then subject to such
reporting requirement; provided that, without limitation, such a Change in
Control shall be deemed to have occurred if:
(i) any "person" (as defined in subsections 13(d) and 14(d) of
the Exchange Act), other than a person with which Arthur M. Goldberg is
affiliated or of which he is a part, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), of securities
of BTFHC representing twenty percent (20%) or more of the combined
voting power of BTFHC's then outstanding securities;
(ii) during any period of two (2) consecutive years or less (not
including any period prior to the effective date of this Employment
Agreement) there shall cease to be a majority of the Board of Directors
of BTFHC comprised of Continuing Directors (as defined below); or
(iii) the stockholders of BTFHC approve (1) a merger or
consolidation of BTFHC with any other corporation, other than a merger
or consolidation that would result in the voting securities of BTFHC
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of
the surviving entity) at least 80% of the combined voting power of the
voting securities of BTFHC or such surviving entity outstanding
immediately after such merger or consolidation, or (2) a plan of
complete liquidation of BTFHC or an agreement for the sale or
disposition by BTFHC of all or substantially all of its assets.
Notwithstanding anything else contained herein to the contrary, the
acquisition of BTFHC securities from BTFHC which issuance was approved by the
Continuing Directors (as defined below) shall not, either on its own or in
connection with any other acquisition of BTFHC securities prior thereto, be
deemed to be a Change in Control for purposes of this Agreement.
6
The term "Continuing Directors" shall mean individuals who constitute
the Board of Directors of BTFHC as of the effective date of this Employment
Agreement and any new director(s) whose election by such Board or nomination for
election by BTFHC's stockholders was approved by a vote of at least two-thirds
of the directors then in office who either were directors as of the effective
date of this Employment Agreement or whose election or nomination for election
was previously so approved.
10. Parachute Payments.
(a) If it shall be determined that any payment, distribution or
benefit received or to be received by Employee from BTFHC pursuant to this
Agreement or any option plan maintained by Employer or its affiliates (other
than with respect to that certain Restricted Stock Award Agreement dated
September 15, 1998) ("Payments") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (such
tax referred to as the "Excise Tax"), then Employee shall be entitled to receive
an additional payment from BTFHC (the "Excise Tax Gross-Up Payment") in an
amount such that the net amount retained by Employee, after the calculation and
deduction of any Excise Tax on the Payments (together with any penalties and
interest that have been or will be imposed on Employee in connection therewith)
and any federal, state and local income taxes, Excise Taxes and payroll taxes
(including the tax imposed by Section 3101(b) of the Code) on the Excise Tax
Gross-Up Payment provided for in this paragraph 10, shall be equal to the
Payments. In computing the amount of this payment, it shall be assumed that
Employee is subject to tax by each taxing jurisdiction at the highest marginal
tax rate in the respective taxing jurisdiction of Employee, taking into account
the city and state in which Employee resides, but giving effect to the tax
benefit, if any, which Employee may enjoy to the extent that any such tax is
deductible in determining the tax liability of any other taxing jurisdiction
(provided that the highest marginal tax rate for federal income tax purposes
shall be determined under Section 1 of the Code).
(b) All determinations required to be made under this paragraph 10,
including whether and when an Excise Tax Gross-Up Payment is required and the
amount of such Excise Tax Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, except as specified in subparagraph 10(a), shall
be made by BTFHC's independent auditors (the "Accounting Firm"), which shall
provide detailed supporting calculations both to BTFHC and Employee within 15
business days after BTFHC makes any Payments to Employee. The determination of
tax liability and the assumptions made by the Accounting Firm shall be subject
to review by Employee's tax advisor, and, if Employee's tax advisor does not
agree with the determination reached by the Accounting Firm, then the Accounting
Firm and Employee's tax advisor shall jointly designate a nationally-recognized
public accounting firm within five (5) business days after notice has been given
to BTFHC of Employee's disagreement with the Accounting Firm's calculation,
which shall make the determination within 15 business days after its
appointment. If the parties cannot agree on a nationally recognized public
accounting firm, then both parties shall select a nationally recognized public
accounting firm who shall then jointly select a third nationally recognized
public accounting firm which shall make the determination within 15 business
days after its appointment. All fees and expenses of the accountants and tax
advisors retained by either Employee or BTFHC shall be borne by BTFHC. Any
Excise Tax
7
Gross-Up Payment, as determined pursuant to this paragraph 10, shall be paid by
BTFHC to Employee within five (5) days after the receipt of the determination,
subject to applicable federal, state, local and Excise Tax withholding
requirements. Any determination by a jointly designated public accounting firm
shall be binding upon BTFHC and Employee, and shall not be subject to
arbitration pursuant to Section 18.
(c) As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination hereunder, it is possible
that Excise Tax Gross-Up Payments will not have been made by BTFHC that should
have been made consistent with the calculations required to be made hereunder
("Underpayment"). In the event that the IRS, on audit, asserts that Employee has
made an underpayment and Employee is required (by reason of settlement or
otherwise) to make a payment of any Excise Tax, or if Employee is required to
make one or more payments of Excise Tax to the IRS (and/or interest or penalties
thereon) upon the filing of his original or amended tax returns which exceed the
amounts taken into account in determining the initial Excise Tax Gross-Up
Payment made pursuant to subparagraphs 10(a) and 10(b), then in either of such
events any such Under payment calculated in accordance with and in the same
manner as the Excise Tax Gross-Up Payment in subparagraph 10(a) shall be
promptly paid by BTFHC to or for the benefit of Employee. In addition, BTFHC
will pay Employee an amount equal to any penalties, interest or additions to be
assessed against him as a result of the underpayment, which amounts shall be
grossed up for any federal, state, local or Excise Taxes payable with respect to
such penalties, interest or additions to tax such that Employee receives a net
amount equal to the penalties, interest and additions to tax assessed against
him (determined in the same manner as described in subparagraph 10(a)). Employee
shall not be obligated to contest any proposed assessment of any Underpayment
and may settle any such audit action or proceeding involving an Underpayment at
his discretion; provided, however, that Employee shall, upon notice of
examination by the Internal Revenue Service, give notice thereof to BTFHC and
BTFHC, at its sole cost and in its sole discretion, may, on behalf of Employee,
defend and contest against any proposed Internal Revenue Service deficiency. In
the event that BTFHC assumes the defense of the proposed deficiency, BTFHC shall
immediately, upon written request of the Employee, secure all of its possible
obligations to the Employee as provided for in this subparagraph 10(c) by either
posting cash collateral in escrow or providing Employee with a "clean
irrevocable letter of credit" in the amount of all of BTFHC's possible
obligations to the Employee pursuant to this subparagraph 10(c). The terms of
such escrow or clean irrevocable letter of credit shall be negotiated by BTFHC
and Employee at such time and any dispute relating to such matters shall be
settled in an arbitration pursuant to Section 18 of this Agreement. Employee
agrees to execute any documents, including Powers of Attorney, that may be
necessary to facilitate BTFHC's defense and/or contesting the Internal Revenue
Service's assertions. In the event that the Excise Tax Gross-Up Payment exceeds
the amount subsequently determined to be due, such excess shall constitute a
loan from BTFHC to Employee payable on the fifth day after demand by BTFHC
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code).
11. Severable. Provisions. The provisions of this Employment
Agreement are severable, and if any one or more provisions may be determined to
be illegal or otherwise unenforceable, in
8
whole or in part, the remaining provisions, and any partially unenforceable
provision to the extent enforceable in any jurisdiction, shall nevertheless be
binding and enforceable.
12. Binding Agreement. The rights and obligations of BTFHC under
this Employment Agreement shall inure to the benefit of and shall be binding
upon the respective successors and assigns of BTFHC.
13. Attorneys' Fees. In the event Employee is required to commence an
arbitration action to enforce the provisions of this Employment Agreement and
Employee prevails in such action, BTFHC shall pay Employee's costs and expenses,
including reasonable attorneys' fees, incurred in such arbitration and in any
subsequent legal action brought to enforce the arbitration decision.
14. Notices. Any notice to be given to BTFHC under the terms of this
Employment Agreement shall be addressed to BTFHC at the address of its principal
places of business, and any notice to be given to Employee shall be addressed to
him at his home address last shown on the records of BTFHC, or at such other
address as the parties may hereafter designate in writing to the other. Any such
notice shall have been duly given when enclosed in a properly sealed envelope
addressed as aforesaid, postage prepaid, registered or certified, return receipt
requested, and depos ited in a post office or branch post office regularly
maintained by the United States Government.
15. Waiver. Either party's failure to enforce any provision or
provisions of this Employment Agreement shall not in any way be construed as a
waiver of any such provision or provisions as to any future violations thereof,
nor prevent that party thereafter from enforcing each and every other provision
of this Employment Agreement. The rights granted the parties herein are
cumulative and the waiver by a party of any single remedy shall not constitute a
waiver of such party's right to assert all other legal remedies available to him
or it under the circumstances.
16. Governing Law. This Employment Agreement shall be governed by
and construed and interpreted according to the internal laws of the State of
Illinois without reference to principles of conflict of laws.
17. Miscellaneous. Captions and headings used herein are for
convenience only and are not a part of this Employment Agreement and shall not
be used in construing it. This Employment Agreement constitutes the entire
agreement between BTFHC and Employee with respect to the subject matter hereof
and may not be modified or terminated orally. No modification, termination or
attempted waiver of this Employment Agreement shall be valid unless in writing
and signed by the party against whom the same is sought to be enforced.
18. Arbitration. Any controversy or claim arising out of or relating
to this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the Rules of the American Arbitration Association then
pertaining in Chicago, Illinois and judgment upon the award rendered by the
arbitrator or arbitrators may be entered in any court having jurisdiction
thereof. The arbitrator or arbitrators shall be deemed to possess the powers to
issue mandatory orders and restraining orders
9
in connection with such arbitration; provided, however, that nothing in this
paragraph 18 shall be construed so as to deny BTFHC's right and power to seek
and obtain injunctive relief in a court of equity for any breach or threatened
breach of Employee of any of his covenants contained in subparagraph 6(a)
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly elected as of the day and year first above written.
BALLY TOTAL FITNESS HOLDING
CORPORATION
ATTEST: /s/ Joycelyn S. Jaksa /s/ Harold Morgan
----------------------------- -----------------------------------
Harold Morgan "BTFHC"
/s/ John W. Dwyer
-----------------------------------
John M. Dwyer "Employee"
Approved by the Compensation Committee of Bally Total Fitness Holding
Corporation on October 22nd, 1998.
------------
/s/ Liza M. Walsh
-----------------------------------
Chairman, Compensation Committee -
Bally Total Fitness Holding
Corporation
10