EXHIBIT 10.2
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made and entered
into on October 26, 1998, effective as of the 1st day of January, 1998, by and
between BALLY TOTAL FITNESS HOLDING CORPORATION, a Delaware corporation
("BALLY" or "EMPLOYER") and LEE S. HILLMAN ("EMPLOYEE").
WHEREAS, Employer and Employee desire to terminate their current
employment arrangement, and Employer and Employee desire to enter into this
Employment Agreement (this "EMPLOYMENT AGREEMENT") to set forth the rights and
duties of the parties herein;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements herein contained, the parties agree as follows:
1. EMPLOYMENT
(a) Bally hereby employs Employee in the capacities of President and
Chief Executive Officer and such other capacity or capacities of equal status
and responsibility as the Board of Directors of Bally shall 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 capacities
as President and Chief Executive Officer of Bally and such other capacity or
capacities as the Board of Directors of Bally shall determine, as are reasonably
assigned to him by Employer. While it is understood and agreed that Employee's
job capacities may change at Employer's discretion during the term of this
Employment Agreement, his level of responsibility shall not be substantially
reduced at any time. Except as hereinafter permitted in Section 1(c), Employee
will devote substantially all of his working time and attention to the business
and related interests of, and will be loyal to, Employer, and Employee agrees to
render service on behalf of Employer or on behalf of its subsidiaries or
affiliates.
(c) Without the prior written consent of Employer, Employee shall
not, either in his individual capacity or in his capacity as a fiduciary of
trusts which are for the benefit of Arthur M. Goldberg and/or his family members
or others (the "AMG TRUSTS"), directly or indirectly, during the term of this
Employment Agreement:
(i) Other than (A) in the performance of duties naturally
inherent to Employer's business and in furtherance thereof, (B) the
provision of services, if any, to Hilton Hotels Corporation pursuant
to that certain
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consulting agreement dated November 21, 1996 between Hilton Hotels
Corporation and Employee ("CONSULTING AGREEMENT"), or (C) in his
capacity as a fiduciary of the AMG Trusts, render services of a
business, professional or commercial nature to any other person or
firm, whether for compensation or otherwise; provided, however, that
nothing contained in this Section 1(c) shall be construed as
preventing Employee from (x) investing his assets or the assets of the
AMG Trusts in such form or manner as will not require any services on
the part of Employee in the operation of the affairs of the companies
in which such investments are made and which are not in violation of
Section 1(c)(ii), (y) acting as a director of other companies
(including, but not by way of limitation, Continuecare Corporation and
Holmes Place, P.L.C.), or (z) either in his individual capacity or in
his capacity as a fiduciary of the AMG Trusts, from engaging in
charitable activities so long as such activities do not unreasonably
interfere with the performance of Employee's duties hereunder;
(ii) Engage in any activity competitive with or adverse to
Employer'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; provided, however, that (A) the
ownership by Employee of not more than one percent (1%) of the stock
in a publicly-traded
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corporation shall not be deemed violative of this Section 1(c)(ii),
(B) the ownership by the AMG Trusts of equity or debt (of whatever
nature) in any entity shall not be deemed violative of this Section
1(c)(ii), and (C) serving as a director of Continuecare Corporation
and Holmes Place, P.L.R. is hereby consented to and shall not be
deemed violative of this Section 1(c)(ii).
(iii) Be engaged by any entity (other than charitable
organizations, as a consultant pursuant to the Consulting Agreement or
in his capacity as a fiduciary of the AMG Trusts) which conducts
business with or acts as consultant or advisor to Employer, whether
Employee is acting alone, as a partner, or as an officer, director,
employee or shareholder, or otherwise, directly or indirectly, except
that (A) ownership of not more than one percent (1%) of the stock of a
publicly-traded corporation shall not be deemed violative of this
Section 1(c)(iii) and (B) serving as a director of Continuecare
Corporation and Holmes Place, P.L.C. is hereby consented to and shall
not be deemed violative of this Section 1(c)(iii).
2. TERM
The term of the employment of Employee under this Employment
Agreement shall begin as of January 1, 1998 and end on December 31, 2000 (the
"TERM") unless this
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Employment Agreement is terminated earlier for any of the following reasons: (i)
due to illness, incapacity or death of Employee pursuant to Section 7; (ii) by
Bally, for Cause, pursuant to Section 8; or (iii) in the event of a Change of
Control pursuant to Section 9.
3. COMPENSATION
(a) In consideration of the services to be rendered by Employee
hereunder, Employer agrees to pay to Employee, and Employee agrees to accept, as
compensation, an annual base salary of Four Hundred Fifty Thousand Dollars
($450,000) (the "BASE SALARY") for each twelve month period beginning January 1,
1998 of this Employment Agreement, which amounts shall be paid on the regularly
recurring pay periods established by Employer. The Base Salary shall be subject
to periodic increase by Employer, although any determination to increase the
Base Salary shall be within Employer's sole discretion.
(b) It is further understood by both parties that Employee will
participate in any bonus plans or similar plans established by Employer for its
senior management and pursuant to the policies of Employer. A discretionary
bonus payment may be made in addition to the Base Salary and any bonus plan or
similar plan, which shall be made within Employer's sole discretion.
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4. VACATIONS AND OTHER BENEFITS
(a) Employee shall be entitled to reasonable vacations each year of
his employment with Employer as well as all other employment benefits and
perquisites (including, without limitation, medical, prescription drug, dental,
hospitalization, life insurance, death and retirement plans, office space,
secretary as selected by Employee, support services, an automobile allowance or
the use of an automobile, and the like) at levels at least as great as afforded
to other senior executives of Employer and consistent with that afforded under
Employer's policies. Employer may, at its sole discretion, change such policies.
In addition, Employer will provide Employee with life insurance and long-term
disability insurance as described on Schedule A hereto.
(b) In addition to the other compensation and benefits under this
Employment Agreement, Employer shall pay Employee, as additional compensation,
an amount equal to two hundred percent (200%) of the premiums (and any other
costs) necessary to maintain in full force and effect, so long as Employee is
employed hereunder, a policy of term insurance on the life of Employee, in an
amount equal to the greater of (i) $1,600,000 and (ii) that amount which is
twice his annual Base Salary as in effect from time to time. The policy shall be
owned by Employee and/or any member of his family and/or a trust for their
benefit as shall be selected by Employee. Employee shall promptly advise
Employer of the owner and the designated beneficiary or beneficiaries of such
policies.
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The additional compensation referenced in this Section 4(b) shall be
supplemental to any other life insurance benefits provided to Employee,
including the group life insurance provided to Employee at the time this
Employment Agreement commenced or any subsequent improvement thereof.
5. EXPENSES
Employer shall pay all reasonable expenses incurred by Employee in the
performance of his responsibilities and duties for Employer. Employee shall
submit to Employer periodic statements of all reasonable expenses so incurred.
Subject to such audits as Employer may deem necessary, Employer shall reimburse
Employee the full amount of any such reasonable 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 (other than Hilton Hotels
Corporation, Continuecare Corporation and Holmes Place, P.L.C.) which
is engaged in the
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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
Employer, its subsidiaries, affiliates and/or its successors and
assigns, or is owned by a franchisee of Employer ("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 Section 6(a)(i);
(ii) Induce any person who is an officer of Employer to
terminate said relationship or employ, or assist in employing or
otherwise associate in business with any officer or employee of
Employer who held such position within three (3) months before the
termination of Employee's employment hereunder;
(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 Employer, the customer lists, inventions, ideas,
discoveries, manufacturing methods, product research or engineering
data or other trade secrets of Employer, it being acknowledged by
Employee that all such information regarding the business of Employer
compiled or obtained by, or furnished to, Employee while he shall have
been employed by or associated with
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Employer is confidential information and the exclusive property of
Employer.
(b) The provisions of Sections 6(a)(i), 6(a)(ii) and 6(a)(iii) shall
be operative during the Term hereof except as hereafter provided in this
Section 6(b).
(i) In the event of a "Change in Control" (as defined in
Section 9 (c), the provisions of Sections 6(a)(i) and 6(a))(ii) shall
be operative only so long as the Employee remains an employee of
Employer.
(ii) In the event of a Change in Control the provisions of
Section 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" (as
defined in Section 8(a)), the provisions of Section 6(a)(i) and
6(a)(ii) shall be operative during the Terms of this Agreement and for
one (1) additional year.
(iv) In the event Employee is terminated for Cause, the
provisions of Section 6(a)(iii) shall be operative until such time as
the information becomes public knowledge other than through the act of
Employee.
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(v) In the event Employee is terminated for illness or
incapacity (as provided in Section 7(a)), the provisions of Sections
6(a)(i) and 6(a)(ii) shall be operative during the Term of this
Agreement and for one (1) additional year.
(vi) In the event Employee is terminated for illness or
incapacity (as provided in Section 7(a)), the provisions of Section
6(a)(iii) shall be operative until such time as the information
becomes public knowledge other than through the act of Employee.
(c) Employee expressly agrees and understands that the remedy at law
for any breach by him of this Section 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 Employer 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 Section 6 shall be deemed to limit Employer's remedies at law or in
equity for any breach by Employee of the provisions of this Section 6 which may
be pursued or availed of by Employer. 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.
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(d) Employee has carefully considered the nature and extent of the
restrictions upon him and the rights and remedies conferred upon Employer under
this Section 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 Employer, 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 Employer and do not confer
a benefit upon Employer disproportionate to the detriment to Employee.
(e) Solely for the purposes of this Section 6, the term
"EMPLOYER" shall be deemed to include Bally Total Fitness Holding Corporation
and any of its subsidiaries, together with their respective successors or
assigns, which are involved primarily in the operation or management of health
or fitness facilities.
(f) The covenants contained in this Section 6 shall be construed to
extend to separate counties and adjacent counties, if applicable, of the states
of the United States in which there is a Facility, 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.
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7. ILLNESS, INCAPACITY OR DEATH DURING EMPLOYMENT
(a) If 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, Employer may terminate the employment of Employee under this
Employment Agreement. Upon such termination, Employee shall be paid the
following amounts: (i) his Base Salary on a pro-rata basis to the date of
termination (through and including 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 Employer 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 Employer, in the amount and to the extent determined under the
terms and conditions of any such plan. In the event of such termination,
Employee shall have the right, at his election, to the assignment of any and all
insurance policies or health protection plans if said policies and plans permit
assignment to Employee.
(b) In the event that Employer elects to terminate this Employment
Agreement pursuant to Section 7(a) by reason of illness or incapacity, then in
addition to any payments or benefits which Employee is then entitled to receive
under Section 7(a),
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Employee shall be entitled to all long-term disability ("LTD") benefits as then
provided to senior officers of Employer (including, without limitation, LTD
benefits for the same time period, and in the same dollar amount or percentage
of Base Salary, as then provided to senior officers of Employer), but in any
event at no less than sixty percent (60%) of Base Salary as of the date of
termination, without reference to, or reduction for, setoffs or caps existing in
any LTD plan.
(c) In the event of Employee's death, all obligations of Employer
under this Employment Agreement shall terminate; provided, however, that
Employee's estate shall be paid the following amounts: (i) his Base Salary on a
pro-rata basis accrued to the date of death; 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 Employer prior to
and including such date; plus (iv) any other payment or benefit which Employee
is then entitled to receive under any employment benefit plan, retirement plan,
death benefit plan or similar arrangement then maintained by Employer, in the
amount and to the extent determined under the terms and conditions of any such
plan.
8. TERMINATION FOR CAUSE AND SEVERANCE COMPENSATION
(a) The employment of Employee under this Employment Agreement, and
the Term hereof, may be terminated by Employer for Cause at any time. For
purposes
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hereof, the term "CAUSE" means:
(i) Employee's fraud or dishonesty;
(ii) After thirty (30) days written notice thereof and
failure to cease and/or cure 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) After thirty (30) days written notice thereof and
failure to cure Employee's material breach of any material provision
of this Employment Agreement.
(b) Any termination pursuant to Section 8(a) shall not be in
limitation of any other right or remedy Employer may have under any other
Section of this Employment Agreement or otherwise; provided, however, that
Section 8(a) shall set forth the exclusive definition of "Cause."
(c) Notwithstanding anything to the contrary contained herein, if
there is a dispute between Employer and Employee (after the thirty (30) day
written notice has been given for purposes of Sections 8(a)(i), 8(a)(ii) or
8(a)(iii)) as to whether any of the above
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"Cause" provisions factually existed, still exist and/or have been cured, such
dispute shall be arbitrated pursuant to Section 17.
(d) Upon the effective date of termination of Employee's employment
pursuant to this Section 8, Employee shall be paid the following amounts: (i)
his Base Salary, on a pro-rata basis through and including the effective date of
termination; 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 Employer through and including the effective
date of termination; 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 Employer, in the amount and to the extent
determined under the terms and conditions of any such plan. In addition,
Employee shall have the right, at his election and at his cost, to the
assignment of any and all insurance policies or health protection plans if said
policies and plans permit assignment to Employee.
9. TERMINATION UPON CHANGE IN CONTROL
(a) In the event that there is a Change in Control (as defined in
Section 9(c)) of Bally, Employee may, at his option, terminate this
Employment Agreement at any time thereafter upon thirty (30) days written notice
to Employer. If Employee exercises this
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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 previously declared but unpaid bonuses;
plus (iv) reimbursement of all expenses reasonably incurred by Employee in
performing his responsibilities and duties for Employer 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 Employer, 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 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. In further addition, in
the event that there is a Change in Control (as that term is defined in either
of Section 2.7 of the 1996 Long-Term Incentive Plan of Bally Total Fitness
Holding Corporation -- the "1996 Option Plan" -- or in Section 9(c) of this
Agreement) of Bally, the time limitations set forth in Section 4(b) of that
certain Award Agreement dated November 21, 1997 between the Employer and the
Employee shall be deemed stricken, and the Employee may exercise the option
immediately for all of the shares granted pursuant to the Award Agreement for
which the Employee has not yet exercised his option to purchase such shares;
provided, further, that the Employee at his choice at such time may exercise his
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option by either purchasing such stock or via the "cashless exercise program and
procedures" as in existence on the date of this Agreement, or the reasonable
equivalent thereof, regardless of whether or not such "cashless exercise program
and procedures" are actually in existence on the date of the Change in Control.
(b) In the event that there is a Change in Control (as defined in
Section 9(c)) of Bally and the successor in control, without Cause, terminates
this Employment Agreement, Employee shall be paid the following amounts: (i) a
lump sum amount equal to the product of his Annual Base Salary as in effect at
the time of termination (or, if greater, at the time of the Change in Control)
multiplied by three (3); plus (ii) a lump sum amount equal to the product of the
annual average of the bonuses, if any, paid to Employee by Employer with respect
to the three full calendar years ending before the calendar year in which the
Change in Control occurs (or lesser number of full calendar years if less than
three), multiplied by two (2) (provided that in no event shall calendar year
1996 be taken into account in determining this average); plus (iii) his Base
Salary on a pro-rata basis through and including the date of his employment
termination; plus (iv) any previously declared but unpaid bonuses; plus (v)
reimbursement of all expenses reasonably incurred by Employee in performing his
responsibilities and duties for Employer through and including the date of his
employment termination; plus (vi) 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 Employer, in the amount and to the extent
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determined under the terms and conditions of any such plan. All such payments
shall be made no later than 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. If the successor in control changes Employee's
title, substantially changes his duties or functions from those which he
previously performed hereunder, or, except for the inherent travel requirement
in his positions, requires Employee to perform his duties outside of the
metropolitan area of Chicago, Illinois or to relocate his present address, the
successor in control shall be deemed to have constructively terminated this
Employment Agreement without Cause.
(c) A "CHANGE IN CONTROL" shall, except as provided below, mean a
change in control of Bally 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 Bally 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
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affiliated or of which he is a part, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of Bally representing twenty percent (20%)
or more of the combined voting power of Bally's then outstanding
securities;
(ii) During any period of two (2) consecutive years or less
(not including any period prior to October 7, 1996) there shall cease
to be a majority of the Board of Directors of Bally comprised of
Continuing Directors (as defined in Section 9(d)); or
(iii) The stockholders of Bally approve (A) a merger or
consolidation of Bally with any other corporation, other than a merger
or consolidation that would result in the voting securities of Bally
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 Bally or such surviving entity outstanding
immediately after such merger or consolidation, or (B) a plan of
complete liquidation of Bally or an agreement for the sale or
disposition by Bally of all or substantially all of its assets.
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Notwithstanding anything contained herein to the contrary, the
following shall not be deemed a Change in Control for purposes of this
Agreement:
(A) if an event described in subsection (i) of this Section
9(c) shall occur upon the issuance of Bally securities by Bally in a
public offering, which issuance was approved by the Continuing
Directors (as defined below) and the Continuing Directors remain as a
majority of the Board of Directors of Bally and the Employee's
position with Bally remains unchanged; or
(B) if an event described in subsections (i) of the Section
9(c) shall occur because of the issuance of Bally securities in
connection with an acquisition by Bally, which issuance was approved
by the Continuing Directors (as defined below) and the Continuing
Directors remain as a majority of the Board of Directors and the
Employee's position with Bally remains unchanged.
(d) The term "CONTINUING DIRECTORS" shall mean individuals who
constitute the Board of Directors of Bally as of October 7, 1996 and any new
director(s) whose election by such Board or nomination for election by Bally's
stockholders was approved by a vote of at least two-thirds of the directors then
in office who either were
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directors as of October 7, 1996 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 Employer pursuant to this
Agreement or any option plan or other plan maintained by Employer or its
affiliates ("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 Bally (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 Section 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
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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 Section 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 Section 10(a), shall be
made by Employer's independent auditors (the "ACCOUNTING FIRM"), which shall
provide detailed supporting calculations both to Employer and Employee within 15
business days after Employer 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 Employer 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 Employer shall be borne by
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Employer. Any Excise Tax Gross-Up Payment, as determined pursuant to this
Section 10, shall be paid by Employer 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 Employer and Employee, and shall
not be subject to arbitration pursuant to Section 17.
(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 Employer 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 Sections 10(a) and 10(b), then in either
of such events any such Underpayment calculated in accordance with and in the
same manner as the Excise Tax Gross-Up Payment in Section 10(a) shall be
promptly paid by Employer to or for the benefit of Employee. In addition,
Employer will pay Employee an amount equal to any penalties, interest or
additions to be assessed against him as a result of the underpayment,
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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 Section
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
Employer and Employer, 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 Employer assumes the defense of the
proposed deficiency, the Employer shall immediately, upon written request of the
Employee secure all of its possible obligations to the Employee as provided for
in this Section 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 the
Employer's possible obligations to the Employee pursuant to this Section 10(c).
The terms of such escrow or clean irrevocable letter of credit shall be
negotiated by Employer and Employee at such time and any dispute relating to
such matters shall be settled in an arbitration pursuant to Section 17 of this
Agreement. Employee agrees to execute any documents, including Powers of
Attorney, that may be necessary to facilitate Employer'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 Employer to Employee payable on
the
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fifth day after demand by Employer (together with interest at the rate provided
in Section 1274(b)(2)(B) of the Code).
11. INDEMNIFICATION
Employer and Employee are parties to an Indemnification Agreement
dated January 3, 1996, and it is agreed that the provisions of that
Indemnification Agreement shall govern the subject matter thereof.
12. 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 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.
13. ASSIGNABILITY; BINDING NATURE
(a) The rights and obligations of Employer and Employee under this
Employment Agreement shall inure to the benefit of and shall be binding upon
their respective successors, heirs (in the case of Employee) and assigns.
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(b) No rights or obligations of Employer under this Employment
Agreement may be assigned or transferred by Employer, except that such rights or
obligations may be assigned or transferred pursuant to a merger or consolidation
in which Employer is not the continuing entity, or the sale or liquidation of
all or substantially all of the assets of Employer; provided, however, that the
assignee or transferee is the successor to all or substantially all of the
assets of Employer and such assignee or transferee assumes the liabilities,
obligations, and duties of Employer, as contained in this Employment Agreement,
either contractually or as a matter of law. Employer further agrees that, in the
event of a sale of assets or liquidation as described in the preceding sentence,
it shall take whatever action it legally can in order to cause such assignee or
transferee to expressly assume the liabilities, obligations, and duties of
Employer hereunder.
(c) No rights or obligations of Employee under this Employment
Agreement may be assigned or transferred by Employee; provided, however, that
all of his rights may be transferred by will or by operation of law.
14. NOTICES
Any notice to be given to Employer under the terms of this
Employment Agreement shall be addressed to Employer at the address of its
principal place of business,
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and any notice to be given to Employee shall be addressed to him at his home
address last shown on the records of Employer, or at such other address as
either party 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 deposited 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 waiver of any such
provision or provisions as to any future violations thereof, and shall not
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 LAWS
This Employment Agreement shall be governed by and construed and
interpreted according to the internal laws of the State of Illinois, without
reference to
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principles of conflict of laws.
17. ARBITRATION
Any controversy or claim arising out of or relating to this Employment
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 in connection with such arbitration;
provided, however, that nothing in this Section 17 shall be construed so as to
deny Employer'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 Section 6(a). Costs of the arbitration, including,
without limitation, reasonable attorneys' fees of all parties (which shall
include any fees incurred or accrued in any application to confirm the
arbitration award), shall be borne by Bally. During the Term, pending the
resolution of any arbitration, Bally shall continue payment of all amounts due
Employee under this Employment Agreement and all benefits to which Employee is
entitled at the time the dispute arises.
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18. REPRESENTATIONS
(a) Bally represents and warrants that it is fully authorized and
empowered to enter into this Employment Agreement and that the performance of
its obligations under this Employment Agreement will not violate any agreement
between it and any other person, firm, or organization.
(b) Employee represents that he knows of no agreement between him and
any other person, firm, or organization that would be violated by the
performance of his obligations under this Employment Agreement.
19. REGISTRATION OF WARRANTS
Employer shall promptly enter into an amendment of that certain
Registration Rights Agreement originally entered into as of the 29th day of
December, 1995 between Company and Bally Entertainment Corporation to provide
Employee one demand right for shelf registration (the "Shelf Registration
Statement") with respect to the shares of Employer's Common Stock, par value
$.01 per share, underlying the Warrant Certificate No. W-3 issued to Employee by
Employer. Subject to the terms of the Registration Rights Agreement, as amended,
Employer shall agree to keep the Shelf Registration Statement effective from the
date of demand by Employee through the earlier of the date which is 30
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days after the last day which warrants may be exercised pursuant to the Warrant
Certificate or the date all shares registered pursuant to the Shelf Registration
Statement have been sold.
20. SURVIVORSHIP
The respective rights and obligations of the parties hereunder shall
survive any termination of Employee's employment to the extent necessary to the
intended preservation of such rights and obligations.
21. BENEFICIARIES/REFERENCES
Employee shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following Employee's death by
giving Bally written notice thereof. In the event of Employee's death or a
judicial determination of his incompetence, reference in this Employment
Agreement to Employee shall be deemed, where appropriate, to refer to his
beneficiary, estate, or other legal representative.
22. MISCELLANEOUS
(a) Captions and paragraph headings used herein are for convenience
only
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and are not a part of this Employment Agreement and shall not be used in
construing it.
(b) This Employment Agreement constitutes the entire understanding
and agreement between Employer and Employee with respect to the subject matter
hereof and supersedes all prior agreements, understandings, discussions,
negotiations and undertakings (including the Old Agreement), whether written or
oral, between Employer and Employee.
(c) Except as specifically provided in this Employment Agreement,
this Employment Agreement shall not affect nor have any force or effect upon any
other agreement to which Employee is a party and/or beneficiary.
(d) This Employment Agreement 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.
(e) Except as otherwise indicated, all references to "Sections" refer
to sections or subsections, as appropriate, of this Employment Agreement.
(f) The capitalized terms used in this Employment Agreement shall
have the meanings indicated in the Sections in which they are defined or as
otherwise required by
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the context in which they are used.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed as of the day and year first above written.
BALLY TOTAL FITNESS
HOLDING CORPORATION
ATTEST: /s/ Joycelyn S. Jaksa By: /s/ John W. Dwyer
-------------------------- -----------------------------------
JOHN W. DWYER
Executive Vice President,
Chief Financial Officer & Treasurer
/s/ Lee Hillman
---------------------------------------
LEE S. HILLMAN
Approved by the Compensation Committee on October 22nd, 1998.
------------
/s/ Liza M. Walsh
---------------------------------------
Chairman,
Compensation Committee
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SCHEDULE A
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LIFE INSURANCE AND DISABILITY INSURANCE
Disability
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CIGNA Group Policy $10,000 per month
UNUM Policy No. Supplemental Disability in an amount
Which, when combined with the CIGNA
Group Policy, will provide an amount
equal to 60% of Base Pay
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