EXECUTIVE SEVERANCE AGREEMENT
Exhibit 10.38
Executive Severance Agreement, dated as of , 2008 (this “Agreement”), between Town
Sports International, LLC (the “Company”) and (the “Executive”).
WHEREAS, the Compensation Committee of the Board of Directors of Town Sports International
Holdings, Inc., the parent of the Company (the “Holdings”) has authorized this offer of Severance
Payments in the event of a Qualifying Termination of employment due to a Change in Control of
Holdings or the Company;
WHEREAS, the Severance Payments in this Agreement are offered in exchange for the commitments
of the Executive as set forth herein.
WHEREAS, by signing and returning this Agreement, the Executive acknowledges and agrees to
comply with the provisions of this Agreement and acknowledges that the execution of a Separation
and Release Agreement is a requirement for receiving the Severance Payments under this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, the parties hereby agree as follows:
1. Definitions. As used herein, the terms identified below shall have the meanings
indicated:
(a) “Cause” means the Company’s termination of the Executive’s employment with the Company as
a result of: (i) Executive’s willful failure to perform any material portion of his duties; (ii)
the commission of any fraud, misappropriation or misconduct by Executive that causes demonstrable
injury, monetarily or otherwise, to the Company or an affiliate; (iii) the conviction of, or
pleading guilty or no contest to, a felony involving moral turpitude; (iv) an act resulting or
intended to result, directly or indirectly, in material gain or personal enrichment to the
Executive at the expense of the Company or an affiliate; (v) any material breach of Executive’s
fiduciary duties to the Company or an affiliate as an employee or officer; (vi) a material
violation of the Town Sports International Code of Ethics and Business Conduct, as amended from
time to time, and such material policies and procedures of the Company; (vii) any material breach
of the terms of any agreement between Executive and the Company or any affiliate, including any of
the restrictive covenants imposed pursuant to the Holdings’ stock option and similar incentive
plans and the related stock option agreement issued thereunder, if such breach is reasonably likely
to result in a material injury to the Company or an affiliate.
(b) “Change in Control” means:
(i) The acquisition by any “person” or “group” (as such terms are used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (other than BRS, the
BRS Investors and their respective Permitted Transferees (each as defined in the Credit Agreement),
of beneficial ownership (within the meaning of Rules 13d-3 and 13d-5 promulgated under the Exchange
Act) of 35% or more of either (A) the then
outstanding shares of common stock of Holdings (the “Outstanding Holdings Common Stock”), or
(B) the combined voting power of the then outstanding voting securities of Holdings entitled to
vote generally in the election of directors (the “Outstanding Holdings Voting Securities”);
(ii) Individuals who, as of the date of this Agreement, constitute the Board (the “Incumbent
Board”) cease for any reason to constitute at least a majority of the Board; provided, however,
that any individual becoming a director subsequent to the date hereof whose election, or nomination
for election by Holdings’ stockholders, was approved or recommended by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the Board;
(iii) Consummation of a reorganization, merger or consolidation involving Holdings (a
“Business Combination”), in each case, unless, following such Business Combination, all or
substantially all of the Persons who were the beneficial owners, respectively, of the Outstanding
Holdings Common Stock and Outstanding Holdings Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 65% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case may be, of the
Person resulting from such Business Combination (including, without limitation, a Person which as a
result of such transaction owns Holdings or all or substantially all of Holdings’ assets either
directly or through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination, of the Outstanding Holdings Common Stock
and Outstanding Holdings Voting Securities, as the case may be;
(iv) Sale or other disposition of all or substantially all the assets of Holdings or the
Company; or
(v) Approval by the stockholders of Holdings or approval by the member(s) of the Company of a
complete liquidation, winding up or dissolution of Holdings or the Company, as the case may be.
(b) “Code” means the Internal Revenue Code of 1986, as amended, and the regulations and other
guidance promulgated by the Treasury Department and the Internal Revenue Service thereunder.
(c) “Constructive Termination” means the Executive’s voluntary termination of employment with
the Company as a result of (i) a material diminution in the Executive’s authority, duties, or
responsibilities, or a change in the Executive’s supervisory reporting relationship within the
Company, except as part of, and consistent with, an organizational change; (ii) a change, caused by
the Company, in geographic location of greater than 50 miles of
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the location at which the Executive primarily performs services for the Company; or (iii) a
material reduction in the Executive’s base pay or incentive cash compensation.
(d) “Credit Agreement” means the Credit Agreement among Holdings, the Company, the Various
Lenders party thereto, and Deutsche Bank Trust Company Americas, dated February 27, 2007, as in
effect as of the date of this Agreement.
(e) “Disability” means any medically determinable physical or mental impairment resulting in
the Executive’s inability to perform the duties of his or her position or any substantially similar
position, where such impairment is expected to result in death or is expected to last for a
continuous period of not less than six (6) months.
(f) “Person” means any individual, firm, corporation, partnership, limited liability company,
trust, joint venture, governmental entity or other entity.
(g) “Severance Payments” means the aggregate gross amount of severance payments determined in
accordance with Sections 2 and 3 of this Agreement to be paid to the Executive who is entitled to
receive such severance benefits under this Agreement.
(h) “Termination Date” means the date on which the Executive has a termination of employment
from the Company.
2. Eligibility. The Executive shall be eligible for Severance Payments under this
Agreement following a Qualifying Termination as follows:
(a) Qualifying Termination. The Company will pay Severance Payments under Section 3
of this Agreement on account of either of these events occurring within a period of six (6) months
following the date of a Change in Control:
(i) involuntary termination of the Executive’s employment by the Company that is not for
Cause, or
(ii) voluntary separation of the Executive as a result of a Constructive Termination.
(b) Non-Qualifying Termination. Notwithstanding Section 2(a) of this Agreement,
nothing in this Agreement shall be construed to require the Company to pay severance benefits to
the Executive if the Executive terminates Employment with the Company as the result of:
(i) voluntary separation (a separation, including retirement, initiated by the Executive),
other than a voluntary separation pursuant to Section 2(a)(ii);
(ii) retirement, whether early retirement, retirement at normal retirement age or retirement
following normal retirement age;
(iii) the Company having terminated such Executive’s employment for Cause;
(iv) death;
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(v) Disability; or
(vi) a separation or termination for any reason more than six (6) months following the date of
a Change in Control.
(c) Separation Release Agreement. The eligibility for receipt of benefits under this
Agreement as described in Section 3 herein is expressly conditioned upon the following: (i) the
Executive’s signing of a release in which the Executive releases and/or waives any and all claims
the Executive may have against the Company and (ii) the release becoming effective.
3. Amount and Payment of Severance. Unless otherwise provided herein, the Executive shall
receive the following severance payments:
(i) An amount equal to the sum of one (1) times the Executive’s annual base salary as of the
Executive’s Termination Date payable in a twelve (12) equal monthly installments (such twelve-month
period, the “Severance Period”), less all applicable withholding taxes, beginning thirty (30) days
following the Termination Date or as soon as administratively practicable thereafter; provided
however, that the Severance Period shall immediately terminate, and no further amounts shall be due
pursuant to this Section 3(i) in the event Executive has materially breached any of the terms and
conditions of this Agreement, including Section 4 hereunder.
(ii) An amount equivalent to Executive’s pro-rata annual bonus (based on the number of days in
fiscal year through the Termination Date) with respect to the fiscal year in which the Termination
Date occurred that Executive would otherwise have been entitled to receive had Executive remained
in the employ of the Company through the payment date of such bonus. The bonus amount will be
based upon the bonus plan and targets approved by the Board of Directors of Holdings (or a
committee thereof) and assuming the approved bonus target had been met, which amount shall be
payable at such time as bonuses are paid to the Company’s employees generally. This bonus payment
shall be subject to all other terms of Holdings’ bonus plan and shall be and subject to deduction
for all required income and payroll taxes.
(iii) The Company shall continue Executive’s health and dental coverage (or provide comparable
substitute coverage), and continue to pay that portion of the premium that it pays for active
employees at such times as the Company makes such payments for its active employees on a monthly
basis until the earlier of (i) the last day of the Severance Period and (ii) the date on which
Executive is eligible for coverage under another group health and dental insurance plan; provided
however, that the Severance Period shall immediately terminate, and no further amounts shall be due
pursuant to this Section 3(iii) in the event Executive has materially breached any of the terms and
conditions of this Agreement, including Section 4 hereunder. Executive agrees to promptly notify
the Company in writing in the event that Executive is eligible for coverage under another such
plan. If not otherwise covered by a group health or dental plan as the end of the Severance
Period, Executive shall be eligible for COBRA continuation coverage on such date on the same terms
and conditions as offered to other eligible plan participants, and, if you elect such coverage, you
shall be fully responsible for the associated premiums.
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(iv) During the Severance Period, Executive and his immediate family will continue to have
Passport Memberships (or its equivalent) at no cost to such Executive (provided however that such
memberships shall cease in the event Executive has materially breached the terms and conditions of
this Agreement, including Section 4 hereunder). The aforementioned memberships are subject to all
of the Company’s membership rules, regulations and policies currently in effect and as may be
amended from time to time.
4. Non-Compete and Non-solicitation.
(a) As an inducement to the Company to enter into this Agreement, the Executive agrees that
(i) during the Executive’s period of employment with the Company or any of its Affiliates, and (ii)
during the twelve (12)-month period following the Termination Date (the “Non-compete Period”), the
Executive shall not, directly or indirectly, own, manage, control, participate in, consult with,
render services for, or in any manner engage in, any business competing directly or indirectly with
the business as conducted by the Company or any of its Affiliates during the Executive’s period of
employment with the Company or any of its Affiliates or at the time of the Termination Date or with
any other business that is the logical extension of the Company’s and its Affiliates’ business
during the Executive’s period of employment with the Company or any of its Affiliates or at the
time of the Executive’s Termination of Employment, within any metropolitan area in which the
Company or any of its Affiliates engages or has definitive plans to engage in such business;
provided, however, that the Executive shall not be precluded from purchasing or holding publicly
traded securities of any entity so long as the Executive shall hold less than 2% of the outstanding
units of any such class of securities and has no active participation in the business of such
entity. The Executive agrees that the following entities are examples of competitive businesses
and are not exclusive: Crunch, 24 Hour, Equinox, NY Health and Racquet Club, LA Fitness, Sports &
Health, Lifetime and Bally’s.
(b) As an inducement to the Company to enter into this Agreement the Executive agrees that
during the Non-compete Period, the Executive shall not directly or indirectly (i) induce or attempt
to induce any employee of the Company or any of its Affiliates to leave the employ of the Company
or any of its Affiliates, or in any way interfere with the relationship between the Company or any
of its Affiliates and any employee thereof, (ii) hire any person who was an employee of the Company
or any of its Affiliates at any time during the Executive’s employment period except for such
employees who have been terminated for at least six months, or (iii) induce or attempt to induce
any customer, supplier, licensee, franchisor or other business relation of the Company or any of
its Affiliates to cease doing business with such member, or in any way interfere with the
relationship between any such customer, supplier, licensee, franchisor or business relation, on the
one hand, and the Company or any of its Affiliates, on the other hand.
(c) The provisions of this Section 4 shall survive any expiration or termination of this
Agreement.
(d) If it is determined by a court of competent jurisdiction that any of the provisions of
this Section 4 is excessive in duration or scope or otherwise is unenforceable, then such provision
may be modified or supplemented by the court to render it enforceable to the maximum extent
permitted by law.
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5. Confidential Information. The Executive expressly recognizes and acknowledges that
during the Executive’s employment with the Company, the Executive became entrusted with, had access
to, or gained possession of confidential and proprietary information, data, documents, records,
materials, and other trade secrets and/or other proprietary business information of the Company
that is not readily available to competitors, outside third parties and/or the public, including
without limitation, information about (i) current or prospective customers and/or suppliers, (ii)
employees, research, goodwill, production, and prices, (iii) business methods, processes, practices
or procedures; (iv) computer software and technology development, and (v) business strategy,
including acquisition, merger and/or divestiture strategies, (collectively or with respect to any
of the foregoing, the “Confidential Information”). The Executive agrees, by acceptance of the
right to receive Severance Payments under this Agreement, that: (i) unless pursuant to prior
written consent by the Company, the Executive shall not disclose any Confidential Information for
any purpose whatsoever unless compelled by court order of subpoena; (ii) the Executive shall treat
as confidential all Confidential Information and shall take reasonable precautions to prevent
unauthorized access to the Confidential Information; (iii) the Executive shall not use the
Confidential Information in any way detrimental to the Company or any of its affiliates; and (iv)
the Executive agrees that the Confidential Information obtained during the Executive’s employment
with the Company shall remain the exclusive property of the Company and its affiliates, and the
Executive shall promptly return to the Company all material which incorporates, or is derived from,
all such Confidential Information upon termination of the Executive’s employment with the Company
or any of its affiliates. It is hereby agreed that Confidential Information does not include
information generally available and known to the public other than through the disclosure thereof
by or through the Executive or obtained from a source not bound by a confidentiality agreement with
the Company or any of its affiliates.
6. Notices. Any notice or communication given hereunder (each a “Notice”) shall be in
writing and shall be sent by personal delivery, by courier or by United States mail (registered or
certified mail, postage prepaid and return receipt requested), to the appropriate party at the
address set forth below, or such other address or to the attention of such other person as a party
shall have specified by prior Notice to the other party. Each Notice will be deemed given and
effective upon actual receipt (or refusal of receipt).
If to the Company, to:
Town Sports International, LLC
0 Xxxx Xxxxx (0xx Xxxxx)
Xxx Xxxx, Xxx Xxxx 00000
Attention: President
0 Xxxx Xxxxx (0xx Xxxxx)
Xxx Xxxx, Xxx Xxxx 00000
Attention: President
With a copy to: General Counsel
If to the Executive, to:
The address for the Executive on file with the Company.
7. No Obligation to Continue Employment. This Agreement is not an agreement of continued
employment. This Agreement does not guarantee that the Company or its Affiliates
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will employ, retain or continue to, employ or retain the Executive, nor does it modify in any
respect any right of the Company or of any Affiliate of the Company to terminate or modify the
Executive’s employment or compensation.
8. Waiver of Jury Trial. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT IT MAY HAVE TO TRIAL
BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, VERBAL OR WRITTEN STATEMENT OR ACTION OF ANY
PARTY HERETO.
9. Governing Law. All questions concerning the construction, validity and interpretation
of this Agreement will be governed by, and construed in accordance with, the domestic laws of the
State of New York, without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York.
10. Consent to Jurisdiction. In the event of any dispute, controversy or claim between the
Company or any Affiliate and the Executive in any way concerning, arising out of or relating to
this Agreement (a “Dispute”), including without limitation any Dispute concerning, arising out of
or relating to the interpretation, application or enforcement of this Agreement, the parties hereby
(a) agree and consent to the personal jurisdiction of the courts of the State of New York located
in New York County and/or the Federal courts of the United States of America located in the
Southern District of New York (collectively, the “Agreed Venue”) for resolution of any such
Dispute, (b) agree that those courts in the Agreed Venue, and only those courts, shall have
exclusive jurisdiction to determine any Dispute, including any appeal, and (c) agree that any cause
of action arising out of this Agreement shall be deemed to have arisen from a transaction of
business in the State of New York. The parties also hereby irrevocably (i) submit to the
jurisdiction of any competent court in the Agreed Venue (and of the appropriate appellate courts
therefrom), (ii) to the fullest extent permitted by law, waive any and all defenses the parties may
have on the grounds of lack of jurisdiction of any such court and any other objection that such
parties may now or hereafter have to the laying of the venue of any such suit, action or proceeding
in any such court (including without limitation any defense that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum), and (iii) consent
to service of process in any such suit, action or proceeding, anywhere in the world, whether within
or without the jurisdiction of any such court, in any manner provided by applicable law. Without
limiting the foregoing, each party agrees that service of process on such party pursuant to a
Notice shall be deemed effective service of process on such party. Any action for enforcement or
recognition of any judgment obtained in connection with a Dispute may enforced in any competent
court in the Agreed Venue or in any other court of competent jurisdiction.
11. Counterparts. This Agreement may be executed (including by facsimile transmission)
with counterpart signature pages or in separate counterparts each of which shall be an original and
all of which taken together shall constitute one and the same agreement.
12. Waiver. The failure of the Company to enforce at any time any of the provisions of
this Agreement, or to require at any time performance of any of the provisions of this Agreement,
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shall in no way be construed to be a waiver of these provisions, nor in any way to affect the
validity of this Agreement or any part thereof, or the right of the Company thereafter to enforce
every provision.
13. Severability and Interpretation. Whenever possible, each provision of this Agreement
and any portion hereof shall be interpreted in such a manner as to be effective and valid under
applicable law, rules and regulations. If any covenant or other provision of this Agreement (or
portion thereof) shall be held to be invalid, illegal, or incapable of being enforced, by reason of
any rule of law, rule, regulation, administrative order, judicial decision or public policy, all
other conditions and provisions of this Agreement shall, nevertheless, remain in full force and
effect, and no covenant or provision shall be deemed dependent upon any other covenant or provision
(or portion) unless so expressed herein. The parties hereto desire and consent that the court or
other body making such determination shall, to the extent necessary to avoid any unenforceability,
so reform such covenant or other provision or portions of this Agreement to the minimum extent
necessary so as to render the same enforceable in accordance with the intent herein expressed.
14. No Mitigation Required. The Executive shall not be required to mitigate the amount
provided for in Section 3 hereof by seeking other employment or otherwise, nor shall the amount of
any payment provided for in Section 3 hereof be reduced by any compensation earned by the Executive
as the result of employment by another employer after the date of termination, or otherwise.
15. 409A Savings Clause. This Agreement is intended to comply with the provisions of 409A
of the Internal Revenue Code of 1986, as amended, and the regulations and other guidance
promulgated by the Treasury Department and the Internal Revenue Service thereunder (the “Code”).
If the Severance Payments provided by this Agreement may result in the application of Section 409A
of the Code, the Company shall, in consultation with the Executive, modify the Agreement as
reasonably required to comply with such section, including delaying any such payments that would
have been required to be paid pursuant to this Agreement during the first six months following the
Termination Date, in order to exclude such compensation from the definition of “deferred
compensation” within the meaning of such Section 409A of the Code or in order to comply with the
provisions of Section 409A of the Code, other applicable provision(s) of the Code and/or any rules,
regulations or other regulatory guidance issued under such statutory provisions and without any
diminution in the value of the payments to the Executive. Notwithstanding any of the preceding,
the Company makes no representations regarding the tax treatment of any payments hereunder, and the
Executive shall be responsible for any and all applicable taxes, other than the Company’s share of
employment taxes on the severance payments provided by the Agreement.
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IN WITNESS WHEREOF, the parties have executed this agreement, effective as of the date and
year first above written.
| TOWN SPORTS INTERNATIONAL, LLC |
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| By: | ||||
| Name: | ||||
| Title: | ||||
| Executive: |
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