Exhibit 10.2
FITNESS HOLDINGS, INC.
0000 XXXXXXXX XXXXX
XXXXXXXXXX, XX 00000
December 22, 1997
VIA PERSONAL DELIVERY
Xxxx X. Xxxxxxx
0000 Xxxxxxx 00X #0-000
Xxxxxx Xxxx, XX 00000
RE: EMPLOYMENT AGREEMENT
EXTENSION OF TERM
Dear Xxxx:
This letter is intended to memorialize the terms upon which we have
mutually agreed to extend the term of your employment with Fitness Holdings Inc.
(the "Company") for the period January 1, 1998 through December 31, 1998. The
terms and conditions of your employment for this period shall the same as the
terms and conditions set forth in that certain Employment Agreement by and
between you and the Company and effective as of January 1, 1997 ("Employment
Agreement"), except as follows:
(a) SALARY. Your base salary which shall be payable in equal monthly
installments and which shall be subject to withholding and other applicable
taxes shall be paid at an annual rate of Five Hundred Fifty Thousand Dollars
($550,000.00).
(b) EBITDA BONUS. The schedule used to determine the cash incentive bonus
based upon Company EBITDA and as described in Section 4(b)(i) of the Employment
Agreement shall be the schedule attached hereto as Schedule 1, as modified by
final approval of the 1998 budget by the Board of Directors.
(c) TARGET ACHIEVEMENT GOALS BONUS. The Target Achievement Goals used to
determine the cash incentive bonus described in Section 4(b)(ii) of the
Employment Agreement shall be the goals set forth on the attached Schedule 2.
(d) EXPENSES. Your allowance for automobile expenses as set forth in
Section 5(a) shall be Two Thousand Five Hundred Dollars ($2,500.00) per month.
Xxxx X. Xxxxxxx
December 22, 1997
Page 2
(e) STOCK OPTIONS. On January 1, you shall receive an option grant to
purchase 10,000 shares of common stock in the Company at the fair market value
of such stock as of December 31, 1997 and as approved by the Board of Directors
of the Company. This option shall be governed by and subject to all of the
terms of the Company's employee stock option plan.
Except as expressly set forth above, all other terms and conditions of the
Employment Agreement shall remain in full force and effect. Assuming that you
are in agreement with the terms of this letter, please sign and date this letter
in the spaces indicated below and return a fully signed copy of this letter to
me.
Sincerely,
Xxxxx Xxxx
Chairman
AGREED AND ACCEPTED:
/s/ Xxxx X. Xxxxxxx
-------------------------
Xxxx X. Xxxxxxx
Date: date
--------------------
Xxxx X. Xxxxxxx
December 22, 1997
Page 3
FITNESS HOLDINGS
Xxxx Xxxxxxx Bonus - 1998
Schedule 1
EBITDA % of
% of Bonus Increase
Goal EBITDA % Bonus ($000) in EBITDA
---- ------ ------- ------ ---------
80.0% 42,640 70.0% 525
82.5% 43,973 71.7% 538 0.9%
85.0% 45,305 73.9% 555 1.3%
87.5% 46,638 76.8% 576 1.6%
90.0% 47,970 80.3% 602 1.9%
92.5% 49,303 84.3% 632 2.3%
95.0% 50,635 89.0% 667 2.6%
97.5% 51,968 94.2% 707 3.0%
----------------------------------------------------
100.0% 53,300 100.1% 750 3.3%
----------------------------------------------------
102.5% 54,633 106.5% 799 3.6%
105.0% 55,965 113.5% 851 4.0%
107.5% 57,298 121.2% 909 4.3%
----------------------------------------------------
110.0% 58,630 129.4% 970 4.6%
----------------------------------------------------
112.5% 59,963 138.2% 1,037 5.0%
115.0% 61,295 147.6% 1,107 5.3%
117.5% 62,628 157.6% 1,182 5.6%
----------------------------------------------------
120.0% 63,960 168.3% 1,262 6.0%
----------------------------------------------------
Xxxx X. Xxxxxxx
December 22, 1997
Page 4
Schedule 2
(Target Achievement Goals)
(1) Achieving "same club sales growth" for 1998 vs 1997 at or above 8%.
(2) Achieving Miscellaneous Revenues (Personal Training, Nutrition, Retail)
at or above 10% of Gross Revenues for 1998.
(3) Achieve new greenfield and acquisition club growth as approved by the
Board of Directors and the Company Plan.
(4) Prepare a plan, to be approved by the Board, by October 1, 1998 for the
Southwest Division's "changes after the Earnout".
(5) Complete a Senior level Compensation Package Plan.
(6) Establish programs for the rollout of the new Information Technology
systems, 24 Hour University and the Retail products concept.
EMPLOYMENT AGREEMENT
This agreement ("Agreement") is effective as of the 1ST DAY OF JANUARY
1997 by and between FITNESS HOLDINGS, INC. a Delaware corporation, with
offices at 0000 Xxxxxxxx Xxxxx, Xxxxxxxxxx, XX 00000 (the "Company"), and XXXX
X. XXXXXXX, an individual with an address of X.X. Xxx 0000-000, Xxx Xxxxx, XX
00000 (the "Employee").
RECITALS
WHEREAS, the Employee has been and is presently in the employ of the
Company and is presently serving as Chief Executive Officer and President
of the Company;
WHEREAS, the Employee possesses and intimate knowledge of the business
and affairs of the Company and its policies, procedures, methods and
personnel;
WHEREAS, the Company desires to secure the continued services and
employment of the Employee on behalf of the Company, and the Employee desires
to continue in the employment of the Company, upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound
hereby, agree as follows:
1. EMPLOYMENT. The Company hereby employees the Employee as Chief Executive
Officer and President of the Company (and Chief Executive Officer and
President of the Company's wholly-owned subsidiary 24 Hour Fitness,
Inc.), and the Employee accepts such employment for the term of the
employment specified in Section 3 below (the "Employment Term"). During
the Employment Term, the Employee shall serve as the Chief Executive
Officer and President of the Company, performing such duties as shall be
reasonably required of an executive-level employee of the Company,
reporting only to the Board of Directors of the Company (the "Board"),
and shall have such other powers and perform such other additional
executive duties as may from time to time be assigned to him by the Board.
2. PERFORMANCE. The Employee will serve the Company faithfully and to the
best of his ability and will devote substantially all of his time,
energy, experience and talents during regular business hours and as
otherwise reasonably necessary to such employment, to the exclusion of
all other business activities.
3. EMPLOYMENT TERM.
a) INITIAL TERM. The Employment Term shall begin on the date of this
Agreement and continue until December 31, 1997.
b) EXTENSION OF TERM. The Employment Term shall be automatically extended
for five (5) successive one (1) year periods on the terms and
conditions set forth herein; provided, however, the terms of Section 4
(Compensation) and the goals set forth on Schedule 1 (Target
Achievement Goals) shall be reestablished for each such successive
year. The Company and Employee shall use their good faith efforts to
agree upon such terms and goals no later than thirty (30) days prior to
the expiration of the then current year of the Employment Term. In the
event that the Company and Employee do not agree upon such terms and
goals by said date, this Agreement shall terminate on December 31 of
the then current year of the Employment Term.
c) Employment during the Employment Term, as said term may be extended,
shall at all times be subject to termination at will.
4. COMPENSATION.
a) SALARY. During each year of the Employment Term, the Company shall pay
the Employee a base salary, payable in equal monthly installments,
subject to withholding and other applicable taxes, at an annual rate
of Five Hundred Thousand Dollars ($500,000.00)
b) CASH INCENTIVE BONUS.
i) The Company may pay the Employee for each year of the Employment
Term a bonus of up to Five Hundred Thousand Dollars ($500,000.00)
based upon the Company's achievement of it's budgeted Cash
Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") as adjusted for multi-club acquisitions. Such bonus
will be paid at 100% if the Company's EBITDA is equal to the
EBITDA approved by the Board and on a pro rata basis, as reflected
on Schedule 1, to the extent that the Company's EBITDA is between
80% and 120% of the budgeted amount. In the event that EBITDA is
an amount between the specified amounts set forth on Schedule 1,
said bonus shall be determined with reference to the formula upon
which Schedule 1 is based. Said bonus shall be subject to
withholding and other applicable taxes.
ii) A performance bonus of $300,000 or higher for each year of the
Employment Term will be paid for achievement of the Target
Achievement Goals set forth on Schedule 2 hereto. Said bonus shall
be subject to withholding and other applicable taxes.
c) ADDITIONAL BENEFITS. In addition to the other compensation payable to
the Employee hereunder, during the Employment Term, the Company shall
permit the Employee to participate in any and all group life
insurance plans, medical and dental health benefit plans and
employee benefit plans and the like maintained by or on behalf of the
Company for its executives.
d) PAID TIME OFF. Employee shall be entitled to 30 days of paid vacation
during each calendar year of the employment, pro rated for any
partial year. Vacation may only be taken at times mutually convenient
for the Company and Employee. No more than four weeks of vacation time
may be accrued at any time. The Company may elect to pay out all
accrued and unused vacation time as of December 31, in January or
February of the following year. Such pay out will be at the then
prevailing rate of annual compensation.
Employee shall be entitled to paid sick leave each year pursuant to the
Company's established sick leave policy in effect for such year
(currently 2 days are allowed). Company's sick leave policy for employees may
be changed from time to time by the Board. Unused sick leave shall not
accumulate from year to year, nor shall Employee be compensated for unused
sick leave.
Employee shall also be entitled to 6 floating holidays during the calendar
year. If any of the floating holidays have not been taken by December 31,
then the unused amount will be paid to the employee no later than February 28
of the following year.
5. EXPENSES. The Employee shall be reimbursed by the Company for all
reasonable expenses incurred by him in connection with the performance of
his duties hereunder in accordance with policies established by the Board
from time to time and upon receipt of appropriate documentation. In
addition, the Company will reimburse the employee monthly (a) Two
Thousand Dollars ($2,000.00) for automobile cost and (b) in addition for
full out-of-pocket insurance and maintenance of such automobile.
6. SECRET PROCESSES AND CONFIDENTIAL INFORMATION. For the Employment Term and
thereafter, (a) the Employee will not divulge, transmit or otherwise
disclose (except as legally compelled by court order, and then only to the
extent required after prompt notice to the Company of any such order),
directly or indirectly, other than in the regular and proper course of
business of the Company, any confidential knowledge or information with
respect to the operations or finances of the Company or with respect to
confidential or secret processes, services, techniques, customers or plans
with respect to the Company and (b) the Employee will not use, directly or
indirectly, any confidential information for the benefit of anyone other
than the Company; provided however, that the Employee has no obligation,
express or implied, to refrain from using or disclosing to others any such
knowledge or information which is or hereafter shall become available to
the public other than through disclosure by the Employee. All new
processes, techniques, know-how, inventions, plans, products, patents and
devices developed, made or invented by the Employee, alone or with others,
while an employee of the Company, shall be and become the sole property of
the Company, unless released in writing by the Company, and the Employee
hereby assigns any and all rights therein or thereto to the Company.
During the term of this Agreement and thereafter, Employee shall not take
any action to disparage or criticize to any third parties any of the
services of the Company or to commit any other action that injures or
hinders the business relationships of the Company.
All files, records, documents, memorandums, notes or other documents
relating to the business of Company, whether prepared by Employee or
otherwise coming into this possession in the course of the performance of
his services under this Agreement, shall be the exclusive property of
Company and shall be delivered to Company and not retained by Employee upon
termination of this Agreement for any reason whatsoever.
The provisions of this section requiring assignment of inventions to the
Company do not apply to any invention which qualifies fully under the
provisions of California Labor Code Section 2870 (attached hereto as
Exhibit A).
7. TERMINATION. The employment of the Employee hereunder shall automatically
terminate at the end of the Employment Term, unless the parties hereto
mutually agree otherwise in writing, at least 30 days prior to expiration
of the Employment Term.
8. INSURANCE. The Company may purchase insurance on the life of the Employee,
and if it does so, the Employee shall cooperate fully by performing all the
requirements of the life insurer which are necessary conditions precedent
to the issuance of the life insurance policy issued by it.
9. SEVERANCE. If the Employee's employment is terminated by the Company
without "cause" or by the Employee for "good reason" (each as defined in
the Amended and Restated Stockholders Agreement, dated as of July 1, 1996
by and among the Company, the Employee and various other parties; PROVIDED
that "good reason" shall be interpreted consistent with the provisions of
Section 10 of this Agreement), then the Employee shall be entitled to (i)
medical and dental benefits as of the date of termination for a period not
to exceed six months (which shall be terminated sooner to the extent
provided by another employer) and (ii) severance
compensation for the 18 months following any such termination, payable in
equal monthly installments, subject to withholding and other applicable
taxes, at an annual rate of Five Hundred Thousand Dollars ($500,000.00).
In addition, the Employee will be entitled to a PRO RATA portion of the
bonus compensation referred to in Section 4 (b) hereof as projected from
the year-to-date performance, such compensation to be awarded at the
discretion of the Board of Directors of the Company.
10. GOOD REASON. Clause 2.5(c)(i) of the Stockholders Agreement defines "good
reason" to include "a significant reduction in the authorities, duties or
responsibilities of such Management Stockholder." As applied to the
Employee, the parties hereto agree that any position other than chief
executive officer, reporting only to the Board of Directors of the Company,
and to whom all other employees report, directly or indirectly, would
constitute a "significant reduction in all authorities, duties or
responsibilities" of the Employee. This interpretation shall govern for
all purposes, including application of the Stockholders Agreement, this
Agreement and any option agreements entered into by the Employee and the
Company.
11. NOTICE. Any notices required or permitted hereunder shall be in writing
and shall be deemed to have been given when personally delivered or when
mailed, certified or registered mail, postage prepaid, to the following
addresses:
If to the Employee:
Xxxx X. Xxxxxxx
0000 Xxxxxxx 00X #0-000 Xxxxxx Xxxx, XX 00000
If to the Company:
Fitness Holdings, Inc.
0000 Xxxxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
Attention: Board of Directors
With a copy to:
XxXxxx De Leeuw & Co.
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxx
12. GENERAL.
a) GOVERNING LAW. The terms of this Agreement shall be governed by and
construed under the laws of the State of California.
b) ASSIGNABILITY. The Employee may not assign his interest in or
delegate his duties under this Agreement. Notwithstanding anything
else in this Agreement to the contrary, the Company may assign this
Agreement to and all rights hereunder shall inure to the benefit of
its wholly-owned subsidiary 24 Hour Fitness, Inc. or any person, firm
or corporation
succeeding to all or substantially all of the business or assets of
the Company by purchase, merger or consolidation.
c) ENFORCEMENT COSTS. In the event that either the Company or the
Employee initiates an action or claim to enforce any provision or term
of this Agreement, the costs and expenses (including attorney's fees)
of the prevailing party shall be paid by the other party, such party
to be deemed to have prevailed if such action or claim is concluded
pursuant to a court order or final judgment which is not subject to
appeal, a settlement agreement or dismissal of the principle claims.
d) BINDING EFFECT: This Agreement is for the employment of Employee,
personally and for the services to be rendered by him and no other
person. This Agreement shall be binding upon and inure to the benefit
of the Company, its successors and assigns, personal representatives,
heirs and legatees.
e) ENTIRE AGREEMENT; MODIFICATION. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter
hereof and may not be modified or amended in any way except in writing
by the parties hereto.
f) DURATION. Notwithstanding the term of employment hereunder, this
Agreement shall continue for so long as any obligations remain
under this Agreement.
g) SURVIVAL. The covenants set forth in Section 6 of this Agreement
shall survive and shall continue to be binding upon Employee
notwithstanding the termination of this Agreement for any reason
whatsoever. The covenants set forth in Section 6 of this Agreement
shall be deemed and construed as separate agreements independent of
any other provision of this Agreement. The existence of any claim or
cause of action by Employee against Company, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the
enforcement by Company of any or all covenants. It is expressly
agreed that the remedy at law for the breach or any such covenant is
inadequate and that injunctive relief shall be available to prevent
the breach or any threatened breach thereof.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto executed this Agreement the day and year first written above.
FITNESS HOLDINGS, INC.
By: By:
-------------------------------- --------------------------------
Xxxxx X. Xxxx, Chairman Xxxx X. Xxxxxxx
EXHIBIT A
CALIFORNIA LABOR CODE SECTION 2870
EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS
Section 2870 of the California Labor Code is as follows:
a) Any provision is an employment agreement which provides that an employee
shall assign, or offer to assign, any of his or her rights in an invention
to his or her employer shall not apply to an invention that the employee
developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for
those inventions that either:
1) Relate at the time of conception; or reduction to practice of the
invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer; or
2) Result from any work performed by the employee for the employer.
b) To the extent a provision is an employment agreement purports to require an
employee to assign an invention otherwise excluded from being required to
be assigned under subdivision (a), the provision is against the public
policy of this state and is unenforceable.
FITNESS HOLDINGS
Xxxx Xxxxxxx Bonus
Schedule 1
BITDA % of
% of Bonus increase
goal EBITDA % bonus ($000) in EBITDA
---- ------ ------- ------ ---------
80.0% 36,062 70.0% 350
82.5% 37,189 70.9% 355 0.4%
85.0% 38,316 72.7% 363 0.8%
87.5% 39,443 75.2% 376 1.1%
90.0% 40,570 78.6% 393 1.5%
92.5% 41,697 82.7% 414 1.8%
95.0% 42,824 87.7% 438 2.2%
97.5% 43,951 93.4% 467 2.5%
-------------------------------------------------------------
100.0% 45,078 100.0% 500 2.9%
-------------------------------------------------------------
102.5% 46,205 107.3% 537 3.3%
105.0% 47,332 115.5% 577 3.6%
107.5% 48,459 124.4% 622 4.0%
-------------------------------------------------------------
110.0% 49,586 134.1% 671 4.3%
-------------------------------------------------------------
112.5% 50,713 144.7% 723 4.7%
115.0% 51,840 156.0% 780 5.0%
117.5% 52,967 168.2% 841 5.4%
-------------------------------------------------------------
120.0% 54,094 181.1% 906 5.7%
-------------------------------------------------------------
Schedule 2
(Target Achievement Goals)
(1) Achieving "same club sales growth" for 1997 vs 1996 at or above 7%.
(2) Achieving Miscellaneous Revenues (Personal Training, Nutrition, Retail) at
or above 10% of Gross Revenues for 1997
(3) Engage an executive search firm and begin the interview process to hire a
highly qualified COO, as approved by the Board.
(4) Open budgeted new clubs on or ahead of schedule during 1997
(5) Stay within the Board of Directors' approved Capital Expenditure Budget for
new clubs as well as Maintenance Capital Expenditures for existing clubs.
