def14a
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to Section 240.14a-11c or Section 240.14a-12
BALLY TOTAL FITNESS HOLDING CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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(1) |
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Title of each class of securities to which transaction applies: |
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(2) |
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Aggregate number of securities to which transaction applies: |
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Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount
on which the filing fee is calculated and state how it was determined): |
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Proposed maximum aggregate value of transaction: |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the
date of its filing. |
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Form, Schedule or Registration Statement No.: |
TABLE OF CONTENTS
BALLY TOTAL FITNESS HOLDING
CORPORATION
8700 West Bryn Mawr
Avenue
Chicago, Illinois
60631
Notice of Annual Meeting of Stockholders
To Be Held December 19,
2006
To our Stockholders:
The 2006 annual meeting of stockholders of Bally Total Fitness
Holding Corporation (the Company) will be held at
9:00 a.m. (local time) on December 19, 2006 at the
Renaissance Chicago OHare Hotel, 8500 West Bryn Mawr
Avenue, Chicago, Illinois for the following purposes:
1. The election of one Class I Director for a
three-year term expiring in 2009 (Item 1 on the proxy
card); and
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2.
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To ratify the appointment of KPMG LLP as independent auditor for
the Company for the fiscal year ending December 31, 2006
(Item 2 on the proxy card).
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THE COMPANYS BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE FOR ITEMS 1 and 2 ON THE PROXY CARD.
Stockholders of record as of the close of business on
November 13, 2006 will be entitled to notice of and to vote
at the annual meeting and any adjournment thereof. The transfer
books will not be closed.
The Board of Directors of Bally desires to have the maximum
stockholder representation at the annual meeting and
respectfully requests that you vote either via the internet,
touch-tone telephone or by executing, dating and returning
promptly the enclosed proxy card in the postage-paid envelope
provided. In order to attend the annual meeting, you must bring
the enclosed entrance pass with you. No one will be admitted
without the entrance pass.
By order of the Board of Directors,
Marc D. Bassewitz, Secretary
Chicago, Illinois
November 20, 2006
YOUR VOTE
IS IMPORTANT!
PLEASE EXECUTE, DATE AND RETURN PROMPTLY THE ENCLOSED
PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED OR
VOTE VIA THE INTERNET OR TOUCH-TONE TELEPHONE.
BALLY TOTAL FITNESS HOLDING
CORPORATION
8700 West Bryn Mawr
Avenue
Chicago, Illinois
60631
ANNUAL MEETING OF STOCKHOLDERS
To Be Held December 19, 2006
This proxy statement and the accompanying proxy card are being
furnished in connection with the solicitation of proxies by the
Board of Directors of Bally Total Fitness Holding Corporation, a
Delaware corporation (Bally or the
Company), for use at the 2006 annual meeting of
stockholders to be held on December 19, 2006 at
9:00 a.m. (local time) and at any postponement or
adjournment of the meeting. This statement and the accompanying
proxy card are being mailed to stockholders beginning on or
about November 20, 2006.
ABOUT THE
MEETING
What is
the Purpose of the Annual Meeting?
At the annual meeting, stockholders will elect one Class I
Director and vote on a proposal to ratify KPMG LLP as the
Companys independent auditor and act upon anything else
that properly comes before the meeting. In addition, after the
meeting, there will be a brief presentation by the Interim
Chairman of the Board and the Acting Chief Executive Officer and
a general discussion period during which stockholders will have
an opportunity to ask questions.
Who is
Entitled to Vote?
Only stockholders of record at the close of business on the
record date, November 13, 2006, are entitled to receive
notice of the annual meeting and to vote the shares of common
stock that they held on that date at the meeting and any
postponement or adjournment of the meeting. Each outstanding
share entitles its holder to cast one vote on each matter to be
voted upon.
Who Can
Attend the Meeting?
All stockholders as of the record date, or their duly appointed
proxies, may attend the meeting. Registration will begin at
8:30 a.m. Central Time. In order to attend the annual
meeting, you must bring your entrance pass.
What are
the Boards Recommendations?
The Board of Directors (or the Board) recommends you:
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vote FOR the election of the Companys Class I
nominee; and
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vote FOR the ratification of KPMG LLP as the Companys
independent auditor.
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What Vote
is Required to Approve Each Item?
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Election of Director. The affirmative vote of
the holders of a majority of the shares represented in person or
by proxy at the meeting and entitled to vote will be required
for the election of one Class I director. A properly
executed proxy marked WITHHOLD with respect to the
election of a director will not be voted with respect to the
director indicated, although it will be counted for purposes of
determining whether there is a quorum.
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Ratification of Auditors. The affirmative vote
of the holders of a majority of the shares represented in person
or by proxy at the meeting and entitled to vote will be required
for the ratification of KPMG as the Companys independent
auditor. The Companys By-Laws do not require the Company
to submit this proposal to the stockholders; however, the Board
believes that it is of sufficient importance to seek
ratification. If the proposal is defeated, the Board will
reconsider its selection of KPMG.
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Other Items. For each other item which
properly comes before the meeting, the affirmative vote of the
holders of a majority of the shares represented in person or by
proxy at the meeting and entitled to vote on the item will be
required for approval.
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What
Happens If I Submit a Proxy Card Without Giving Specific Voting
Instructions?
Unless you give other instructions on your proxy card, the
persons named as proxy holders on the proxy card will vote your
shares as recommended by the Board. With respect to any other
proposals that properly come before the meeting, the proxy
holders will vote using their own discretion. If you hold your
shares in street name through a broker or other
nominee, your broker or nominee may not be permitted to exercise
voting discretion with respect to some of the proposals to be
acted upon.
What
Constitutes a Quorum?
The presence at the meeting, in person or by proxy, of the
holders of a majority of the common stock outstanding on
November 13, 2006 will constitute a quorum, permitting the
meeting to conduct its business. As of the record date,
41,286,512 shares of common stock were outstanding.
Therefore, 20,643,257 shares represents a majority of the
common stock outstanding on November 13, 2006. Except as
otherwise required by law, proxies received but marked as
abstentions and broker non-votes will be included in the
calculation of the number of shares considered to be present at
the meeting.
Will
Abstentions Affect the Voting Results?
A properly executed proxy marked ABSTAIN with
respect to any matter will not be voted with respect to such
matter, although it will be counted for purposes of determining
whether there is a quorum. Accordingly, an abstention will have
the effect of a negative vote with respect to any matter
requiring at least a majority of shares outstanding or present
at the meeting.
How Do I
Vote?
If you complete and properly sign the accompanying proxy card
and return it to LaSalle Bank N.A., our transfer agent and
registrar, it will be voted as you instruct on the proxy card.
If you attend the meeting, you may deliver your completed proxy
card in person, or you may vote in person. If you hold your
shares in the name of a bank, broker or other nominee, you will
not be able to vote in person at the annual meeting unless you
have previously specially requested and obtained a legal
proxy from your bank, broker or other nominee and present
it at the annual meeting. You may also vote via the internet as
explained in the voting instructions attached to your proxy
card. You may vote via the internet or telephone any time prior
to 11:59 p.m. Eastern Time, December 18, 2006.
Who Will
Count the Vote?
At the meeting, the results of stockholder voting will be
tabulated by LaSalle Bank N.A., the independent inspector of
elections appointed by Bally for the meeting.
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Can I
Change My Vote or Revoke My Proxy After I Return My Proxy
Card?
Yes. Even after you have submitted your proxy, you may change
your vote at any time before the proxy is exercised by filing
with the Secretary of Bally either a notice of revocation or a
duly executed proxy bearing a later date. If you vote in person
at the meeting, your proxy will be revoked. However, attendance
at the meeting will not by itself revoke a previously granted
proxy. For shares held in street name, you may
revoke your previously-granted proxy by submitting new voting
instructions to your broker or nominee or contacting the person
responsible for your account and instructing that person to
execute on your behalf the proxy card as soon as possible.
ELECTION
OF DIRECTORS AND SECURITY OWNERSHIP
Proposal 1
Election of Directors
The Companys Certificate of Incorporation provides that
the Companys Board shall consist of such number of
directors from three to seventeen as shall be determined by the
Board from time to time, which number is currently set at six.
In addition, the Companys Certificate of Incorporation
provides that our Board shall be divided into three classes,
each class consisting, as nearly as possible, of one-third of
the total number of directors, with each class having a
three-year term.
On October 22, 2006, the Board reduced the size of the
Board from nine to six, the number of directors currently
serving. In addition, the Board also determined not to nominate
Steven S. Rogers for re-election as a director at the 2006
Annual Meeting. Accordingly, as Mr. Steven Rogers was
the only director in Class I, the Board voted to move
Interim Chairman Don R. Kornstein from Class III to
Class I so the Board would consist of as close to an equal
number of directors in each class as is practical. Further, the
Board determined to nominate Mr. Kornstein for
re-election
to Class I of the Board for a new three-year term at the
Annual Meeting. The Board also voted to reduce the size of the
Board by eliminating the Class I directorship currently
held by Mr. Steven Rogers effective upon the Annual
Meeting. On November 16, 2006, John W. Rogers, Jr.
notified the Company of his resignation from the Companys
Board of Directors, effective immediately. On November 18,
2006, the Board voted to further reduce the size of the Board
immediately prior to the Annual Meeting by eliminating the
vacancy in Class II created by Mr. John Rogers
resignation.
At the annual meeting, one Class I director is to be
elected to serve for a three-year term expiring in 2009 or until
his successor has been duly elected and qualified. Set forth
below is certain information with respect to Mr. Kornstein,
the nominee proposed by the Board. It is intended that all duly
executed or duly tendered proxies in the accompanying form will
be voted for the election of Mr. Kornstein (or such
substitute nominees as provided below), unless such
authorization has been withheld. Authority granted to the
persons named in the proxy to vote for the nominee is limited to
Mr. Kornstein and proxies cannot be voted for persons other
than Mr. Kornstein. Mr. Kornstein has consented to
serve as a director if elected and the Board is unaware of any
reason why Mr. Kornstein would be unavailable to serve if
so elected. If Mr. Kornstein is unable or unwilling to
stand for election at the annual meeting, the Board does not
intend to name an additional nominee and Mr. Kornstein will
not be elected to office.
The Company has a Nominating and Corporate Governance Committee
and all nominations are approved by the Board. The Board has
nominated Mr. Kornstein and recommends that he be elected
at the Annual Meeting. Mr. Kornstein has provided the
Company with the information relating to him that is required to
be included in this proxy statement. Mr. Kornstein
currently serves as a director of the Company, and has served as
a director of the Company since February 2006.
In general, beneficial ownership includes those
shares a stockholder has the power to vote or transfer and stock
options that are exercisable currently or within 60 days.
Unless otherwise indicated, all information with respect to
ownership of common stock is as of October 31, 2006. On
October 31, 2006, Bally had outstanding
41,286,512 shares of common stock. The Common
Shares Owned column may include, in certain circumstances,
shares of common stock held in the name of the Directors
or executive officers spouse, minor children, or relatives
sharing the Directors or executive officers home,
the reporting of which is required by applicable rules of the
Securities and Exchange Commission (the SEC), but as
to which shares of common stock the Director or
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executive officer may have disclaimed beneficial ownership. As
used in the following tables, an asterisk in the Percentage of
Outstanding Stock column means less than 1%.
Information regarding Mr. Kornstein for election as a
Class I director, along with information concerning the
present Class II and Class III continuing directors of
the Company, is set forth below:
Nominees
CLASS I
Term Expiring at the Annual Meeting in 2009
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Common
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Options
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Total
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Percentage of
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Shares
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Exercisable
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Beneficial
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Outstanding
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Name
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Owned
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Within 60 Days
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Ownership
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Stock
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Don R. Kornstein
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0
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0
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0
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Directors
Continuing in Office
CLASS II
Term Expiring at the Annual Meeting in 2007
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Common
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Options
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Total
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Percentage of
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Shares
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Exercisable
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Beneficial
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Outstanding
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Name
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Owned
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Within 60 Days
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Ownership
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Stock
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Eric Langshur
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0
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0
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0
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*
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CLASS III
Term Expiring at the Annual Meeting in 2008
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Common
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Options
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Total
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Percentage of
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Shares
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Exercisable
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Beneficial
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Outstanding
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Name
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Owned
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Within 60 Days
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Ownership
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Stock
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Charles J. Burdick
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0
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0
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0
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Barry R. Elson
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0
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0
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0
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Director
Nominee
Don R. Kornstein, age 54, has served as a
director since February 2006 and as interim Chairman of the
Board since August 2006. For the last five years,
Mr. Kornstein has been a consultant specializing in
strategic, financial and management advisory services. Since
2002, Mr. Kornstein has been the founder and managing
member of Alpine Advisors LLC, which provides value-enhancing
strategic management, operational and financial consulting
services to a wide range of companies with varying needs. In
addition, Mr. Kornstein serves as a non-executive director
of Cash Systems, Inc. From 2000 until 2001, in his capacity as a
consultant, Mr. Kornstein served as the interim Chief
Operating Officer of First World Communications, Inc., a telecom
and internet company. From 1994 until 2000, Mr. Kornstein
served as the Chief Executive Officer, President and a director
of Jackpot Enterprises, Inc., an NYSE-listed company engaged in
the gaming industry. From 1977 until 1994, Mr. Kornstein
was an investment banker with Bear, Stearns & Co. Inc.
THE
COMPANYS BOARD RECOMMENDS A VOTE FOR THE ELECTION OF THE
NOMINEE FOR CLASS I DIRECTOR NAMED ABOVE.
Continuing
Directors
Charles J. Burdick, age 55, has served as a
director since February 2006. Mr. Burdick is a member of
the Pardus Capital Management Advisory Board and a non-executive
director of Singer & Friedlander and CTC Media, Inc.
Previously, Mr. Burdick was Chief Executive Officer of HIT
Entertainment Plc, a London-based production
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company of childrens programming, and Chief Executive
Officer and a director at Telewest Communications Group, Ltd, a
cable company in England, where he earlier also held the post of
Chief Financial Officer.
Barry R. Elson, age 65, has served as a
director since February 2006 and as acting Chief Executive
Officer since August 2006. Mr. Elson was recently Chairman,
then Acting Chief Executive Officer and a director of Telewest
Global, Inc., a provider of entertainment and communication
services. Mr. Elson earlier served as Acting Chief
Executive Officer of Telewest Communications Group, Ltd., prior
to that he was the President of Pilot Associates, a management
consulting firm, Chief Operating Officer of Urban Media
Communications Corporation, a venture capital-backed
communications firm, President of Conectiv Enterprises, a
mid-Atlantic energy company, and Executive Vice President,
Operations for Cox Communications, Inc. Earlier in his career,
Mr. Elson ran three professional sports organizations: the
New York Nets, the New York Islanders and the Colorado Rockies.
Eric Langshur, age 43, served as a director
from December 2004 to February 7, 2006 and was unanimously
reappointed by the Board on February 9, 2006.
Mr. Langshur is the Founder and Chief Executive Officer of
TLContact, Inc., a privately held company that delivers
innovative patient communication and education services to the
healthcare industry.
Director
Whose Term is Expiring
Steven S. Rogers, age 49, has served as a
director since December 2005. Mr. Rogers is a professor of
finance and management at the Kellogg Graduate School of
Management at Northwestern University. He also serves as a
director at AMCORE Financial, Inc., S.C. Johnson & Son,
Inc., SUPERVALU, Inc. and Duquesne Light Holdings, Inc. where he
also serves on the Compensation, Corporate Governance and
Finance Committees.
Executive
Officers
In addition to Mr. Elson, the Companys other
executive officers are as follows:
Julie Adams, age 61, was elected Senior Vice
President, Membership Services of the Company in February 2003.
Ms. Adams was Vice President of Membership Services from
November 1997 to February 2003.
Marc D. Bassewitz, age 50, was elected Senior
Vice President and General Counsel of the Company in January
2005. Prior to joining Bally, Mr. Bassewitz served as
outside counsel for the Company in his position as a partner at
Latham & Watkins LLP.
Ronald G. Eidell, age 62, was elected Senior
Vice President, Finance in April 2006 and Senior Vice President
and Chief Financial Officer of the Company in August 2006. Prior
to joining Bally, Mr. Eidell served as interim President
and CEO of NeoPharm, Inc., a biopharmaceutical company, from
March 2005 to October 2005. Mr. Eidell has been a partner
at Tatum, LLC, a national professional services firm, since
October 2004. Prior to that he served as the Chief Financial
Officer of each of Esoterix, Inc., a provider of medical testing
services, from
2001-2003,
NovaMed, Inc., a healthcare provider, from
1998-2001,
and Metromail Corporation, a provider of information services,
from
1996-1998.
He also serves as a director of NeoPharm, Inc.
William G. Fanelli, age 44, has served as
Senior Vice President, Corporate Development of the Company
since October 2006. He served as Senior Vice President, Planning
and Development of the Company from March 2005 to October 2006.
Mr. Fanelli held the position of Acting Chief Financial
Officer from April 2004 to March 2005, was Senior Vice
President, Finance from June 2001 to April 2004 and was Senior
Vice President, Operations from November 1997 to June 2001.
Gail Holmberg, age 51, was elected Senior
Vice President, Chief Information Officer in March 2006.
Ms. Holmberg held the position of Vice President, Chief
Information Officer from February 2003 to March 2006. Prior to
joining Bally, Ms. Holmberg served as Senior Director of
Administrative Systems for Sears, Roebuck and Co. from January
2001 to October 2001.
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Thomas S. Massimino, age 47, was elected
Senior Vice President, Operations of the Company in March 2006.
Mr. Massimino held the position of Vice President,
Operations from September 2001 to March 2006.
James A. McDonald, age 53, was elected Senior
Vice President and Chief Marketing Officer of the Company in May
2005. Prior to joining Bally, Mr. McDonald most recently
served as the Senior Vice President, Chief Brand Officer of
RadioShack, Inc. from June 1998 to February 2005.
Harold Morgan, age 50, was elected Senior
Vice President, Chief Administrative Officer in February 2003.
Mr. Morgan held the position of Senior Vice President Human
Resources from December 1996 to February 2003.
John H. Wildman, age 47, was elected Senior
Vice President and Chief Operating Officer in December 2002.
Mr. Wildman served as Senior Vice President, Sales and
Marketing from November 1996 to December 2002.
See Election of Directors and Security
Ownership Director Nominees and
Continuing Directors for information concerning the
Directors.
Beneficial
Ownership of Directors and Executive Officers
The following table shows the number of shares of Bally common
stock beneficially owned as of October 31, 2006 by the
directors, Named Executive Officers and all directors and
executive officers as a group. The Common
Shares Owned column includes, in certain
circumstances, shares of common stock held in the name of the
directors or executive officers spouse, minor
children, or relatives sharing the directors or executive
officers home, the reporting of which is required by
applicable rules of the SEC, but as to which shares of common
stock the director or executive officer may have disclaimed
beneficial ownership.
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Common
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Options
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Total
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Percentage of
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Shares
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Exercisable
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Beneficial
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Outstanding
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Beneficial Owner
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Owned
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Within 60 Days
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Ownership
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Stock*
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Marc D. Bassewitz
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130,000
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24,335
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154,335
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**
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Ronald G. Eidell
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0
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0
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0
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William Fanelli
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40,222
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256,667
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296,889
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**
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Harold Morgan
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55,921
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233,334
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289,255
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**
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John H. Wildman
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60,000
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238,334
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298,334
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**
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Charles J. Burdick
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0
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0
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0
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Barry R. Elson
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0
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0
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0
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Eric Langshur
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0
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0
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0
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Don R. Kornstein
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0
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0
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0
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John W. Rogers, Jr.
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10,000
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0
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10,000
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**
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Steven S. Rogers
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0
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1,667
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1,667
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**
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All directors and executive
officers as a group (15 persons)
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540,493
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949,673
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1,490,166
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3.6
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%
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* |
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Based on 41,286,512 shares of common stock outstanding. |
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Less than 1% of the outstanding common stock. |
6
Stockholders
Who Own at Least 5% of Bally Common Stock
The following table shows all persons the Company knows to be
the beneficial owners of more than 5% of Bally common stock as
of October 31, 2006:
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Total Beneficial
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Percent of
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Name and Address of Beneficial Owner
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Ownership
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Outstanding Stock(1)
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|
Pardus Capital Management
L.P.(2)(3)
|
|
|
6,105,500
|
|
|
|
14.8
|
%
|
1001 Avenue of the Americas,
Suite 1100
|
|
|
|
|
|
|
|
|
New York, New York 10018
|
|
|
|
|
|
|
|
|
Emanuel R. Pearlman(2)(4)
|
|
|
4,619,450
|
|
|
|
11.2
|
%
|
Liberation Investment Group
LLC(2)(4)
|
|
|
|
|
|
|
|
|
Liberation Investments, Ltd.(2)(4)
|
|
|
|
|
|
|
|
|
Liberation Investments, L.P.(2)(4)
|
|
|
|
|
|
|
|
|
11766 Wilshire Blvd.
Suite #870
|
|
|
|
|
|
|
|
|
Los Angeles, CA 90025
|
|
|
|
|
|
|
|
|
Mark J. Wattles(2)(5)
|
|
|
3,825,100
|
|
|
|
9.3
|
%
|
Wattles Capital Management,
LLC(2)(5)
|
|
|
|
|
|
|
|
|
7945 W. Sahara #205
|
|
|
|
|
|
|
|
|
Las Vegas, NV 89117
|
|
|
|
|
|
|
|
|
Dimensional Fund Advisors
Inc.(2)(6)
|
|
|
3,113,500
|
|
|
|
7.5
|
%
|
1299 Ocean Ave, 11th Flr,
|
|
|
|
|
|
|
|
|
Santa Monica, CA 90401
|
|
|
|
|
|
|
|
|
S.A.C. Capital Advisors LLC(2)(7)
|
|
|
2,439,200
|
|
|
|
5.9
|
%
|
72 Cummings Point Road
|
|
|
|
|
|
|
|
|
Stamford, CT 06902
|
|
|
|
|
|
|
|
|
Everest Capital Limited(2) (8)
|
|
|
2,414,778
|
|
|
|
5.8
|
%
|
The Bank of Butterfield Building
|
|
|
|
|
|
|
|
|
65 Front Street, 6th Floor,
|
|
|
|
|
|
|
|
|
P.O. Box HM2458
|
|
|
|
|
|
|
|
|
Hamilton HMJX Bermuda
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company had 41,286,512 common shares outstanding as of
October 31, 2006. The Percent of Outstanding
Stock was calculated by using the disclosed number of
beneficially owned shares by the applicable beneficial owner and
related entities, as a group, as the numerator and the number of
the Companys outstanding common shares as of
October 31, 2006 as the denominator. |
|
(2) |
|
Represents a beneficial owner of more than 5% of the common
stock based on the owners reported ownership of shares of
common stock in filings made with the Securities and Exchange
Commission pursuant to Section 13(d), 13(g) and 16(a) of
the Securities Exchange Act of 1934, as amended and the
attendant regulations. Information with respect to each
beneficial owner is generally as of the date of the most recent
filing by the beneficial owner with the SEC and is based solely
on information contained in such filings. |
|
(3) |
|
Pardus European Special Opportunities Master Fund L.P., a
limited partnership formed under the laws of the Cayman Islands
(the Fund), is the holder of 6,105,500 shares
of common stock. Pardus Capital Management, L.P.
(PCM), a Delaware limited partnership, serves as the
investment manager of the Fund and possesses sole power to vote
and direct the disposition of all the shares held by the Fund.
PCM is deemed to beneficially own 6,105,500 shares of
common stock. |
|
(4) |
|
Liberation Investments, L.P. (LILP), a Delaware
limited partnership, is the beneficial owner of
2,978,213 shares of common stock. Liberation Investments,
Ltd. (LILtd), a private offshore investment
corporation, is the beneficial owner of 1,606,237 shares of
common stock. Mr. Pearlman is the direct beneficial owner
of 35,000 shares of common stock, which vested upon the
acquisition by Liberation of in excess of 10% of the common
stock of the Company on May 4, 2005. Liberation Investment
Group LLC (LIG), the general partner of LILP and
discretionary investment adviser to LILtd, and
Mr. Pearlman, the General Manager, Chief |
7
|
|
|
|
|
Investment Officer and majority member of LIG, are indirect
beneficial owners of the shares held by LILP and LILtd. |
|
(5) |
|
Mark J. Wattles is the sole member and manager of Wattles
Capital Management, LLC, a Delaware limited liability company,
and owns 100% of its membership interests. |
|
(6) |
|
Dimensional Fund Advisors Inc. (Dimensional),
an investment advisor registered under Section 203 of the
Investment Advisors Act of 1940, furnishes investment advice to
four investment companies registered under the Investment
Company Act of 1940, and serves as investment manager to certain
other commingled group trusts and separate accounts. These
investment companies, trusts and accounts are the
Funds. In its role as investment advisor or manager,
Dimensional possesses voting
and/or
investment power and may be deemed to be the beneficial owner of
the shares. Dimensional disclaims beneficial ownership of such
securities. |
|
(7) |
|
S.A.C. Capital Advisors, LLC (SAC Capital Advisors)
has shared voting power and shared investment power with respect
to 2,439,200 shares of common stock; S.A.C. Capital
Advisors, S.A.C. Capital Management, LLC (SAC Capital
Management), and Mr. Steven Cohen do not directly own
any shares. Pursuant to investment agreements, each of SAC
Capital Advisors and SAC Capital Management share all investment
and voting power with respect to the securities held by S.A.C.
Capital Associates, LLC, S.A.C. Meridian Fund, LLC and S.A.C.
MultiQuant Fund, LLC. Mr. Cohen controls each of SAC
Capital Advisors and SAC Capital Management. Each of SAC Capital
Advisors, SAC Capital Management and Mr. Cohen may be
deemed to own beneficially 2,439,200 shares. Each of SAC
Capital Advisors, SAC Capital Management, and Mr. Cohen
disclaim beneficial ownership of any of these securities. |
|
(8) |
|
Everest Capital Limited is a Bermuda company. |
Securities
Authorized for Issuance Under Equity Compensation
Plans
The following table sets forth, as of December 31, 2005,
information concerning compensation plans under which the
Companys securities are authorized for issuance. The table
does not reflect grants, awards, exercises, terminations or
expirations since that date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
Number of Securities
|
|
|
|
|
|
Remaining Available for
|
|
|
|
to be Issued Upon
|
|
|
Weighted-average
|
|
|
Future Issuance Under
|
|
|
|
Exercise of Outstanding
|
|
|
Exercise Price of
|
|
|
Equity Compensation Plans
|
|
|
|
Options, Warrants and
|
|
|
Outstanding Options,
|
|
|
(Excluding Securities
|
|
|
|
Rights
|
|
|
Warrants and Rights
|
|
|
Reflected in Column (a))
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Plans approved by stockholders(1)
|
|
|
3,985,514
|
|
|
$
|
13.63
|
|
|
|
358,965
|
|
Plans not approved by
stockholders(2)
|
|
|
153,000
|
|
|
$
|
3.66
|
|
|
|
62,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,138,514
|
|
|
$
|
13.26
|
|
|
|
420,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The number of securities remaining for future issuance at
December 31, 2005 consisted of 283,965 shares issuable
under the Companys 1996 Long-Term Incentive Plan (the
Incentive Plan) and 75,000 shares under the
Companys 1996 Non-Employee Directors Stock Option
Plan (which plans expired on January 3, 2006). In November
1997, June 1999, December 2000 and June 2002, the Incentive Plan
was amended to increase the aggregate amount of shares
outstanding that may be granted to an aggregate of 8,600,000.
The Companys stockholders approved the first two
amendments, which increased the number of shares subject to the
plan by a total of 2,500,000. There have been no grants or
awards under these plans since December 31, 2005. |
|
(2) |
|
The number of securities remaining for future issuance at
December 31, 2005 consisted of 62,000 shares issuable
under the Companys Inducement Award Equity Incentive Plan
(the Inducement Plan). Since December 31, 2005,
a total of 19,500 options have been granted under the Inducement
Plan. |
See Compensation of Executive Officers for a
description of the Inducement Plan adopted by the Companys
Compensation Committee on March 8, 2005 and descriptions of
the material features of other equity compensation plans. See
Compensation of Executive Officers for a description
of grants made to new employees under the Inducement Plan to
date in 2006.
8
CORPORATE
GOVERNANCE
Governance
Principles
The Boards Corporate Governance Guidelines, which include
guidelines for determining director independence and
qualifications for directors, are published on the Investor
Information Corporate Governance section of
Ballys website at www.ballyfitness.com. All of
Ballys other corporate governance materials, including the
committee charters and key practices, are also published on the
Investor Information Corporate Governance section of
Ballys website. These materials are also available in
print to any stockholder upon request. The Board regularly
reviews corporate governance developments and modifies its
Corporate Governance Guidelines, committee charters and key
practices as warranted. Any modifications are reflected on
Ballys website.
Director
Independence
The Board has adopted standards for director independence for
determining whether a director is independent from management.
These standards are based upon the listing standards of the NYSE
and applicable laws and regulations and can be found in the
Companys Corporate Governance Guidelines. The Board has
affirmatively determined, based on these standards, that all of
the directors are independent, other than Mr. Elson, the
Companys Acting Chief Executive Officer, who is not
independent by virtue of his position. Accordingly, as of
November 20, 2006, four of the five directors are
independent. The Board has also determined that all Board
standing committees are composed entirely of independent
directors.
Separate
Sessions of Non-management Directors
The Corporate Governance Guidelines of the Company provide for
regular executive sessions of the non-management directors
without management participation. Consistent with the rules of
the NYSE, a non-management director is a director
who is not an officer of the Company within the
meaning of
Rule 16a-1(f)
under the Securities Act of 1933, as amended. The independent
directors meet in executive session at least four times
annually, and Mr. Kornstein, as Interim Chairman of the
Board, presides over such executive sessions.
Code of
Ethics
Our Board has adopted a Code of Business Conduct, Practices and
Ethics (the Code of Ethics) applicable to the
members of our Board and our officers, including our Chief
Executive Officer and Chief Financial Officer. A copy of our
Code of Ethics can be obtained from the Company, without charge,
by written request to the Secretary at the Companys
address, and is posted on the Companys website
(www.ballyfitness.com).
9
INFORMATION
RELATING TO THE BOARD
AND CERTAIN COMMITTEES OF THE BOARD
The business and affairs of the Company are managed by or under
the direction of the Board. The Boards goals are to build
long-term value for the Companys stockholders and to
assure the vitality of the Company for its customers, employees
and the other individuals and organizations that depend on the
Company. To achieve these goals, the directors will monitor the
performance of the Company by regularly attending meetings of
the Board and its committees and consulting and communicating
with the Chairman and other key executives, outside auditors and
external advisors such as legal counsel and investment bankers.
The Board currently consists of five directors, four of whom are
independent under the NYSE listing standards. The Board held 34
regularly scheduled meetings and no special meetings during
2005. As of October 31, 2006, the Board has held 28
regularly scheduled meetings and no special meetings during
2006. Each director is expected to make every effort to attend
each Board meeting and each meeting of any committee on which he
or she sits. Each then-current director attended at least
seventy-five percent of the meetings of the Board and all
committees on which the director served during 2005 and 2006 to
date, other than Mr. J. Kenneth Looloian (who served as a
director until February 2006 and was unable to actively
participate after August 2005 due to a medical condition),
Mr. Deutsch and Mr. Swid. All of the directors then in
office attended the annual stockholder meeting in January 2006,
other than Mr. Looloian who was unable to attend due to a
medical condition, and all current directors plan to attend the
annual meeting of stockholders to be held on December 19,
2006.
The Board has the following standing committees: an Audit
Committee, a Compensation Committee and a Nominating and
Corporate Governance Committee. The general functions of the
Audit Committee, Compensation Committee and Nominating and
Corporate Governance Committee, the identity of such
committees members and the number of committee meetings
held by such committees during 2005 and to date in 2006 are set
forth below.
The table below provides 2005 membership and meeting information
for each of the Board Committees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominating and
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
Audit
|
|
|
Compensation
|
|
|
Governance
|
|
Director
|
|
Committee
|
|
|
Committee
|
|
|
Committee
|
|
|
Barry Deutsch
|
|
|
x
|
|
|
|
x
|
|
|
|
x
|
|
Eric Langshur
|
|
|
x
|
*(1)
|
|
|
x
|
|
|
|
|
|
J. Kenneth Looloian
|
|
|
x
|
*(2)
|
|
|
x
|
|
|
|
x
|
|
James F. McAnally, M.D.
|
|
|
x
|
|
|
|
x
|
|
|
|
x
|
*
|
Adam Metz
|
|
|
x
|
(3)
|
|
|
|
|
|
|
|
|
John W. Rogers, Jr.
|
|
|
|
|
|
|
x
|
*
|
|
|
x
|
(4)
|
Steven S. Rogers
|
|
|
|
|
|
|
x
|
(5)
|
|
|
x
|
(5)
|
Marilyn Seymann
|
|
|
|
|
|
|
|
|
|
|
x
|
(6)
|
Stephen Swid
|
|
|
|
|
|
|
x
|
(7)
|
|
|
x
|
(7)
|
Number of Meetings Held in 2005
|
|
|
42
|
|
|
|
8
|
|
|
|
10
|
|
|
|
|
(1) |
|
Eric Langshur was elected Chairman on November 10, 2005. |
|
(2) |
|
J. Kenneth Looloian served as Chairman until November 10,
2005. |
|
(3) |
|
Adam Metz joined the Committee on December 1, 2005. |
|
(4) |
|
John W. Rogers, Jr. joined the Committee on
September 29, 2005. |
|
(5) |
|
Steven S. Rogers joined the Committee on December 1, 2005. |
|
(6) |
|
Marilyn Seymann joined the Committee on May 12, 2005 and
resigned on August 12, 2005. |
|
(7) |
|
Stephen Swid resigned on August 24, 2005. |
|
* |
|
Committee Chairman |
10
The table below provides 2006 membership and meeting information
as of October 31, 2006 for each of the Board Committees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominating and
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
Audit
|
|
|
Compensation
|
|
|
Governance
|
|
Director
|
|
Committee
|
|
|
Committee
|
|
|
Committee
|
|
|
Charles J. Burdick
|
|
|
X
|
(1)
|
|
|
X
|
(1)
|
|
|
X
|
(1)(13)*
|
Barry Deutsch
|
|
|
x
|
(2)
|
|
|
x
|
(2)
|
|
|
x
|
(9)
|
Barry R. Elson
|
|
|
|
|
|
|
|
|
|
|
x
|
(10)
|
Don R. Kornstein
|
|
|
X
|
(3)
|
|
|
X
|
*(6)
|
|
|
X
|
(11)
|
Eric Langshur
|
|
|
X
|
*
|
|
|
x
|
(7)
|
|
|
|
|
J. Kenneth Looloian
|
|
|
x
|
(4)
|
|
|
x
|
(4)
|
|
|
x
|
(4)
|
James F. McAnally, M.D.
|
|
|
|
|
|
|
x
|
(8)
|
|
|
x
|
*(8)
|
Adam Metz
|
|
|
x
|
(5)
|
|
|
|
|
|
|
x
|
(12)
|
John W. Rogers, Jr.
|
|
|
|
|
|
|
x
|
(14)
|
|
|
x
|
(14)
|
Steven S. Rogers
|
|
|
|
|
|
|
X
|
|
|
|
X
|
|
Number of Meetings Held in 2006
|
|
|
39
|
|
|
|
16
|
|
|
|
8
|
|
|
|
|
(1) |
|
Charles J. Burdick joined the Committee when his Board term
began on February 9, 2006. |
|
(2) |
|
Barry Deutsch resigned on September 14, 2006. |
|
(3) |
|
Don R. Kornstein joined the Committee on September 26, 2006. |
|
(4) |
|
J. Kenneth Looloian served on the Committee until
January 25, 2006. |
|
(5) |
|
Adam Metz resigned on February 8, 2006. |
|
(6) |
|
Don R. Kornstein joined the Committee when his Board term began
on February 9, 2006. |
|
(7) |
|
Eric Langshur served on the Committee until January 25,
2006. |
|
(8) |
|
James F. McAnally, M.D. resigned on August 24, 2006. |
|
(9) |
|
Barry Deutsch served on the Committee until January 25,
2006. |
|
(10) |
|
Barry Elson joined the Committee on February 9, 2006 and
resigned from the Committee on August 11, 2006 upon being
appointed Acting Chief Executive Officer of the Company. |
|
(11) |
|
Don R. Kornstein joined the Committee on August 23, 2006. |
|
(12) |
|
Adam Metz joined the Committee on January 25, 2006 and
resigned on February 8, 2006. |
|
(13) |
|
Charles Burdick was elected Chairman of the Committee on
August 30, 2006. |
|
(14) |
|
John W. Rogers, Jr. resigned on November 16, 2006. |
|
* |
|
Committee Chairman |
|
X |
|
Current Committee member |
Audit
Committee
The Audit Committee assists the Board in fulfilling its
responsibility for oversight of the integrity of the
Companys financial statements, the Companys
compliance with legal and regulatory requirements, the
independent auditors qualifications and independence, and
the performance of the Companys internal audit function
and independent auditor. Additional responsibilities of the
Audit Committee are described in the revised charter of the
Audit Committee, which was approved by the Board on
January 28, 2004 and amended on March 8, 2005.
During the year, the Board examined the membership of the Audit
Committee with regard to compliance with the NYSE rules
governing audit committees. Based upon this examination, the
Board confirmed that all members of the Audit Committee are
independent within the meaning of the NYSEs
rules.
The Board has determined that each member of the Audit Committee
is financially literate as such term is defined in
the listing standards of the NYSE. Additionally, the Board has
determined that Mr. Burdick is an audit
11
committee financial expert under the relevant rules of the
SEC, and that Mr. Burdick has the requisite
accounting/financial management expertise required by the
listing standards of the NYSE.
Compensation
Committee
The Compensation Committee is directly responsible for
establishing annual and long-term performance goals and
objectives for the Companys senior executives. These
responsibilities are set forth in greater detail in the
Compensation Committee Charter and include:
|
|
|
|
|
evaluating the performance of the CEO and other senior
executives in light of the approved performance goals and
objectives;
|
|
|
|
setting the compensation of the CEO and other senior executives
based upon the evaluation of the performance of the CEO and the
other senior executives, respectively; and
|
|
|
|
making recommendations to the Board with respect to
compensation, incentive compensation plans and equity-based
compensation plans for other Company officers.
|
In addition, the Compensation Committee administers and reviews
the Companys stock option, bonus, and long-term incentive
compensation plans.
The Board has determined that all members of the Compensation
Committee are independent within the meaning of the
NYSEs rules.
Nominating
and Corporate Governance Committee
The general functions of the Nominating and Corporate Governance
Committee include recommending to the Board nominees for
election as directors, consideration of the performance of
incumbent directors in determining whether to nominate them for
re-election and making recommendations with respect to corporate
governance and organization and size of the Board and its
committees. The Nominating and Corporate Governance Committee is
also responsible for the Companys Corporate Governance
Guidelines, including reviewing them on at least an annual basis
and recommending changes as necessary.
On January 28, 2004, the Board approved a charter for the
Nominating and Corporate Governance Committee in compliance with
the listing standards of the NYSE. The Companys Corporate
Governance Guidelines include policies with regard to
stockholder recommendations of nominees to the Board. On
May 12, 2005, the Nominating and Corporate Governance
Committee Charter was amended to revise the criteria used to
evaluate candidates for nomination as directors.
The Nominating and Corporate Governance Committee will consider
nominees to the Board recommended by stockholders. A
recommendation will be considered if submitted in writing
addressed to Bally in care of Nominating and Corporate
Governance Committee, accompanied by a description of the
proposed nominees qualifications and other relevant
biographical information, and a written indication of the
consent of the proposed nominee. Candidates for nomination as
director are considered on the basis of the following criteria,
among others the Nominating and Corporate Governance Committee
deems appropriate, including the specific needs of the Board at
the time:
|
|
|
|
|
wisdom, capability and integrity within their field or
profession;
|
|
|
|
broad business, management
and/or
public service experience;
|
|
|
|
general understanding of marketing, finance and other elements
necessary to the success of a publicly held company;
|
|
|
|
practical and mature business judgment;
|
|
|
|
represents no specific constituency other than the stockholders
generally;
|
|
|
|
no conflicts of interest or legal impediments that might
preclude service as a director;
|
12
|
|
|
|
|
ability and willingness to devote the time required to serve
effectively as a director and as a member of one or more
committees of the Board; and
|
|
|
|
diversity, experience or skills complementary to those of other
Board members.
|
On the basis of the information gathered in this process, the
Nominating and Corporate Governance Committee will determine
which nominees to recommend to the Board. Recommendations
received prior to any Nominating and Corporate Governance
Committee meeting where director nominees are to be considered
will be considered at that meeting. The Nominating and Corporate
Governance Committee uses the same process for evaluating all
nominees, regardless of the source of the recommendation.
The Nominating and Corporate Governance Committee may, in its
sole discretion, employ outside advisors, including search firms
and outside counsel.
The Board has determined that all members of the Nominating and
Corporate Governance Committee are independent
within the meaning of the NYSEs rules.
Contacting
the Board
Stockholders who wish to communicate with the Board may do so by
sending written communications to the Board at the following
address: Board, c/o Corporate Secretary, Bally Total
Fitness Holding Corporation, 8700 West Bryn Mawr
Avenue, Chicago, Illinois 60631. Stockholders who wish to direct
communications to only the independent directors of Bally may do
so by sending written communications to the independent
directors at the following address: Independent Directors,
c/o Corporate Secretary, Bally Total Fitness Holding
Corporation, 8700 West Bryn Mawr Avenue, Chicago, Illinois
60631. Inquiries sent by mail will be reviewed, sorted and, if
appropriate, summarized by the Companys Secretary before
they will be forwarded to the Board or an individual director.
Website
Access to Charters
The charters for each of the standing committees of the Board as
well as our Corporate Governance Guidelines and Code of Business
Conduct, Practices and Ethics may be accessed through our
website at www.ballyfitness.com. Additionally, copies may
be requested in writing by submitting the request to Corporate
Secretary, Bally Total Fitness Holding Corporation,
8700 West Bryn Mawr Avenue, Chicago, Illinois 60631.
Compensation
of Directors
Annual compensation for non-employee directors for 2005 was
comprised of the following components: annual retainer, special
retainer and board and committee stipends. Each of these
components is described in more detail below. The total cash
compensation of the non-employee directors for 2005 is shown in
the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Board/
|
|
|
|
|
|
Board
|
|
|
Committee
|
|
|
|
|
|
|
Committee
|
|
|
|
|
|
Meeting
|
|
|
Meeting
|
|
|
2005
|
|
Director
|
|
Retainers(1)
|
|
|
Special Retainer
|
|
|
Stipends
|
|
|
Stipends
|
|
|
Total
|
|
|
Barry Deutsch
|
|
$
|
33,911
|
|
|
$
|
50,000
|
|
|
$
|
56,000
|
|
|
$
|
44,000
|
|
|
$
|
183,911
|
|
Eric Langshur
|
|
|
44,072
|
|
|
|
50,000
|
|
|
|
66,000
|
|
|
|
57,000
|
|
|
|
217,072
|
|
J. Kenneth Looloian
|
|
|
45,992
|
|
|
|
50,000
|
|
|
|
28,000
|
|
|
|
19,000
|
|
|
|
142,992
|
|
James F. McAnally, M.D.
|
|
|
38,492
|
|
|
|
50,000
|
|
|
|
68,000
|
|
|
|
27,000
|
|
|
|
183,492
|
|
Adam Metz
|
|
|
2,583
|
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
|
|
8,583
|
|
John W. Rogers, Jr.
|
|
|
37,903
|
|
|
|
50,000
|
|
|
|
68,000
|
|
|
|
30,000
|
|
|
|
185,903
|
|
Steven S. Rogers
|
|
|
2,667
|
|
|
|
|
|
|
|
8,000
|
|
|
|
|
|
|
|
10,667
|
|
Marilyn Seymann
|
|
|
12,008
|
|
|
|
|
|
|
|
16,000
|
|
|
|
|
|
|
|
28,008
|
|
Stephen Swid
|
|
|
24,000
|
|
|
|
|
|
|
|
22,000
|
|
|
|
|
|
|
|
46,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
241,628
|
|
|
$
|
250,000
|
|
|
$
|
338,000
|
|
|
$
|
177,000
|
|
|
$
|
960,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes fees associated with chairing a Board Committee. |
13
Annual compensation for non-employee directors through
October 31, 2006 was comprised of the following components:
annual retainer, special retainer, board and committee stipends
and a cash stipend in lieu of equity compensation. Each of these
components is described in more detail below. The total cash
compensation of the non-employee directors through
October 31, 2006 is shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Board/
|
|
|
|
|
|
Board
|
|
|
Committee
|
|
|
Cash Payment in
|
|
|
|
|
|
|
Committee
|
|
|
Special
|
|
|
Meeting
|
|
|
Meeting
|
|
|
Lieu of Equity
|
|
|
2006
|
|
Director
|
|
Retainers(1)(2)
|
|
|
Retainers
|
|
|
Stipends
|
|
|
Stipends(2)
|
|
|
Compensation
|
|
|
Total
|
|
|
Charles J. Burdick
|
|
$
|
32,135
|
|
|
$
|
60,000
|
|
|
$
|
36,000
|
|
|
$
|
46,000
|
|
|
$
|
|
|
|
$
|
174,135
|
|
Barry Deutsch
|
|
|
49,817
|
|
|
|
56,000
|
|
|
|
32,000
|
|
|
|
35,000
|
|
|
|
14,300
|
|
|
|
187,117
|
|
Barry R. Elson
|
|
|
45,064
|
|
|
|
40,000
|
|
|
|
24,000
|
|
|
|
13,000
|
|
|
|
|
|
|
|
122,064
|
|
Don R. Kornstein
|
|
|
103,564
|
|
|
|
57,500
|
|
|
|
42,000
|
|
|
|
30,500
|
|
|
|
|
|
|
|
233,564
|
|
Eric Langshur
|
|
|
57,317
|
|
|
|
99,000
|
|
|
|
54,000
|
|
|
|
38,000
|
|
|
|
16,500
|
|
|
|
264,817
|
|
J. Kenneth Looloian
|
|
|
2,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,396
|
|
|
|
6,146
|
|
James F. McAnally, M.D.
|
|
|
30,750
|
|
|
|
65,000
|
|
|
|
38,000
|
|
|
|
14,000
|
|
|
|
2,704
|
|
|
|
150,454
|
|
Adam Metz
|
|
|
3,358
|
|
|
|
|
|
|
|
12,000
|
|
|
|
3,000
|
|
|
|
10,350
|
|
|
|
28,708
|
|
John W. Rogers, Jr.
|
|
|
149,500
|
|
|
|
92,500
|
|
|
|
54,000
|
|
|
|
30,000
|
|
|
|
26,100
|
|
|
|
352,100
|
|
Steven S. Rogers
|
|
|
57,250
|
|
|
|
40,000
|
|
|
|
44,000
|
|
|
|
29,000
|
|
|
|
|
|
|
|
170,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
531,505
|
|
|
$
|
510,000
|
|
|
$
|
336,000
|
|
|
$
|
238,500
|
|
|
$
|
73,350
|
|
|
$
|
1,689,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes fees associated with chairing a Board Committee and
serving as Lead Director. |
|
(2) |
|
Includes fees paid to members of the Strategic Alternatives
Committee (SAC) for service from February 1,
2006 through June 2006. Stipends were $15,000 per month for
each Co-Chairman and $5,000 per month for each other member
of SAC during this period. Per meeting fees were $1,500 for each
Co-Chairman and $1,000 for each other member. On August 6,
2006, the Board approved payments to each Co-Chairman in the
amount of $17,500 for each of the third and fourth quarters of
2006. In addition, the Board eliminated stipends for each member
of SAC and reduced the per meeting fee from $1,500 to $1,000. As
the SAC was disbanded in August 2006, no payments with respect
to the fourth quarter will be made. |
Annual
Board/Committee Retainers
Standard compensation of non-employee directors includes an
annual cash retainer of $30,000. In addition, non-employee
directors who serve as members of committees of the Board
receive annual cash retainers of $1,000. Committee chairmen
(other than the Chairman of the Audit Committee) receive a
$7,500 annual retainer. The Chairman of the Audit Committee
receives an annual retainer of $25,000.
Special
Retainers
One-time special retainers were awarded in 2006 as compensation
for the extraordinary commitment of time spent during the
previous year on Board and committee activities in the following
amounts:
|
|
|
|
|
$40,000 to each director;
|
|
|
|
$35,000 to each of the Lead Director and the Audit Committee
Chairman;
|
|
|
|
$25,000 to each of the Compensation Committee Chairman and
Nominating and Corporate Governance Committee Chairman (though
that payment was not made to the current Compensation Committee
Chairman since he was also then the Lead Director);
|
|
|
|
$17,500 to each Co-Chairman of the Strategic Alternatives
Committee; and
|
|
|
|
an additional $1,000 per-meeting stipend to Audit Committee
members for meetings attended from January 1, 2006 to
June 30, 2006 (increasing the per-meeting stipend for Audit
Committee meetings during that period from $1,000 to $2,000).
|
14
The Companys 1996 Non-Employee Directors Stock
Option Plan (the Directors Plan) expired on
January 3, 2006 and no new equity plan was approved at the
Companys January 26, 2006 annual meeting.
Accordingly, on March 10, 2006, the Board approved an
additional cash retainer, to commence in 2006, for non-employee
directors of $40,000 per year in lieu of equity
compensation.
A one-time special retainer of $50,000 was awarded in 2005 to
Mr. Deutsch, Mr. Langshur, Mr. Looloian,
Dr. McAnally and Mr. John Rogers as compensation for
the extraordinary commitment of time spent during the previous
year on Board and committee activities.
Meeting
Stipends
Standard compensation of non-employee directors includes a
$2,000 stipend for each Board meeting attended and a $1,000
stipend for each committee meeting attended that was not held in
conjunction with a Board meeting.
1996
Non-Employee Directors Stock Option Plan Grants/Cash
Payment in Lieu of Equity Compensation
Pursuant to Ballys Directors Plan, each non-employee
director of Bally was granted an option to purchase
5,000 shares of common stock upon the commencement of
service on the Board, with another option to purchase
5,000 shares of common stock granted on the second
anniversary thereof. The Directors Plan expired on
January 3, 2006 and no further options may be issued
thereunder. Options under the Directors Plan were
generally granted with an exercise price equal to the fair
market value of the common stock at the date of grant. Option
grants under the Directors Plan become exercisable in
three equal annual installments commencing one year from the
date of grant, or upon a change in control, as defined in the
Directors Plan, and have a
10-year
term. All of the options granted under the Directors Plan
prior to May 4, 2005 became exercisable for a period of
90 days on May 4, 2005 as a result of a change in
control event; at the end of the
90-day
period the options terminated according to the terms of the
Directors Plan. For these purposes, a change in control
was defined as an Acquiring Person becoming the Beneficial Owner
of Shares representing 10% or more of the combined voting power
of the then-outstanding shares other than in a transaction or
series of transactions approved by the Companys Board. The
acquisition on May 4, 2005 of the Companys Common
Stock by Liberation Investment Group LLC, Liberation
Investments, Ltd., Liberation Investments, L.P. and Emanuel R.
Pearlman constituted such a change in control.
Due to an administrative error, directors were not apprised of
the vesting and subsequent expiration of their options during
2005, and thus did not have an opportunity to exercise their
options. Accordingly, on March 10, 2006, the Board, with
affected directors abstaining, awarded a cash payment for each
expired option to each director equal to the difference between
(i) the average of the high and low prices of Bally common
stock on the NYSE on December 2, 2005 (the first available
trading date under the Companys insider trading policy
following expiration of the options) and (ii) the exercise
price of such option. The amounts awarded to the directors were
as follows: Mr. Deutsch $14,300;
Mr. Langshur $16,500;
Mr. Looloian $10,950;
Dr. McAnally $10,950; Mr. John
Rogers $26,100. In the case of Messrs. Looloian
and McAnally, the actual amount paid, $3,396 and $2,704,
respectively, was net of proceeds received upon a cashless
exercise of certain options that the Company erroneously
permitted to be exercised in December 2005
(Messrs. Looloian and McAnally paid the Company the par
value with respect to the shares received on exercise of the
options).
In addition, in connection with Mr. Metzs resignation
from the Board, the Board approved a $10,350 cash payment to
him, representing a Black-Scholes valuation of his options at
the time of his resignation.
Other
Personal Benefits
In addition to the retainers and fees listed above, the Company
reimburses the directors for their travel expenses incurred in
attending meetings of the Board or its committees, as well as
for fees and expenses incurred in attending director education
seminars and conferences. The directors do not receive any other
personal benefits.
Director
Indemnification Agreements
On September 8, 2006, the Board approved the Companys
entry into Indemnification Agreements with members of the Board,
providing for indemnification of such directors in certain
circumstances. The Company
15
entered into Indemnification Agreements with
Messrs. Burdick, Deutsch, Elson, Kornstein, Langshur,
Steven Rogers and John Rogers. Under the Indemnification
Agreements, the Company will be obligated to indemnify each
director in certain circumstances and upon certain conditions
against expenses, judgments, fines and settlement amounts
incurred by such director. The Indemnification Agreements also
establish procedures and other agreements pertaining to such
obligations of the Company.
COMPENSATION
OF EXECUTIVE OFFICERS
Summary
Compensation Table
The following table sets forth, for each of the years indicated,
the compensation paid by the Company to its Chief Executive
Officer and the four other most highly compensated executive
officers of Bally (the Named Executive Officers) for
the last three completed fiscal years. During these years, these
officers were compensated in accordance with our plans and
policies.
Summary
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation Awards
|
|
|
|
|
|
|
|
|
|
Annual Compensation
|
|
|
Restricted
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Annual
|
|
|
Stock
|
|
|
Underlying
|
|
|
All Other
|
|
|
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
Compensation
|
|
|
Awards
|
|
|
Options
|
|
|
Compensation
|
|
|
|
Year
|
|
|
($)
|
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
(#)
|
|
|
($)(4)
|
|
|
Paul A. Toback(5)
|
|
|
2005
|
|
|
|
575,000
|
|
|
|
900,000
|
|
|
|
874,471
|
|
|
|
1,365,000
|
|
|
|
232,000
|
|
|
|
3,071
|
|
Chairman, President and
|
|
|
2004
|
|
|
|
575,000
|
|
|
|
400,000
|
|
|
|
43,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Executive Officer
|
|
|
2003
|
|
|
|
475,000
|
|
|
|
300,000
|
|
|
|
22,555
|
|
|
|
1,206,000
|
|
|
|
200,000
|
|
|
|
14,915
|
|
Marc D. Bassewitz
|
|
|
2005
|
|
|
|
350,000
|
|
|
|
225,000
|
|
|
|
31,769
|
|
|
|
770,000
|
|
|
|
73,000
|
|
|
|
5,232
|
|
Senior Vice President,
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secretary and
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Counsel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William G. Fanelli(6)
|
|
|
2005
|
|
|
|
325,000
|
|
|
|
115,000
|
(7)
|
|
|
24,187
|
|
|
|
385,000
|
|
|
|
80,000
|
|
|
|
1,000
|
|
Senior Vice President,
|
|
|
2004
|
|
|
|
325,000
|
|
|
|
200,000
|
(7)
|
|
|
23,291
|
|
|
|
|
|
|
|
|
|
|
|
25,077
|
|
Corporate
|
|
|
2003
|
|
|
|
325,000
|
|
|
|
138,125
|
|
|
|
21,474
|
|
|
|
361,800
|
|
|
|
120,000
|
|
|
|
21,500
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harold Morgan
|
|
|
2005
|
|
|
|
350,000
|
|
|
|
195,000
|
|
|
|
328,078
|
|
|
|
577,500
|
|
|
|
103,000
|
|
|
|
1,000
|
|
Senior Vice President,
|
|
|
2004
|
|
|
|
300,000
|
|
|
|
175,000
|
|
|
|
26,218
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
Chief Administrative Officer
|
|
|
2003
|
|
|
|
300,000
|
|
|
|
146,250
|
|
|
|
23,528
|
|
|
|
361,800
|
|
|
|
120,000
|
|
|
|
1,000
|
|
John H. Wildman
|
|
|
2005
|
|
|
|
325,000
|
|
|
|
225,000
|
|
|
|
24,681
|
|
|
|
525,000
|
|
|
|
85,000
|
|
|
|
|
|
Senior Vice President,
|
|
|
2004
|
|
|
|
325,000
|
|
|
|
175,000
|
|
|
|
23,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Operating Officer
|
|
|
2003
|
|
|
|
325,000
|
|
|
|
138,125
|
|
|
|
21,700
|
|
|
|
361,800
|
|
|
|
120,000
|
|
|
|
|
|
|
|
|
(1) |
|
The 2005 bonus represents the bonus earned in 2005 and paid in
March 2006, other than $200,000 of Mr. Tobacks bonus,
which was paid upon the filing of the Companys 2005 Annual
Report on
Form 10-K.
The 2004 bonus represents the bonus earned in 2004 and paid in
March 2005. The 2003 bonus represents the bonus earned in 2003
and paid in April 2004. |
16
|
|
|
(2) |
|
Other Annual Compensation for 2005 consists of the items set
forth in the table below: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Planning;
|
|
|
|
|
|
|
|
|
|
Executive
|
|
|
Executive
|
|
|
Home Security;
|
|
|
|
Tax
|
|
|
Auto
|
|
|
Medical Plan
|
|
|
Disability
|
|
|
Miscellaneous
|
|
|
|
Reimbursement*
|
|
|
Allowance
|
|
|
Premiums
|
|
|
Insurance
|
|
|
Compensation
|
|
|
Paul A. Toback
|
|
$
|
838,777
|
|
|
$
|
20,000
|
|
|
$
|
6,833
|
|
|
$
|
4,411
|
|
|
|
**
|
|
Marc D. Bassewitz
|
|
|
|
|
|
$
|
17,165
|
|
|
$
|
4,556
|
|
|
$
|
3,130
|
|
|
|
**
|
|
William G. Fanelli
|
|
|
|
|
|
$
|
15,000
|
|
|
$
|
6,833
|
|
|
$
|
2,353
|
|
|
|
**
|
|
Harold Morgan
|
|
$
|
296,641
|
|
|
$
|
17,454
|
|
|
$
|
6,833
|
|
|
$
|
4,481
|
|
|
|
**
|
|
John Wildman
|
|
|
|
|
|
$
|
15,000
|
|
|
$
|
6,833
|
|
|
$
|
2,823
|
|
|
|
**
|
|
|
|
|
* |
|
The tax reimbursement for Messrs. Toback and Morgan related
to the vesting of restricted stock under the Companys 1996
Long-Term Incentive Plan. |
|
** |
|
Less than $10,000 in aggregate. |
|
(3) |
|
This number is calculated by multiplying the closing price of a
Bally common share on the date of grant less consideration paid
by the executive by the number of shares awarded. These
restricted shares were issued in the respective recipients
name and are held by Bally until the restrictions lapse. Bally
has not paid cash dividends, however, were we to do so, we would
pay dividends on restricted shares at the same rate paid on all
other Bally common shares. The restrictions on these shares
lapse four years after the date of issuance, upon a change in
control (as defined in the 1996 Plan) of Bally, or the
respective recipients death or termination of employment
other than for cause. During 2005, the acquisitions of Bally
common stock by each of Liberation Investment Group LLC,
Liberation Investments, Ltd., Liberation Investments, L.P. and
Emanuel R. Pearlman (Liberation) and Pardus Capital
Management L.P. to levels in excess of 10% of Ballys
outstanding common stock constituted a change in
control under the 1996 Long-Term Incentive Plan and the
Inducement Plan, resulting in the lapse of the restrictions on
all shares of restricted stock issued prior to October 2005. See
Election of Directors and Security Ownership
Stockholders Who Own at Least 5% of Bally Common Stock.
The restricted stock issued to the Named Executive Officers on
November 29, 2005 continues to be subject to the
restrictions under the 1996 Long-Term Incentive Plan. |
|
|
|
On December 31, 2005, the Named Executive Officers owned
the number of restricted shares set forth in the table below.
The market value is based on the closing price of a Bally common
share of $6.28 on December 30, 2005, the last trading day
prior to the end of the 2005 fiscal year, less the par value of
$.01 paid by such executives. |
|
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Mr. Toback
|
|
|
Mr. Bassewitz
|
|
|
Mr. Fanelli
|
|
|
Mr. Morgan
|
|
|
Mr. Wildman
|
|
|
Number of shares
|
|
|
135,000
|
|
|
|
55,000
|
|
|
|
40,000
|
|
|
|
55,000
|
|
|
|
60,000
|
|
Market value
|
|
$
|
846,450
|
|
|
$
|
344,850
|
|
|
$
|
250,800
|
|
|
$
|
344,850
|
|
|
$
|
376,200
|
|
|
|
|
(4) |
|
Represents (i) amounts matched by Bally in connection with
participation in Ballys savings plans,
and/or
(ii) amounts paid by Bally for executive life insurance
premiums. |
|
(5) |
|
On August 11, 2006, Mr. Toback resigned as Chairman,
President and Chief Executive Officer of the Company. See
Compensation of Executive Officers Employment
Agreements Employment Agreement with the former
Chairman, President and Chief Executive Officer. |
|
(6) |
|
From April 2004 until March 2005, William G. Fanelli served as
Acting Chief Financial Officer. From March 2005 to October 2006,
Mr. Fanelli served as Senior Vice President, Planning and
Development. |
|
(7) |
|
Includes a $25,000 bonus for serving as Acting Chief Financial
Officer. |
The Company has not, and will not before the date of the annual
meeting, definitively determine who will be the Named Executive
Officers for 2006 pursuant to the SECs recently adopted
executive compensation disclosure rules. However, based solely
on salary and bonus paid in 2006, the Company believes the Named
Executive Officers, in addition to those persons who served as
the Companys Chief Executive Officer and Chief Financial
Officer during 2006, will be Mr. Wildman,
Mr. Bassewitz and Mr. Morgan. For 2006, the salaries
of Mr. Elson (Acting Chief Executive Officer),
Mr. Eidell (Chief Financial Officer) and the other three
most highly compensated officers are as follows: $600,000 for
Mr. Elson on an annualized basis (actual payments began in
August 2006);
17
$460,800 for Mr. Eidell on an annualized basis (actual
payments began in April 2006); $375,000 for Mr. Wildman;
$350,000 for Mr. Bassewitz; and $350,000 for
Mr. Morgan. To date in 2006, other than incidental personal
benefits, none of these individuals has received any other
compensation. Incidental personal benefits received and to be
received in 2006 are of similar type and amounts as those
described in Note 2 to the Summary Compensation Table. With
respect to payments made to the Companys former Chief
Executive Officer and former Chief Financial Officer in 2006,
see Compensation of Executive Officers
Employment Agreements Employment Agreement with the
former Chairman, President and Chief Executive Officer and
Employment Agreement with the former
Chief Financial Officer.
Employment
Agreements
Agreement
with Tatum, LLC regarding Ronald G. Eidell
On April 13, 2006, the Company entered into an interim
executive services agreement with Tatum, LLC
(Tatum), pursuant to which Ronald G. Eidell, a
partner of Tatum, LLC, was engaged as Senior Vice President,
Finance of the Company (the Services Agreement). The
Services Agreement provides that Mr. Eidell will devote
efforts to the Company in a manner that is customary for senior
executives of the Company, for a salary of $38,400 per
month (Salary). In addition, under the Services
Agreement the Company pays Tatum a fee of $9,600 per month
(Fees). The Company may terminate the Services
Agreement on 30 days prior written notice, or
immediately for cause (as defined). Tatum may terminate the
Services Agreement on 60 days prior written notice.
The Company has no obligation to provide Mr. Eidell with
any health or medical benefits, stock or bonus payments or any
other benefits, other than coverage under the Companys
existing directors and officers insurance policies.
On August 6, 2006, the Board named Mr. Eidell as
Senior Vice President and Chief Financial Officer and principal
financial officer of the Company.
Employment
Agreements with Other Senior Executives
Bally has entered into employment agreements with Harold Morgan,
Marc Bassewitz and John Wildman, with terms of January 1,
2005 through December 31, 2007 with respect to
Messrs. Morgan and Bassewitz and January 1, 2006
through December 31, 2008 with respect to Mr. Wildman.
The term of each employment agreement will be automatically
extended each year for an additional 12 months on the
anniversary date of the respective termination date unless
either party provides notice of intent not to renew at least
ninety (90) days prior to the then-current termination
date. Bally previously entered into an employment agreement with
William Fanelli, effective as of January 1, 2003 for a term
of three years through December 31, 2005. Commencing
January 1, 2006, the term of Mr. Fanellis
agreement is extended each day by one day to create a new
one-year term. At any time at or after January 1, 2006,
Bally or Mr. Fanelli may deliver notice to the other party
that the employment period shall expire on the last day of the
one year period commencing on the date of delivery of such
notice.
The foregoing agreements provide for an annual base salary
($325,000 for Mr. Fanelli; $350,000 for Messrs. Morgan
and Bassewitz; and $375,000 for Mr. Wildman), subject to
increases at the discretion of Bally, and a bonus payable at the
discretion of Bally with a target bonus of 50% of base pay. In
the event of a termination of employment by the executive for
good reason or by the Company for other than cause within two
years following a change in control of Bally, the executive will
be paid (i) the full amount of the annual bonus for the
immediately preceding calendar year if such termination occurs
prior to the payment of the bonus, plus (ii) a lump sum
equal to two times the executives annual salary and target
bonus, plus (iii) compensation for any unused earned
vacation days. If it is determined that any payment,
distribution or benefit received by the executive from the
Company pursuant to his agreement or any stock award or option
plan would result in the imposition of excise tax under
Section 4999 of the Internal Revenue Code, the Company will
pay the executive an additional amount related to the excise
tax. In addition, Mr. Morgan and Mr. Wildman may
voluntarily end their employment within 120 days after
Mr. Toback ceased to be the Chief Executive Officer of the
Company and be paid a lump sum equal to no less than 60% of the
sum of annual salary plus target annual bonus for the
then-current calendar year, and may, upon Board approval,
receive payment greater than 60% of the sum of annual salary and
target annual bonus upon giving sixty (60) days
advance written notice of the resignation date. Mr. Morgan
and Mr. Wildman are also entitled to certain
18
tax gross-up
payments for income taxes relating to the vesting of shares of
restricted stock. In connection with the vesting of restricted
stock in 2005, the Company made a tax
gross-up
payment to Mr. Morgan of $296,641; Mr. Wildmans
contract was not yet effective at the time of such vesting.
Effective as of November 30, 2005, the Company amended the
employment agreements with Messrs. Bassewitz and Morgan to
(i) include specific language regarding Company-provided
disability insurance memorializing the Companys standard
policy and (ii) eliminate an exception from the definition
of Change of Control for issuances of equity by the
Company. Mr. Wildmans employment agreement contains
the same provisions.
On September 14, 2006, the Company entered into amendments
to the employment agreements with each of Messrs. Bassewitz
and McDonald. The amendments clarify that the definition of
LTIP includes any plan under which senior executives
of the Company are eligible to receive equity compensation or
other long-term incentive grants, including the Companys
Inducement Award Equity Incentive Plan.
On September 8, 2006, the Board authorized the Company to
enter into an Indemnification Agreement with Mr. Bassewitz
pursuant to which the Company will be obligated to indemnify
Mr. Bassewitz in certain circumstances and upon certain
conditions against expenses, judgments, fines and settlement
amounts incurred by him. The Indemnification Agreement also
establishes procedures and other agreements pertaining to such
obligations of the Company.
Monthly
Stipends for the Interim Chairman of the Board and the Acting
Chief Executive Officer
On September 1, 2006, the Compensation Committee approved
payment of a monthly stipend to Mr. Barry R. Elson, Acting
Chief Executive Officer, retroactive to August 11, 2006, in
the amount of $50,000 per month through the earlier of
December 31, 2006 or appointment of a permanent Chief
Executive Officer. The Compensation Committee will review the
matter prior to the end of 2006 if a permanent Chief Executive
Officer has not been appointed by such date.
On September 1, 2006, the Compensation Committee also
approved payment of additional director fees to
Mr. Kornstein, Interim Chairman of the Board, retroactive
to August 11, 2006, in the amount of $50,000 per month
through the earlier of December 31, 2006 or the election of
a permanent Chairman of the Board. The matter will be reviewed
prior to the end of 2006 if a permanent Chairman of the Board
has not been elected by such date.
Employment
Agreement with the former Chairman, President and Chief
Executive Officer
On August 24, 2004, the Company entered into an employment
agreement with Mr. Toback to provide for him to continue as
the Companys President and Chief Executive Officer through
December 31, 2007 (the Toback Employment
Agreement). The term of the Toback Employment Agreement
was to be automatically extended each year for an additional
12 months commencing December 31, 2007, unless either
party provided notice of intent not to renew at least
90 days prior to the then-current termination date. The
Toback Employment Agreement provided for an initial annual base
salary of $575,000, subject to increases at the discretion of
the Company, and an annual incentive target payment of 70% of
Mr. Tobacks then current base salary. This incentive
payment was to be based on performance criteria established by
the Board. He was also eligible for additional perquisites
including, a car allowance, security fees, tax/financial
planning, and a tax
gross-up
payment for income taxes relating to the vesting of restricted
stock. Effective as of November 30, 2005, the Company
amended the Toback Employment Agreement to (i) include
specific language regarding Company-provided disability
insurance memorializing the Companys standard policy and
(ii) eliminate an exception from the definition of
Change of Control for issuances of equity by the
Company. The Company further amended the Toback Employment
Agreement on August 6, 2006, in consideration of, among
other matters, Mr. Tobacks agreement to resolve
various claims by Mr. Toback, including with respect to the
Companys obligation to implement a supplemental retirement
plan for his benefit. The modification increased by $900,000 the
amount payable to Mr. Toback only in the event he was
terminated without Cause, as defined in the Toback
Employment Agreement, on or prior to February 7, 2008.
The Company entered into a Separation Agreement dated as of
August 10, 2006, providing for Mr. Tobacks
separation as Chairman, President and Chief Executive Officer of
the Company as of August 11, 2006 (the Separation
Agreement). The negotiated terms of the Separation
Agreement are substantially equivalent to those set forth in the
Toback Employment Agreement in the circumstances of termination
without cause following a change in control
19
(as defined). Under the Separation Agreement, the Company agreed
to pay Mr. Toback severance in the amount of $3,832,500,
less required deductions for state and federal withholding,
which equals (i) a lump sum equal to three times the sum of
Mr. Tobacks annual salary and target bonus, plus
(ii) the amount payable to Mr. Toback, pursuant to the
August 6, 2006 modification to the Toback Employment
Agreement in the event Mr. Toback is terminated without
cause, or resigns for good reason within the two-year period
following February 7, 2006 and plus (iii) compensation
for any unused earned vacation days. The Company also agreed to
provide Mr. Toback and his eligible dependents with
continued health coverage under the Companys medical plan
at the level in which they currently participate until
August 11, 2015. These severance amounts were paid on
August 11, 2006.
The Separation Agreement also provided that Mr. Toback
would immediately vest in the equity awards granted under the
Companys 1996 Long-Term Incentive Plan. Mr. Toback
was also entitled to tax
gross-up
payments for income and employment taxes relating to the vesting
of his restricted stock. The Separation Agreement also provided
for the exercise of Mr. Tobacks vested stock options
for the unexpired period of the respective stated option term.
In connection with Mr. Tobacks termination of
employment with the Company, the Company and Mr. Toback
executed a release of claims pursuant to which Mr. Toback
released the Company and any of its predecessors, successors,
parents, affiliates and their present and former officers,
directors, agents, employees and shareholders from any and all
claims or causes of action that Mr. Toback might have had
against the Company and the Board agreed to a covenant not to
sue Mr. Toback for any known claims or causes of action
that the Board might have had against Mr. Toback.
Employment
Agreement with the former Chief Financial Officer
In March 2005, the Company entered into an employment agreement
with Carl J. Landeck with a term through March 31, 2008.
Mr. Landecks agreement provided for an annual base
salary of $400,000, subject to increases at the Companys
discretion, and a bonus payable at the Companys discretion
with a target bonus of 50% of base pay. Mr. Landeck was
guaranteed a minimum bonus for fiscal 2005 of $100,000.
Effective April 13, 2006, Mr. Landeck ceased being an
employee of the Company. In connection with
Mr. Landecks departure, the Company entered into a
Separation Agreement with him on August 1, 2006 (the
Landeck Separation Agreement). Under the Landeck
Separation Agreement, the Company agreed to pay Mr. Landeck
severance in the amount of $700,000, less required deductions
for state and federal withholding. The Company also agreed to
pay to Mr. Landeck an additional lump sum amount of $15,000
to cover the cost of certain health care premiums and up to
$20,000 to reimburse Mr. Landeck for his legal fees
relating to the Landeck Separation Agreement. These severance
amounts were paid on October 17, 2006 pursuant to the terms
of the Landeck Separation Agreement.
The Landeck Separation Agreement also provided that
Mr. Landeck would immediately vest in equity awards granted
under the Companys Inducement Plan. The 23,000 options
that were granted to Mr. Landeck under the Inducement Plan
on November 29, 2005 at an exercise price of $7.01 were
cancelled. The Landeck Separation Agreement extended the
exercise period of Mr. Landecks vested options until
October 10, 2006. At the end of the extended exercise
period, any unexercised options immediately expired.
The negotiated terms are substantially less than those that
would have been required based on the express terms of
Mr. Landecks employment agreement in the event his
employment terminated other than for Cause. In exchange for the
consideration set forth in the Landeck Separation Agreement,
Mr. Landeck released the Company and any of its
predecessors, successors, parents, affiliates and their present
and former officers, directors, agents, employees and
shareholders from any and all claims or causes of action that
Mr. Landeck might have had against the Company.
Termination
of Payments to Lee Hillman and John Dwyer
Effective December 11, 2002, Lee Hillman resigned as
Chairman and Chief Executive Officer. Effective April 28,
2004, John Dwyer resigned as Executive Vice President, Chief
Financial Officer and Director. In connection with the
resignations of Mr. Hillman and Mr. Dwyer, each of
them entered into a severance agreement with the Company.
Mr. Hillmans agreement provided that he would receive
certain benefits through December 31, 2005.
Mr. Dwyers agreement provided that he would be
available to consult with the Company through December 31,
2005. On February 8, 2005, the Company announced that its
Audit Committee investigation found
20
multiple accounting errors in the Companys financial
statements and concluded that both Mr. Hillman, as the
former Chief Executive Officer and Director, and Mr. Dwyer,
as the former Chief Financial Officer and Director, were
primarily responsible. In addition, the investigation found,
among other things, that certain accounting policies and
positions were suggested and implemented without a reasonable
empirical basis and concluded that Mr. Dwyer made a false
and misleading statement to the SEC. As a result of these
findings, the Company decided to make no further payments to
either Mr. Hillman or Mr. Dwyer under each of the
respective severance agreements. Effective as of
December 7, 2005, Mr. Hillman exercised options with
respect to 150,000 shares of the Companys common
stock.
Long-Term
Incentive Plan
In January 1996, the Board of the Company adopted the Incentive
Plan. The Incentive Plan provides for the grant of non-qualified
stock options, incentive stock options and compensatory
restricted stock awards (collectively Awards) to
officers and key employees of the Company. Initially,
2,100,000 shares of common stock were reserved for issuance
under the Incentive Plan.
In November 1997, June 1999, December 2000 and June 2002 the
Incentive Plan was amended to increase the aggregate number of
shares of common stock that may be granted under the Incentive
Plan to an aggregate of 8,600,000 shares. At
December 31, 2005, 283,965 shares of common stock were
available for future grant under the Incentive Plan; no awards
were granted under the Incentive Plan from December 31,
2005 to January 3, 2006. The Incentive Plan expired on
January 3, 2006.
Pursuant to the Incentive Plan, non-qualified stock options were
generally granted with an exercise price equal to the fair
market value of the common stock on the day prior to the grant.
Incentive stock options were granted at not less than the fair
market value of the common stock on the day prior to the grant.
Option grants become exercisable at the discretion of the
Compensation Committee of the Board (the Compensation
Committee), generally in three equal annual installments
commencing one year from the date of grant. Option grants in
2005, 2004 and 2003 have
10-year
terms.
Effective as of March 8, 2005, the Companys
Compensation Committee approved a grant relating to 2004 of a
total of 395,000 stock options and 245,000 shares of
restricted stock under the Incentive Plan to
Messrs. Toback, Bassewitz, Fanelli, Morgan and Wildman. The
exercise price of the stock options was set at $4.21, a 20%
premium to the closing price of the Companys common stock
on the NYSE at March 7, 2005.
Effective as of November 29, 2005, having not previously
made any grants in respect of 2005, the Companys
Compensation Committee approved the grant of a total of 153,000
stock options and 345,000 shares of restricted stock under
the Incentive Plan to Messrs. Toback, Bassewitz, Fanelli,
Morgan and Wildman. The exercise price of the stock options was
set at $7.01, the closing price of the Companys common
stock on the NYSE at November 28, 2005.
On May 4, 2005, restrictions with respect to
1,320,500 shares of restricted stock lapsed under the terms
of the Incentive Plans change in control provision, which
provides for lapsing restrictions in the event of a change in
control. For these purposes, a change in control is defined as
an Acquiring Person becoming the Beneficial Owner of Shares
representing 10% or more of the combined voting power of the
then outstanding shares other than in a transaction or series of
transactions approved by the Companys Board. The
acquisition on May 4, 2005 of the Companys Common
Stock by Liberation Investment Group LLC, Liberation
Investments, Ltd., Liberation Investments, L.P. and Emanuel R.
Pearlman constituted such a change in control. Accordingly,
restrictions with respect to 808,000 shares of restricted
stock subject to four-year cliff vesting conditions and
512,500 shares of restricted stock subject to certain
performance-based conditions lapsed. Existing employment
agreements with certain executives contain tax consequence
gross-up
provisions, which resulted in $976,669 of compensation reported
as general and administrative expense in the three-months ended
June 30, 2005.
Inducement
Award Equity Incentive Plan
On March 8, 2005, the Companys Compensation Committee
adopted the Inducement Plan as a means of providing equity
compensation to induce the acceptance and continuation of
employment of newly hired officers
21
and key employees of the Company and its Affiliates. The Company
adopted the Inducement Plan because of the 1996 Long-Term
Incentive Plans potential lack of sufficient shares
available to provide necessary equity inducement for new
employees. Stockholder approval of the Inducement Plan is not
required under the rules of the NYSE. At December 31, 2005,
62,000 shares of common stock were available for future
grant under the Inducement Plan. On March 3, 2006, 7,500
options were granted to new employees of the Company. On
May 25, 2006, 12,000 options were granted to new employees
of the Company. During 2006, the 23,000 options previously
granted to Mr. Landeck under the Inducement Plan on
November 29, 2005 were cancelled in connection with his
departure from the Company. Currently, 65,000 shares of
common stock are available for future grant under the Inducement
Plan.
Effective as of March 8, 2005, the Companys
Compensation Committee approved a grant of a total of 25,000
stock options and 100,000 shares of restricted stock under
the Inducement Plan to Mr. Bassewitz. The exercise price of
the stock options was set at $3.51, the closing price of the
Companys common stock on the NYSE at March 7, 2005.
Effective as of May 26, 2005, the Companys
Compensation Committee approved a grant of a total of 75,000
stock options and 100,000 shares of restricted stock under
the Inducement Plan to Mr. Landeck. The exercise price of
the stock options was set at $2.91, the closing price of the
Companys common stock on the NYSE at May 25, 2005.
Effective as of November 29, 2005, in accordance with the
terms of the relevant employment agreement, the Companys
Compensation Committee approved the grant of a total of 23,000
stock options and 55,000 shares of restricted stock under
the Inducement Plan to Mr. Landeck. The exercise price of
the stock options was set at $7.01, the closing price of the
Companys common stock on the NYSE at November 28,
2005.
Under the Inducement Plan, the Company (with the approval of the
Board, the Compensation Committee
and/or their
delegates, hereinafter Administrator) may grant
common stock as a material inducement to eligible employees,
either from time to time in the discretion of the Administrator
or automatically upon the occurrence of specified events. The
Administrator in its sole discretion determines whether an award
may be granted, the number of shares of common stock awarded,
the date an award may be exercised, vesting periods, and
exercise price.
The Inducement Plan became effective upon its adoption and
continues for a
10-year term
ending March 8, 2015. The Inducement Plan provides for the
issuance of up to 600,000 shares of the Companys
common stock, and as of December 31, 2005, 385,000
restricted shares and stock options covering an additional
153,000 shares have been granted. The restrictions
applicable to 330,000 of these restricted shares lapsed in May
and September 2005 under the terms of the Plans change in
control provision, which provides for lapsing in the event of a
change in control. For these purposes, a change in control was
defined as an Acquiring Person becoming the Beneficial Owner of
Shares representing 10% or more of the combined voting power of
the then-outstanding shares other than in a transaction or
series of transactions approved by the Companys Board. The
acquisition on May 4, 2005 of the Companys Common
Stock by Liberation Investment Group LLC, Liberation
Investments, Ltd., Liberation Investments, L.P. and Emanuel R.
Pearlman and on September 6, 2005 by Pardus Capital
Management L.P. constituted such a change in control.
Annual
Incentive Compensation for Fiscal Year 2005
The Company provides annual cash incentive compensation (the
Cash Bonus) for executive officers and other
employees in accordance with established methodologies approved
by the Compensation Committee. The purpose of the Cash Bonus is
to provide an additional short-term performance incentive for
certain senior executive and other key employees of the Company
(the Participants), as determined by the
Compensation Committee and based upon the recommendation of the
Companys management.
Each Participant has an annual target Cash Bonus amount that is
a percentage of his or her base salary. For 2005, the
Compensation Committee set target Cash Bonus levels consistent
with prior years at 70% of base salary for the CEO and 50% of
base salary for all other Named Executive Officers. For 2005, a
portion of the Cash Bonus was calculated by reference to the
Companys EBITDA with respect to fifty percent of the
target Cash Bonus, while the remainder was based on achievement
of personal performance goals, in each case based on target
percentages
22
and determined by the Compensation Committee in its discretion.
The actual Cash Bonus payments may exceed the target Cash Bonus
level, depending on the level of achievement versus the
established goals. For 2005, the companys EBITDA target
was not achieved, and accordingly, bonus amounts attributable to
EBITDA targets were calculated at 84.54% of the targeted levels,
which resulted in a 76% payout for financial performance. In
determining 2005 bonuses, the Compensation Committee increased
the personal performance percentages above the maximum of 150%
for three of the Named Executive Officers, including the Chief
Executive Officer, to levels ranging from 180% to 372% in light
of the Companys extenuating financial circumstances and in
recognition of the performance of these Named Executive Officers
under extreme challenges. On March 8, 2006, the Company
awarded the following Cash Bonuses for 2005 under the plan:
$700,000 to Mr. Toback (plus an additional $200,000 paid in
June 2006 upon filing of the
Form 10-K
for the fiscal year ended December 31, 2005); $225,000 to
Mr. Bassewitz; $90,000 to Mr. Fanelli; $195,000 to
Mr. Morgan; and $225,000 to Mr. Wildman.
Annual
Incentive Compensation for Fiscal Year 2006
The Board has not approved a cash incentive compensation plan
for 2006. The Board intends to monitor the Companys
financial situation and the need to compensate the
Companys management at competitive levels and for services
performed during 2006 and retain key management and executives,
and may consider some form of cash incentive compensation plan
for 2006 and 2007.
Stock
Option Grants
The following table sets forth certain information concerning
grants of stock options during 2005 to each of the Named
Executive Officers. No stock appreciation rights were granted by
the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Grants
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
Potential Realizable Value at Assumed
|
|
|
|
Securities
|
|
|
Percent of Total
|
|
|
|
|
|
|
|
|
Annual
|
|
|
|
Underlying
|
|
|
Options Granted
|
|
|
Exercise or
|
|
|
|
|
|
Rates of Stock Price Appreciation for
|
|
|
|
Options
|
|
|
to Employees in
|
|
|
Base Price
|
|
|
|
|
|
Options Term
|
|
Name
|
|
Granted (#)(1)
|
|
|
Fiscal Year
|
|
|
($/Sh)
|
|
|
Expiration Date
|
|
|
5% ($)
|
|
|
10% ($)
|
|
|
Paul A. Toback(2)
|
|
|
170,000
|
|
|
|
15.25
|
%
|
|
|
4.21
|
|
|
|
3/8/2015
|
|
|
|
256,261
|
|
|
|
831,986
|
|
|
|
|
62,000
|
|
|
|
5.56
|
%
|
|
|
7.01
|
|
|
|
11/29/2015
|
|
|
|
273,330
|
|
|
|
692,672
|
|
Marc D. Bassewitz
|
|
|
25,000
|
|
|
|
2.24
|
%
|
|
|
4.21
|
|
|
|
3/8/2015
|
|
|
|
37,686
|
|
|
|
122,351
|
|
|
|
|
25,000
|
|
|
|
2.24
|
%
|
|
|
3.51
|
|
|
|
3/8/2015
|
|
|
|
55,186
|
|
|
|
139,851
|
|
|
|
|
23,000
|
|
|
|
2.06
|
%
|
|
|
7.01
|
|
|
|
11/29/2015
|
|
|
|
101,397
|
|
|
|
256,959
|
|
William G. Fanelli
|
|
|
60,000
|
|
|
|
5.38
|
%
|
|
|
4.21
|
|
|
|
3/8/2015
|
|
|
|
90,445
|
|
|
|
293,642
|
|
|
|
|
20,000
|
|
|
|
1.79
|
%
|
|
|
7.01
|
|
|
|
11/29/2015
|
|
|
|
88,171
|
|
|
|
223,443
|
|
Harold Morgan
|
|
|
80,000
|
|
|
|
7.18
|
%
|
|
|
4.21
|
|
|
|
3/8/2015
|
|
|
|
120,594
|
|
|
|
391,523
|
|
|
|
|
23,000
|
|
|
|
2.06
|
%
|
|
|
7.01
|
|
|
|
11/29/2015
|
|
|
|
101,397
|
|
|
|
256,959
|
|
John H. Wildman
|
|
|
60,000
|
|
|
|
5.38
|
%
|
|
|
4.21
|
|
|
|
3/8/2015
|
|
|
|
90,445
|
|
|
|
293,642
|
|
|
|
|
25,000
|
|
|
|
2.24
|
%
|
|
|
7.01
|
|
|
|
11/29/2015
|
|
|
|
110,214
|
|
|
|
279,303
|
|
|
|
|
(1) |
|
Subject to the specific terms of the grant, these options become
exercisable generally in three equal annual installments
commencing one year from the date of grant. Options granted
prior to May 4, 2005 vested upon the acquisition by
Liberation of in excess of 10% of the common stock of the
Company. See Compensation of Executive
Officers Summary Compensation Table at
Note 3. |
|
(2) |
|
On August 11, 2006, Mr. Toback resigned as Chairman,
President and Chief Executive Officer of the Company. See
Compensation of Executive Officers Employment
Agreements Employment Agreement with the former
Chairman, President and Chief Executive Officer. |
23
Stock
Option Exercises
The following table sets forth certain information concerning
exercises of stock options during 2005 by each of the Named
Executive Officers and their stock options outstanding as of
December 31, 2005.
Aggregated
Option Exercises in Last Fiscal Year and
Option Values at End of Last Fiscal Year
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
Value of Unexercised
|
|
|
|
Shares
|
|
|
|
|
|
Underlying Unexercised
|
|
|
In-the-Money
Options
|
|
|
|
Acquired on
|
|
|
Value
|
|
|
Options at December 31, 2005
|
|
|
at December 31, 2005(1)
|
|
|
|
Exercise (#)
|
|
|
Realized ($)
|
|
|
Exercisable (#)
|
|
|
Unexercisable (#)
|
|
|
Exercisable ($)
|
|
|
Unexercisable ($)
|
|
|
Paul A. Toback(2)
|
|
|
0
|
|
|
|
0
|
|
|
|
253,334
|
|
|
|
298,666
|
|
|
|
16,000
|
|
|
|
359,890
|
|
Marc D. Bassewitz
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
73,000
|
|
|
|
|
|
|
|
121,000
|
|
William G. Fanelli
|
|
|
25,000
|
|
|
|
48,319
|
|
|
|
190,000
|
|
|
|
120,000
|
|
|
|
7,200
|
|
|
|
129,000
|
|
Harold Morgan
|
|
|
36,000
|
|
|
|
99,243
|
|
|
|
159,000
|
|
|
|
143,000
|
|
|
|
9,360
|
|
|
|
170,400
|
|
John H. Wildman
|
|
|
35,000
|
|
|
|
85,730
|
|
|
|
170,000
|
|
|
|
125,000
|
|
|
|
9,600
|
|
|
|
129,000
|
|
|
|
|
(1) |
|
Based on the closing price of common stock on the New York Stock
Exchange on December 30, 2005, which was $6.28 per
share. |
|
(2) |
|
On August 11, 2006, Mr. Toback resigned as Chairman,
President and Chief Executive Officer of the Company. See
Compensation of Executive Officers Employment
Agreements Employment Agreement with the former
Chairman, President and Chief Executive Officer. |
Compensation
Committee Interlocks and Insider Participation
During 2005, the following directors (none of whom was or had
been an officer or employee of the Company or any of its
subsidiaries) served on the Companys Compensation
Committee: John W. Rogers, Jr., Barry M. Deutsch, J.
Kenneth Looloian (did not stand for re-election in January
2006), James F. McAnally, Steven S. Rogers (since December
2005) and Stephen C. Swid (resigned August 2005). To date
in 2006, the following directors served on the Companys
Compensation Committee: Charles J. Burdick, Barry M. Deutsch
(resigned September 2006), Don R. Kornstein, Eric Langshur
(until January 25, 2006), James F. McAnally, M.D.
(resigned August 2006), John W. Rogers, Jr. (until
November 16, 2006) and Steven S. Rogers. There were no
interlocks during 2005 or to date in 2006 with other companies
within the meaning of the SECs rules.
24
REPORT OF
THE AUDIT COMMITTEE
The Audit Committee of the Companys Board assists the
Board in fulfilling its responsibility for oversight of the
integrity of the Companys financial statements, the
Companys compliance with legal and regulatory
requirements, the independent auditors qualifications and
independence, and the performance of the Companys internal
audit function and independent auditor. Management has the
primary responsibility for the financial statements and the
reporting process, including the systems of internal controls
over financial reporting and disclosure controls. The
independent auditors are responsible for performing an
independent audit of the Companys consolidated financial
statements in accordance with generally accepted auditing
standards and for issuing a report thereon.
2004
Review
In August 2004, the Audit Committee of the Board undertook an
independent investigation of certain aspects of the past
financial statements filed by the Company with the assistance of
independent legal counsel at Bingham McCutchen LLP
(Bingham) who consulted with accounting experts
PricewaterhouseCoopers LLP (PwC) and Marshall
Wallace, each retained by Bingham.
In November 2004, the Audit Committee announced that based on
the results of its investigation and in consultation with KPMG
LLP, the Companys independent registered public accounting
firm, it had determined financial statements and other
information pertaining to years-ended December 31, 2000,
2001, 2002 and 2003 and for the first quarter of 2004 should be
restated and should no longer be relied upon.
The Audit Committee completed its investigation on
February 8, 2005 and reported its results to the staff of
the Securities and Exchange Commission (SEC). As a
result of the above events and circumstances, the Company
undertook a comprehensive review of its previously filed
consolidated financial statements since the year 2000, and on
November 30, 2005 filed its annual report on
Form 10-K
for 2004 that contained restated financial information for years
ended December 31, 2000 and 2001 (unaudited) and restated
financial statements for years ended December 31, 2002 and
2003 (audited) along with its audited consolidated financial
statements for the year ended December 31, 2004. On
November 30, 2005, the Company also filed a series of
Forms 10-Q
for 2004 and 2005, including a
Form 10-Q
for the first quarter of 2005 that contained restated financial
statements (unaudited) for the first quarter of 2004. The Audit
Committee has overseen the internal review and the restatement
of the financial statements.
2005
During the review and pursuant to managements evaluation
of internal controls pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002, the Company also identified material
weaknesses in its internal controls with respect to financial
statements and disclosure controls. Management concluded that
the Company did not maintain effective internal control over
financial reporting as of December 31, 2005. Management
concluded that due to the material weaknesses in internal
control over financial reporting, the Companys disclosure
controls and procedures were not effective as of
December 31, 2005. In order to remediate the internal
controls over financial reporting and related disclosure
controls, management implemented or is in the process of
implementing various measures. The Audit Committee is overseeing
this process and is receiving regular reports from management.
The Audit Committee reviewed and discussed with management and
with KPMG LLP the Companys financial statements for year
ended December 31, 2005 which were audited by KPMG LLP.
Management represented to the Audit Committee that the
Companys consolidated financial statements were prepared
in accordance with generally accepted accounting principles. The
Audit Committee discussed with the independent auditors matters
required to be communicated by Statement on Auditing Standards
No. 61 (Communications with Audit Committees), as amended.
The Audit Committee has received the written disclosures and the
letter from KPMG LLP required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit
Committees). In addition, the Audit Committee discussed with
KPMG LLP its independence from the Company and its management.
25
In performing all of these functions, the Audit Committee acted
in an oversight capacity and necessarily relied on the work and
assurances of the Companys management, internal audit
department and independent auditors. In reliance on the reviews
and discussions referred to in this Report and in light of its
role and responsibilities, the Audit Committee recommended to
the Board, and the Board approved, including the audited
financial statements of the Company in the Companys Annual
Report on
Form 10-K
for the fiscal year ended December 31, 2005 that was filed
with the SEC.
Members of the Audit Committee,
Eric Langshur, Chairman
Charles J. Burdick
Don R. Kornstein
26
REPORT OF
THE COMPENSATION COMMITTEE
Overview
The Compensation Committee is responsible for establishing
compensation guidelines for officers and employees, and
administering the Companys stock option and other
incentive plans. The total direct compensation for the
Companys executives is made up of three elements: base
salary, annual performance based bonus and long-term incentive
program in the form of options and restricted stock.
Additionally, executives receive indirect compensation through
perquisites and participation in employee benefit plans
generally available to all employees of the Company, such as
health, life, disability plans and tax qualified retirement
plans, except with respect to the Companys executive
medical plan which is available only to certain of the
Companys executives. The compensation package for the
Companys executives is designed to provide executives with
market competitive annual salaries, performance based annual
bonus as a means of motivating them to achieve short-term
business objectives, and equity-based compensation as a means of
rewarding executives for increased stockholder value over the
longer term.
In setting the compensation for executives, the Committee
engaged the services of an outside compensation consulting firm.
This consulting firm identified a peer group of companies based
on revenues, lines of business and geographic locations as the
Company, primarily consisting of companies in the health and
fitness, sporting retail, entertainment and large multi-site
retail industries. The Committee then examined base salaries,
bonus compensation and long-term incentives relative to this
peer group towards a goal of having direct total compensation to
adequately incent the officer group at competitive compensation
levels.
Base
Salary
In setting executives salaries for 2005 and 2006, each
executive was evaluated based on their role and responsibilities
within the Company, attainment of individual objectives during
the preceding year and the Companys overall performance.
For 2005 and 2006, the Committee determined to make no change to
the salaries of the Named Executive Officers other than to
increase the salaries of Harold Morgan and John Wildman in
connection with the negotiation of new employment agreements.
Mr. Morgans compensation was increased to levels
commensurate with other senior vice presidents at the time and
Mr. Wildmans compensation was increased in light of
his increased responsibilities, particularly with respect to the
rollout of the Companys Build Your Own Membership
(BYOMsm)
program and new club model.
Annual
Bonus Plan
The Company provides annual cash incentive compensation (the
Cash Bonus) for executive officers and other
employees in accordance with established methodologies approved
by the Compensation Committee. The purpose of the Cash Bonus is
to provide an additional short-term performance incentive for
certain senior executive and other key employees of the Company
(the Participants), as determined by the
Compensation Committee and based upon the recommendation of the
Companys management.
Each Participant has an annual target Cash Bonus amount that is
a percentage of his or her base salary. For 2005, the
Compensation Committee set target Cash Bonus levels consistent
with prior years at 70% of base salary for the CEO and 50% of
base salary for all other Named Executive Officers. For 2005, a
portion of the Cash Bonus was calculated by reference to the
Companys EBITDA with respect to fifty percent of the
target Cash Bonus, while the remainder was based on achievement
of personal performance goals, in each case based on target
percentages and determined by the Compensation Committee in its
discretion. The actual Cash Bonus payments may exceed the target
Cash Bonus level, depending on the level of achievement versus
the established goals. For 2005, the Companys EBITDA
target was not achieved, and accordingly, bonus amounts
attributable to EBITDA targets were calculated at 84.54% of the
targeted levels, which resulted in a 76% payout for financial
performance. In determining 2005 bonuses, the Compensation
Committee increased the personal performance percentages above
the maximum of 150% for three of the Named Executive Officers,
including the Chief Executive Officer, to levels ranging from
180% to 372% in light of the Companys extenuating
financial circumstances and in recognition of the performance of
these Named Executive Officers under extreme challenges. On
March 8, 2006, the Company awarded the following Cash
Bonuses for 2005 under the plan: $700,000 to Mr. Toback
(plus an additional $200,000
27
paid in June 2006 upon filing of the Companys
Form 10-K
for the fiscal year ended December 31, 2005); $225,000 to
Mr. Bassewitz; $90,000 to Mr. Fanelli; $195,000 to
Mr. Morgan; and $225,000 to Mr. Wildman.
Long Term
Incentives
The Compensation Committee believes stock ownership by
executives is important to aligning executives interest to
those of stockholders. Equity compensation takes the form of
stock options and restricted stock. The Committee believes it is
important that the Company grant a mixture of long-term equity
instruments that in the aggregate provide both reward for value
appreciation as well as retention and tangible value for
services during and after the vesting period. As other
organizations have determined, we believe that by awarding both
stock options and restricted stock we have aligned the
executives more appropriately than by rewarding only one type of
stock based equity instrument. The employment agreements of the
Companys executives also provide for the grant of stock
options
and/or
restricted stock and these grants provide a significant
inducement for the hiring and retention of key employees.
Options granted to executives typically have a term of ten years
and vest over a three year period. The exercise price is
generally equal to or greater than the price of our stock on the
day prior to the option being granted. The options are used as a
value appreciation instrument as the executive realizes value
only if the stock price increases. This aligns the interests of
the executives with the interests of the stockholders.
Executives were granted options in early 2005 with an exercise
price that was 20% over the closing price of our common stock on
the day prior to options being granted. In addition, on
November 29, 2005, having not previously made any grants in
respect of 2005, executives were granted options, the exercise
price of which was set at $7.01, the closing price of the
Companys common stock on the NYSE at November 28,
2005. The Companys Compensation Committee also determined
to consider implementation of incentive and retention agreements
and arrangements in connection with the Companys announced
exploration of strategic alternatives, but did not implement any
such agreements or arrangements.
Restricted stock awards are used by the Compensation Committee
as an incentive and retention device to reward the executive
over the long-term and be aligned with the stockholders in
optimizing the value of the Company. Such awards can be granted
with performance vesting restrictions or with time vesting
restrictions. Restricted Stock issued with time vesting
restrictions typically vest after four years provided the
executive is employed by the Company on the vesting date. All
shares of restricted stock granted for 2004 performance were
actually granted in 2005 under the 1996 Long-Term Incentive Plan
(the Incentive Plan) and were generally to vest over
four years. However, during 2005, the acquisition of the
Companys common stock by certain investors in excess of
10% of the Companys outstanding common stock constituted a
change in control under the Incentive Plan,
resulting in the lapse of the restrictions on all previously
granted shares of restricted stock. With the Incentive Plan set
to expire in January 2006, and the Company having not previously
made any grants in respect of 2005, certain executives were
granted restricted stock on November 29, 2005.
Beginning in 2005, the Incentive Plan did not have sufficient
shares available to provide long term incentives for newly hired
executives. Because the Compensation Committee believes it is
important to the Companys recruiting efforts to provide
incentives to new executives that align their interests with the
interests of the stockholders, the Committee adopted the
Inducement Plan.
The Incentive Plan expired on January 3, 2006. The
Companys shareholders did not approve a new equity plan at
the annual meeting held on January 26, 2006. Accordingly,
no options or restricted stock have been granted through
October 31, 2006, other than 19,500 options granted to
certain new employees under the Inducement Plan.
Chief
Executive Officer Compensation
The Compensation Committee considered the following factors in
determining the base salary for 2005 for Paul Toback, our former
Chairman and Chief Executive Officer: the Companys
performance relative to its profit plan for 2005, the leadership
provided through a challenging number of events and the level of
compensation paid to the highest paid executive at companies
within the selected peer group. Based on these factors, the
Committee established Mr. Tobacks 2005 base salary at
$575,000, which was not increased from 2004. This placed
Mr. Tobacks base salary at slightly below the median
of base salaries at peer group companies.
28
In August 2004, the Committee approved a new employment
agreement for Mr. Toback (the Toback Employment
Agreement). The agreement provided for, among other
things, an initial base salary of $575,000 and for him to
continue as the Companys President and Chief Executive
Officer through December 31, 2007. The agreement was
amended in November 2005 to (i) include specific language
regarding the Company-provided disability insurance
memorializing the Companys standard policy and
(ii) eliminate an exception from the definition of
Change in Control for issuances of equity by the
Company. The Company further amended the Toback Employment
Agreement on August 6, 2006, in consideration of, among
other matters, Mr. Tobacks agreement to resolve
various claims by Mr. Toback, including with respect to the
Companys obligation to implement a supplemental retirement
plan for his benefit. The modification increased by $900,000 the
amount payable to Mr. Toback only in the event he was
terminated without Cause, as defined in the Toback
Employment Agreement, on or prior to February 7, 2008.
For 2005, Mr. Toback was eligible to earn a cash bonus
ranging up to 70% of his base salary based on Company and
individual performance goals as described above. As mentioned
above, the Compensation Committee considered bonus payments to
the Named Executive Officers, including Mr. Toback, and
considered the performance of the Company as compared to the
Company and individual performance goals for 2005. Based on the
Companys performance, the Committee determined that the
Company performance goals were not met for 2005. The Committee
then further analyzed additional factors, including total cash
compensation necessary to meet the objectives of hiring and
retaining top executive talent; substantial progress in
addressing regulatory matters; and accomplishment of executive
management leadership objectives. The Committee determined to
weigh the actions of management initiated for investment in the
long-term growth of the Company against decisions that could
have been made for short-term results. Accordingly, the
Committee determined that based on these quantitative and
qualitative factors some level of annual bonus should be made to
Mr. Toback (and other executives), at a level above the
targets established. For 2005, based on these considerations,
the Committee determined to pay Mr. Toback a bonus of
$900,000, which represented 156% of his base salary for fiscal
year 2005.
In March 2005, Mr. Toback was awarded options to purchase
170,000 shares of the Companys common stock at an
exercise price equal to $4.21 per share, which represents a
premium of 20% over the closing price of our common stock on the
day prior to options being granted. In addition, Mr. Toback
was awarded 120,000 shares of restricted stock under the
Companys Incentive Plan, which were generally to vest
after four years from the date of grant. During 2005, the
acquisitions of the Companys common stock by Liberation in
excess of 10% of the Companys outstanding common stock
constituted a change in control under the 1996
Long-Term Incentive Plan, resulting in the lapse of the
restrictions on all shares of restricted stock previously issued
to Mr. Toback. In connection with the vesting of restricted
stock in 2005, the Company made a tax
gross-up
payment to Mr. Toback of $838,777 to compensate him for the
taxes payable due to the vesting of restricted stock in
accordance with the terms of the Toback Employment Agreement. On
November 29, 2005, with the Companys Incentive Plan
set to expire in January 2006 leaving the Company without an
equity incentive program, and as the Company had not previously
made any grants in respect of 2005, the Companys
Compensation Committee approved the grant of 62,000 stock
options and 135,000 shares of restricted stock to
Mr. Toback under the Companys Incentive Plan, along
with grants to other Named Executive Officers. The exercise
price of the stock options was set at $7.01, the closing price
of the Companys common stock on the NYSE at
November 28, 2005.
Separation
Agreement with the former Chairman, President and Chief
Executive Officer
The Company entered into a Separation Agreement dated as of
August 10, 2006, providing for Mr. Tobacks
separation as Chairman, President and Chief Executive Officer of
the Company as of August 11, 2006. The negotiated terms of
the Separation Agreement are substantially equivalent to those
set forth in the Toback Employment Agreement in the
circumstances of termination without cause following a
change in control (as defined). See
Compensation of Executive Officers Employment
Agreements Employment Agreement with the former
Chairman, President and Chief Executive Officer for a
discussion of Mr. Tobacks severance arrangements.
29
Monthly
Stipend for the Acting Chief Executive Officer
On August 11, 2006, following Mr. Tobacks
termination, the Board appointed director Barry R. Elson as
Acting Chief Executive Officer. On September 1, 2006, the
Compensation Committee approved payment of a monthly stipend to
Mr. Elson, retroactive to August 11, 2006, in the
amount of $50,000 per month (prorated for the month of August)
through the earlier of December 31, 2006 or appointment of
a permanent Chief Executive Officer. In determining
Mr. Elsons compensation, the Compensation Committee
consulted with an outside consulting firm that provides
executive compensation advisory services. The outside firm
provided the Compensation Committee with information regarding
compensation packages for chief executive officers at comparable
companies. In addition, the Compensation Committee considered
the compensation paid to the Companys former Chief
Executive Officer as well as the duties assigned to the Acting
Chief Executive Officer. The Compensation Committee will review
the matter prior to the end of 2006 if a permanent Chief
Executive Officer has not been appointed by such date.
Monthly
Stipend for the Interim Chairman of the Board
On September 1, 2006, the Compensation Committee
(Mr. Kornstein recusing himself) also approved payment of
additional director fees to Mr. Don R. Kornstein, Interim
Chairman of the Board, retroactive to August 11, 2006, in
the amount of $50,000 per month (prorated for the month of
August) through the earlier of December 31, 2006 or the
election of a permanent Chairman of the Board. The matter will
be reviewed prior to the end of 2006 if a permanent Chairman of
the Board has not been elected by such date.
162(m)
Discussion
Section 162(m) of the Internal Revenue Code limits the tax
deduction of a publicly held company allowed for compensation
paid its named executive officers to $1,000,000, unless such
amounts are performance based. Generally, the Compensation
Committee desires to maintain the tax deductibility of the
compensation paid to executive officers to the extent it is
feasible and consistent with the objectives of the
Companys compensation programs. The Compensation Committee
continues to consider ways to maximize the deductibility of
executive compensation, but intends to retain the discretion the
Compensation Committee deems necessary to compensate executive
officers in a manner commensurate with performance and the
competitive environment for executive talent. Accordingly, the
Compensation Committee may determine to pay compensation to the
Named Executive Officers which may not be deductible under
162(m).
Review of
all Components of Executive Compensation
The Compensation Committee has reviewed all cash and equity
components of the Companys Named Executive Officers,
including salary, bonus, and long-term equity compensation. In
addition, the Compensation Committee has reviewed and considered
other indirect elements of the Named Executive Officers
compensation, including participation in tax qualified and
non-qualified retirement plans, as well as certain perquisites
available to the Named Executive Officers. These perquisites are
not a significant element of the executives compensation.
When considering any one component of the Named Executive
Officers total compensation, the Compensation Committee
considers such component based on the aggregate amounts and mix
of all the components, taken as a whole. Based on this review,
the Committee finds that the total compensation paid to the
Named Executive Officers in 2005 and to date in 2006 was
reasonable and not excessive.
Members of the Compensation Committee,
John W. Rogers, Jr., Chairman*
Charles J. Burdick
Don R. Kornstein
Steven S. Rogers
* Mr. John W. Rogers, Jr. resigned from the Board on
November 16, 2006.
30
COMPARISON OF 70 MONTH CUMULATIVE TOTAL RETURN
Among Bally Total Fitness Holding Corporation, S &
P 500 Index
And The Russell 2000 Consumer Discretionary Index*
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* |
$100 invested on 12/31/00 in stock or index-including
reinvestment of dividends. Fiscal year ending December 31.
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Copyright
©
2006, Standard & Poors, a division of The McGraw-Hill
Companies, Inc. All rights reserved.
www.researchdatagroup.com/S&P.htm
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Cumulative Total Return
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12/00
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12/01
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12/02
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12/03
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12/04
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12/05
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10/06
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BALLY TOTAL FITNESS HOLDING
CORPORATION
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100.00
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63.65
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20.93
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20.66
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12.52
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18.54
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8.30
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S & P 500 INDEX
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100.00
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88.12
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68.64
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88.33
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97.94
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102.75
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115.15
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RUSSELL 2000 CONSUMER DISCRETIONARY
INDEX
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100.00
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119.32
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97.48
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138.45
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165.19
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166.45
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185.71
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31
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
On August 6, 2006, the Board of Directors named Ronald G.
Eidell as Senior Vice President and Chief Financial Officer and
principal financial officer of the Company. Mr. Eidell is
also a partner of Tatum, LLC, a financial and accounting
services provider. The Company is currently utilizing the
services of several partners and associates of Tatum, LLC in
certain projects relating to accelerating the accounting close
process and remediation of material weaknesses. The Company has
paid Mr. Eidell an aggregate of $230,400.04 for his
services as Chief Financial Officer of the Company through
October 31, 2006. The Company has paid Tatum, LLC an
aggregate of $86,400 through October 31, 2006 in connection
with Mr. Eidell serving as Chief Financial Officer of the
Company, and $662,401.53 through October 31, 2006 for the
utilization of several partners and associates of Tatum, LLC.
The Company has regular transactions in the normal course of
business for fitness equipment and services with a company that
employs a relative of John Wildman, Senior Vice President and
Chief Operating Officer. During 2005 and through
October 31, 2006, the Company paid approximately $6,266,000
and $6,650,000 to that company, respectively, for providing such
goods and services.
INDEPENDENT
AUDITORS
Fees Paid
to Principal Accountant
The table below sets forth the fees billed for the services of
KPMG LLP for the years ended December 31, 2005 and 2004:
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2005
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2004
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Audit fees(1)
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$
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5,141,300
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$
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7,988,800
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Audit-related fees(2)
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10,000
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37,750
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Total audit and audit-related fees
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$
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5,151,300
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$
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8,026,550
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Tax fees(3)
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60,000
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0
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All other fees
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0
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0
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Total fees
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$
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5,211,300
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$
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8,026,550
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(1) |
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Audit fees include work performed in connection with the audit
of the 2005 consolidated financial statements, the reports on
managements assessment regarding the effectiveness of
internal control over financial reporting and the effectiveness
of internal control over financial reporting, and the reviews of
the financial statements included in our 2005
Forms 10-Q.
It also includes fees for professional services that are
normally provided by our registered public accounting firm in
connection with statutory and regulatory filings. |
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(2) |
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Audit related fees include work performed in connection with
separate audits of subsidiaries and affiliated entities not
required by statute or regulation. |
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(3) |
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Tax fees include services performed in connection with the
Companys assessment of the implications of an ownership
change for purposes of Internal Revenue Code Section 382. |
Policy on
Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Registered Public Accounting
Firm
The Audit Committee has responsibility for retaining, setting
fees, and overseeing the work of the registered public
accounting firm. The retention of the firm is subject to
stockholder ratification. In recognition of this responsibility,
the Audit Committee has established a policy to pre-approve all
audit and permissible non-audit services provided by the
registered public accounting firm. The Audit Committee has
delegated pre-approval authority to the chairman of the
committee. The chairman must report any pre-approval decisions
to the Audit Committee at its next scheduled meeting for
approval by the Audit Committee as a whole.
32
Resignation
of Ernst & Young LLP
On March 25, 2004, we were notified by Ernst &
Young LLP (E&Y), our principal accountant at the
time, that it had resigned. E&Ys resignation became
effective on May 10, 2004 with the filing of the
Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2004. On May 18, 2004,
the Company engaged KPMG LLP as its principal accountants. The
decision to engage KPMG was made by the Audit Committee of the
Board of Directors.
During the two years ended December 31, 2003 through
May 10, 2004, there were no disagreements between us and
E&Y on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to E&Ys
satisfaction, would have caused them to make reference to the
subject matter of the disagreement in connection with the
Companys SEC reports. There were no reportable events as
defined in Item 304(a)(1)(v) of
Regulation S-K.
E&Ys reports on our consolidated financial statements
for the years ended December 31, 2003 and 2002 did not
contain any adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty or audit scope.
RATIFICATION
OF THE APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITOR FOR
THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31,
2006
Proposal 2
Ratification of the Appointment of KPMG LLP as Independent
Auditor for the Company for the Fiscal Year Ending
December 31, 2006.
In accordance with the Audit Committees charter, the Audit
Committee has appointed KPMG LLP as the Companys
independent auditor for the fiscal year ending December 31,
2006. KPMG LLP has been the Companys independent auditor
since May 18, 2004, and is considered by management to be
well-qualified.
Stockholder ratification of the Audit Committees selection
of KPMG LLP is not required by the Companys
By-Laws;
however, the Board believes that it is of sufficient importance
to seek ratification. In the event the stockholders do not
ratify the appointment of KPMG LLP, the Board will reconsider
its selection of KPMG LLP. In addition, even if the stockholders
ratify the selection of KPMG LLP, the Audit Committee may in its
discretion appoint a different independent auditor at any time
during the year if the Audit Committee determines that a change
is in the best interest of the Company.
Representatives of KPMG LLP are expected to be present at the
annual meeting of stockholders to respond to stockholders
questions and to have the opportunity to make any statements
they consider appropriate.
THE
COMPANYS BOARD RECOMMENDS A VOTE FOR RATIFICATION OF KPMG
LLP AS INDEPENDENT AUDITOR FOR THE COMPANY FOR THE FISCAL YEAR
ENDING DECEMBER 31, 2006.
OTHER
BUSINESS
In addition to the matters described above, after the meeting
there will be brief presentations by the Interim Chairman of the
Board and the Acting Chief Executive Officer and a general
discussion period during which stockholders will have an
opportunity to ask questions.
CERTAIN
LEGAL PROCEEDINGS
Stockholder
Derivative Lawsuits in Illinois State Court
On June 8, 2004, two stockholder derivative lawsuits were
filed in the Circuit Court of Cook County, Illinois, by two
Bally stockholders, David Schacter and James Berra, purportedly
on behalf of the Company against Paul Toback, James
McAnally, John Rogers, Jr., Lee Hillman, John Dwyer, J.
Kenneth Looloian, Stephen Swid,
33
George Aronoff, Martin Franklin and Liza Walsh, who are current
or former officers
and/or
directors. These lawsuits allege claims for breaches of
fiduciary duty against those individuals in connection with the
Companys restatement regarding the timing of recognition
of prepaid dues. The two actions were consolidated on
January 12, 2005. By stipulation of the parties, the
consolidated lawsuit was stayed pending restatement of the
Companys financial statements in November 2005. An amended
consolidated complaint was filed on February 27, 2006. The
Company filed a motion to dismiss on May 20, 2006, directed
solely to the issue of whether plaintiffs have adequately
alleged demand futility as required by applicable Delaware law
in order to establish standing to sue derivatively. Shortly
before oral argument on that motion, the parties executed a
Memorandum of Understanding memorializing a settlement in
principle of all claims. The Court has continued the motion to
dismiss pending completion and Court approval of a final
settlement agreement. It is not yet possible to determine the
ultimate outcome of these actions.
Stockholder
Derivative Lawsuit in Illinois Federal Court
On April 5, 2005, a stockholder derivative lawsuit was
filed in the United States District Court for the Northern
District of Illinois, purportedly on behalf of the Company
against certain current and former officers and directors of the
Company by another of the Companys stockholders, Albert
Said. This lawsuit asserts claims for breaches of fiduciary duty
in failing to supervise properly its financial and corporate
affairs and accounting practices. Plaintiff also requests
restitution and disgorgement of bonuses and trading proceeds
under Delaware law and the Sarbanes-Oxley Act of 2002. By
stipulation of the parties, the lawsuit was stayed pending
restatement of the Companys financial statements in
November 2005. An amended consolidated complaint was filed on
February 27, 2006. Bally filed a motion to dismiss on
May 30, 2006, directed solely to the issues of whether the
court has subject matter jurisdiction and whether plaintiffs
have adequately alleged demand futility as required by
applicable Delaware law in order to establish standing to sue
derivatively. That motion is currently pending. It is not yet
possible to determine the ultimate outcome of this action.
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company is required to identify any director, executive
officer or beneficial owner of more than ten percent of the
common stock, or any other person subject to Section 16 of
the Exchange Act, that failed to file on a timely basis, as
disclosed in their forms, reports required by Section 16(a)
of the Exchange Act. Based on a review of forms submitted to us
during 2005, Mr. John W. Rogers, Jr. was late in
filing one of these forms relating to an award of options under
the Companys 1996 Non-Employee Directors Plan. All
other such filing requirements were complied with by our
directors and executive officers.
EXPENSE
OF SOLICITATION
The cost of this solicitation will be borne by Bally. In
addition to the use of the mail, proxy solicitation may be made
by telephone, facsimile,
e-mail and
personal interviews by regular employees of Bally. Bally has
retained MacKenzie Partners, Inc., 105 Madison Avenue, New York,
New York 10016, to assist in the soliciting of proxies and will
pay that firm a fee of approximately $7,500, plus
out-of-pocket
expenses for such services. It is anticipated that MacKenzie
Partners, Inc. will employ approximately 15 persons to solicit
the Companys stockholders for the annual meeting. Bally
will also reimburse brokerage houses and others for their
reasonable expenses in forwarding proxy materials to beneficial
owners of common stock.
STOCKHOLDER
PROPOSALS FOR THE 2007 ANNUAL MEETING
Bally expects to hold its next annual meeting of stockholders
before December 31, 2007. Stockholder proposals for
inclusion in the proxy materials relating to the next annual
meeting should be received by Bally at its principal executive
offices on or before July 23, 2007. Under the
Companys by-laws, in order to bring a proposal before the
annual meeting, a stockholder must give the Company notice of
the proposal not less than 60 days before the date of the
meeting. If, however, less than 70 days prior notice or
prior disclosure of the meeting date is given to stockholders,
stockholders may notify the Company of a proposal up until the
tenth day following the notice or
34
disclosure. Stockholder proposals should be directed to
Corporate Secretary, Bally Total Fitness Holding Corporation,
8700 West Bryn Mawr Avenue, Chicago, Illinois 60631.
ANNUAL
REPORT
Bally will provide without charge to any stockholder as of the
record date who so requests in writing a copy of its
Form 10-K
and, if specifically requested, the exhibits thereto. Requests
for such copies should be directed to Corporate Secretary, Bally
Total Fitness Holding Corporation, 8700 West Bryn Mawr
Avenue, Chicago, Illinois 60631.
By order of the Board of Directors,
Marc D. Bassewitz, Secretary
Chicago, Illinois
November 20, 2006
Please
execute, date and return promptly
the enclosed proxy card in the
postage-paid envelope provided or
vote via the internet or touch-tone telephone.
35
BALLY
TOTAL FITNESS HOLDING CORPORATION
8700 West Bryn Mawr Avenue
Chicago, Illinois 60631
www.ballyfitness.com
PROXY
BALLY TOTAL FITNESS
HOLDING CORPORATION
8700 West Bryn Mawr Avenue,
Chicago, Illinois 60631
This Proxy is Solicited on
Behalf of the Board of Directors
The undersigned hereby
appoints Marc D. Bassewitz and Ronald G. Eidell, or either
of them, proxies of the undersigned, each with full power of
substitution, to vote all shares of the undersigned at the
annual meeting of stockholders of Bally Total Fitness Holding
Corporation to be held at 9:00 a.m. (local time) on
December 19, 2006 at the Renaissance Chicago OHare
Hotel, 8500 West Bryn Mawr Avenue, Chicago, Illinois, or at
any postponement(s) or adjournment(s) thereof.
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The Board of Directors
recommends a vote FOR proposals number 1 and
2. |
This proxy, when
properly executed, will be voted in the manner directed herein
by the undersigned stockholder. If no direction is made, this
proxy will be voted as follows: for proposals number 1 and
2. SEE REVERSE SIDE.
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(Comments/ Change of
Address)
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(If you have written in
the above space, please mark the corresponding box on the
reverse side.)
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................................................................................................................................................................
...................................................
5
FOLD
AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY BY
MAIL 5
ENTRANCE
PASS ANNUAL MEETING OF STOCKHOLDERS
This is an entrance
pass for the Annual Meeting
of Stockholders of
Bally Total Fitness Holding Corporation.
In order to attend the
annual meeting, you must bring this pass with
you.
BALLY TOTAL FITNESS
HOLDING CORPORATION
PLEASE MARK VOTE IN
OVAL IN THE FOLLOWING MANNER USING DARK INK
ONLY.
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The Board of Directors
recommends a vote FOR the below nominee. |
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For |
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Withhold |
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1. Election of the
following Class I Director nominee for a three-year term
expiring in 2009:
Don R. Kornstein
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The Board of Directors
recommends a vote FOR the ratification of the appointment of
KPMG LLP. |
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For |
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Against |
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Abstain |
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2. Ratification of
the appointment of KPMG LLP as independent auditor for the
Company for the fiscal year ending December 31, 2006
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Comments/ Change
of
Address
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o
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Date
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Signature
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Title or Authority
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Signature (if held jointly)
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Note: Please sign as
name appears hereon. Joint owners should each sign. When signing
as attorney, executor, administrator, trustee, or guardian,
please give full title as such.
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................................................................................................................................................................
...................................................
5
FOLD
AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY BY
MAIL 5
BALLY TOTAL FITNESS
HOLDING CORPORATION
PROXY VOTING
INSTRUCTION CARD
Your vote is important. Casting
your vote in one of the three ways described on this instruction
card votes all shares of Common Stock of Bally Total Fitness
Holding Corporation that you are entitled to vote.
Please consider the issues
discussed in the proxy statement and cast your vote by:
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VIA INTERNET
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Accessing
the World Wide Web site http://www.eproxyvote.com/bft and follow
the instructions to vote via the internet.
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BY PHONE
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Using a
touch-tone telephone to vote by phone toll free from the
U.S. or Canada. Simply dial 1-866-207-3912 and follow the
instructions. When you are finished voting, your vote will be
confirmed, and the call will end.
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BY MAIL
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Completing,
dating, signing and mailing the proxy card in the postage-paid
envelope included with the proxy statement.
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You can vote by phone or via the
internet any time prior to 11:59 p.m. Eastern Time,
December 18, 2006. You will need the control number printed
at the top of this instruction card to vote by phone or via the
internet. If you do so, you do not need to mail in your proxy
card.