def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.)
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Soliciting Material Pursuant to §240.14a-12 |
Life Time Fitness, Inc.
(Name of Registrant as Specified In Its Charter)
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TABLE OF CONTENTS
LIFE TIME FITNESS, INC.
Life Time Fitness, Inc.
2902 Corporate Place
Chanhassen, Minnesota 55317
(952) 947-0000
March 7, 2011
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders to be held at the Life
Time Fitness, Inc. Corporate Office, 2902 Corporate Place, Chanhassen, Minnesota 55317, commencing
at 1:00 p.m., central time, on Thursday, April 21, 2011.
The notice of annual meeting and the proxy statement that follow describe the matters to come
before the meeting. During the meeting, we also will review the activities of the past year and
items of general interest about our company.
We hope that you will be able to attend the meeting in person and we look forward to seeing
you. Please vote your shares, as instructed in your proxy card or the Notice of Internet
Availability of Proxy Materials, as promptly as possible. If you received a Notice of Internet
Availability of Proxy Materials, you may vote your shares over the Internet or request a paper
proxy card, which will include instructions to vote by telephone, as well as a reply envelope to
submit your vote by mail. Please vote as quickly as possible, even if you plan to attend the annual
meeting. You may revoke the proxy and vote in person at that time if you so desire.
Sincerely,
Bahram Akradi
Chairman of the Board of Directors, President and
Chief Executive Officer
VOTING METHODS
If your shares are registered directly in your name: If you are a shareholder of record, you
may vote your shares through the Internet, by telephone or by mail as described below. Please help
us save time and postage costs by voting through the Internet or by telephone. Each method is
generally available 24 hours a day and will ensure that your vote is confirmed and posted
immediately. To vote:
1. BY INTERNET
a. Go to the Web site at http://www.eproxy.com/ltm, 24 hours a day, seven days a week, until
12:00 p.m. (CT) on April 20, 2011.
b. Please have your Notice of Internet Availability of Proxy Materials or, if you have
requested one, your proxy card, and the last four digits of your Social Security Number or Tax
Identification Number available to verify your identify and create an electronic ballot.
c. Follow the simple instructions provided.
2. BY TELEPHONE
a. Request a proxy card by following the instructions in your Notice of Internet Availability
of Proxy Materials.
b. On a touch-tone telephone, call toll-free 1-800-560-1965, 24 hours a day, seven days a
week, until 12:00 p.m. (CT) on April 20, 2011.
c. Please have your proxy card and the last four digits of your Social Security Number or Tax
Identification Number available to verify your identity.
d. Follow the simple instructions provided.
3. BY MAIL
a. Request a proxy card by following the instructions in your Notice of Internet Availability
of Proxy Materials.
b. Mark, sign and date your proxy card.
c. Return it in the postage-paid envelope that will be provided.
If your shares are held in a brokerage, bank or similar account: You will receive voting
instructions from the organization holding your account and you must follow those instructions to
vote your shares. You will receive a Notice of Internet Availability of Proxy Materials that will
tell you how to access our proxy materials and vote your shares via the Internet. It also will tell
you how to request a paper or e-mail copy of our proxy materials.
Important Notice Regarding the Availability of Proxy Materials for the
Annual Meeting of Shareholders to be Held April 21, 2011.
The following materials are available for review on the Internet:
Proxy Statement for the 2011 Annual Meeting of Shareholders
Annual Report for the year ended December 31, 2010
To view the Proxy Statement and Annual Report, visit
http://materials.proxyvote.com/53217R.
Your vote is important. Thank you for voting.
Notice of Annual Meeting of Shareholders
To Be Held on April 21, 2011
The annual meeting of shareholders of Life Time Fitness, Inc. will be held at the Life Time
Fitness, Inc. Corporate Office, 2902 Corporate Place, Chanhassen, Minnesota 55317, commencing at
1:00 p.m., central time, on Thursday, April 21, 2011 for the following purposes:
1. To elect a board of directors of eight directors, to serve until the next annual meeting
of shareholders and until their successors have been duly elected and qualified;
2. To ratify the appointment of Deloitte & Touche LLP as our independent registered public
accounting firm for the fiscal year ending December 31, 2011;
3. To approve the Life Time Fitness, Inc. 2011 Long-Term Incentive Plan;
4. To approve, on an advisory basis, the 2010 compensation of our named executive
officers as disclosed in our proxy statement;
5. To vote, on an advisory basis, on the frequency of including an advisory vote on the
compensation of our named executive officers in our proxy statement; and
6. To transact other business that may properly be brought before the meeting.
Our board of directors has fixed February 28, 2011 as the record date for the meeting. Only
shareholders of record at the close of business on that date are entitled to receive notice of and
vote at the meeting.
Your proxy is important to ensure a quorum at the meeting. Even if you own only a few shares,
and whether or not you expect to be present, please vote by Internet in accordance with the voting
instructions set forth on your Notice of Internet Availability of Proxy Materials. If you received
a Notice of Internet Availability of Proxy Materials, you may also request a paper proxy card,
which will include instructions to vote by telephone, as well as a reply envelope to submit your
vote by mail. You may revoke your proxy at any time prior to being exercised, and voting your proxy
by telephone or through the Internet or returning your proxy will not affect your right to vote in
person if you attend the meeting and revoke the proxy.
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By Order of the Board of Directors,
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Bahram Akradi |
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Chairman of the Board of Directors, President and
Chief Executive Officer |
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Chanhassen, Minnesota
March 7, 2011
GENERAL INFORMATION
Your proxy is being solicited by our board of directors for use in connection with the annual
meeting of shareholders to be held on Thursday, April 21, 2011 at the Life Time Fitness, Inc.
Corporate Office, 2902 Corporate Place, Chanhassen, Minnesota 55317, commencing at 1:00 p.m.,
central time, and at any adjournments thereof. Our telephone number is (952) 947-0000. The mailing
of the Notice of Internet Availability of Proxy Materials to shareholders will commence on or about
March 7, 2011.
Notice of Internet Availability of Proxy Materials
Under rules of the Securities and Exchange Commission (SEC), we are furnishing proxy
materials to certain of our shareholders through the Internet, rather than mailing printed copies
to our shareholders. If you received a Notice of Internet Availability of Proxy Materials by mail,
you will not receive a printed copy of the proxy materials unless you request one as instructed in
that notice. Instead, the Notice of Internet Availability of Proxy Materials will instruct you as
to how you may access and review the proxy materials, and vote your shares, on the Internet. If you
received a Notice of Internet Availability of Proxy Materials by mail and would like to receive a
printed copy of our proxy materials, please follow the instructions included in the Notice of
Internet Availability of Proxy Materials.
Record Date
Only shareholders of record at the close of business on February 28, 2011 will be entitled to
vote at the annual meeting or adjournment. At the close of business on the record date, we had
42,266,779 shares of our common stock outstanding, each entitled to one vote.
Voting of Proxies
Proxies voted by telephone, Internet or mail in accordance with the voting instructions set
forth in your proxy card or Notice of Internet Availability of Proxy Materials, and not revoked,
will be voted in the manner specified. A shareholder providing a proxy retains the right to revoke
it at any time before it is exercised by providing written notice to our Secretary of termination
of the proxys authority or a properly signed and duly returned proxy bearing a later date.
Shareholder Proposals
As stated in last years proxy statement dated March 9, 2010, shareholder proposals to be
presented at this years annual meeting of shareholders and included in this proxy statement were
due at our principal executive office by November 9, 2010. No such proposals were received. We must
receive shareholder proposals intended to be presented at the annual meeting of shareholders in the
year 2012 that are requested to be included in the proxy statement for that meeting at our
principal executive office no later than November 8, 2011. We must receive any other shareholder
proposals intended to be presented at the annual meeting of shareholders in the year 2012 at our
Corporate Office no later than January 22, 2012.
Quorum
The presence at the meeting, in person or by proxy, of the holders of a majority of the shares
of common stock outstanding on the record date will constitute a quorum for the transaction of
business at the meeting. Abstentions and broker non-votes will be counted as present for purposes
of determining the existence of a quorum. Broker non-votes are explained under the Shares Held in
Street Name section on page 2.
Vote Required
Election of Directors. The affirmative vote of a plurality of the shares of common stock
present in person or by proxy at the meeting and entitled to vote is required for the election to
the board of directors of each of the nominees for director. Shareholders do not have the right to
cumulate their votes in the election of directors. A shareholder who does not vote (including a
broker non-vote) will have no effect on the election of directors.
Approval of Life Time Fitness, Inc. 2011 Long-Term Incentive Plan. The affirmative vote of
the holders of the greater of (1) a majority of the shares of common stock present in person or by
proxy at the meeting and entitled to vote or (2) a majority of the minimum number of shares
entitled to vote that would constitute a quorum for the transaction of business at the meeting is
required for approval of the 2011 Long-Term Incentive Plan. A shareholder who abstains with
respect to a proposal will have the effect of casting a negative vote on this proposal. In
addition, NYSE rules require that holders of at least a majority of our common stock must vote on
this proposal. Therefore, a shareholder who does not vote (including a broker non-vote) will not
count toward this requirement and will have the effect of not meeting the requirement for this
proposal to pass.
Non-Binding Votes on Executive Compensation and Frequency Vote. The advisory votes on the
2010 compensation of our named executive officers as disclosed in this proxy statement and the
frequency of including the advisory vote on the compensation of our named executive officers are
not binding on us. We will consider our shareholders to have approved our executive compensation
if the number of votes cast for this proposal exceeds the number of votes cast against this
proposal. We will consider our shareholders to have selected the frequency option that receives
the greatest number of votes. With respect to these proposals, a shareholder who abstains and a
shareholder who does not vote (including a broker non-vote), will have no effect on the outcome of
these proposals.
Other Proposals. For all other proposals, the affirmative vote of the holders of the greater
of (1) a majority of the shares of common stock present in person or by proxy at the meeting and
entitled to vote or (2) a majority of the minimum number of shares entitled to vote that would
constitute a quorum for the transaction of business at the meeting is required for approval of each
other proposal presented in this proxy statement. A shareholder who abstains with respect to a
proposal will have the effect of casting a negative vote on that proposal. A shareholder who does
not vote in person or by proxy on a proposal (including a broker non-vote) will have no effect on
the outcome of these proposals.
Shares Held in Street Name
The election of directors, the approval of the 2011 Long-Term Incentive Plan, the advisory
vote on executive compensation and the advisory vote on the frequency of executive compensation
votes are proposals on which your broker does not have discretionary authority to vote. Thus, if
your shares are held in street name and you do not provide instructions as to how your shares are
to be voted, your broker or other nominee will not be able to vote your shares on these matters.
Accordingly, we urge you to direct your broker or nominee to vote your shares by following the
instructions provided on the voting instruction card that you receive from your broker.
Adjournment of Meeting
If a quorum is not present to transact business at the meeting or if we do not receive
sufficient votes in favor of the proposals by the date of the meeting, the persons named as proxies
may propose one or more adjournments of the meeting to permit solicitation of proxies. Any
adjournment would require the affirmative vote of a majority of the shares present in person or
represented by proxy at the meeting.
Expenses of Soliciting Proxies
We will pay the cost of soliciting proxies for the annual meeting. We have engaged The Proxy
Advisory Group, LLC® to assist in the solicitation of proxies and provide related advice and
informational support, for a services fee and the reimbursement of customary disbursements that are
not expected to exceed $20,000 in the aggregate. In addition to solicitation by the use of mail,
certain of our directors, officers and regular employees may solicit proxies by telephone or
personal interview. We may request brokerage firms and custodians, nominees and other record
holders to forward soliciting materials to the beneficial owners of our stock and will reimburse
them for their reasonable out-of-pocket expenses in forwarding these materials.
PROPOSAL NO. 1 ELECTION OF DIRECTORS
Composition of our Board of Directors
Our bylaws provide that our business will be managed by or under the direction of a board of
directors. The number of directors constituting our board of directors is determined from time to
time by our board of directors and currently consists of eight members.
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Each director will be elected at the annual meeting to hold office until the next annual
shareholders meeting and the directors successor has been duly elected and qualified. Our board of
directors, upon the recommendation of our governance and nominating committee, has nominated the
eight persons named below for election as directors. Unless otherwise directed, proxies solicited
by our board of directors will be voted to elect the eight nominees named below to constitute the
entire board of directors.
Directors and Director Nominees
All of the nominees named below are current directors of our company. Each nominee has
indicated a willingness to serve as a director for the ensuing year, but in case any nominee is not
a candidate at the meeting for any reason, the proxies named in the accompanying proxy form may
vote for a substitute nominee selected by the governance and nominating committee.
The following table sets forth certain information regarding each director nominee:
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Age |
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Position |
Bahram Akradi
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49 |
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Chairman of the Board of Directors, President and Chief Executive Officer |
Giles H. Bateman
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66 |
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Director |
Jack W. Eugster
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65 |
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Director |
Guy C. Jackson
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68 |
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Director |
John K. Lloyd
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64 |
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Director |
Martha A. Morfitt
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53 |
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Director |
John B. Richards
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62 |
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Director |
Joseph S. Vassalluzzo
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63 |
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Director |
Set forth below are the biographies of each director nominee, as well as a discussion of the
specific experience, qualifications, attributes and skills that led to the board of directors
conclusion that the nominee should serve as a director:
Bahram Akradi founded our company in 1992 and has been a director since our inception. Mr.
Akradi was elected chief executive officer and chairman of the board of directors in May 1996. In
December 2009, Mr. Akradi was appointed president of our company; a position he also held from 1992
through December 2007. Mr. Akradi has over 25 years of experience in healthy way of life
initiatives. From 1984 to 1989, he led U.S. Swim & Fitness Corporation as its co-founder and
executive vice president. Mr. Akradi was a founder of the health and fitness Industry Leadership
Council.
Through his leadership roles in our industry, Mr. Akradi has gained extensive experience in
the development and operation of health and fitness companies. As our founder, he has significant
knowledge of all facets of our company, including the day-to-day operations of our in-center
programs and offerings and the construction and design of our centers. Mr. Akradis long history
with our company, combined with his leadership skills and operating experience, makes him
particularly well suited to be our chairman.
Giles H. Bateman was elected a director of our company in March 2006. Mr. Bateman was one of
four co-founders of Price Club in 1976 and served as chief financial officer and vice chairman
there until 1991. Mr. Bateman served as non-executive chairman of CompUSA Inc., a publicly-traded
retailer of computer hardware, software, accessories and related products, from 1993 until he
retired in 2000. Mr. Bateman serves as a director and the chair of the audit committee of WD-40
Company. Within the last five years, Mr. Bateman also served on the board of directors of United
PanAm Finance Corporation and the Tuesday Morning Corporation.
Mr. Bateman has more than 20 years of public company operating experience, including as
founder, chief financial officer and vice chairman of big-box retailer, Price Club, and has served
on numerous public company boards. In addition to his leadership experience with a big-box
retailer, he also has background and expertise in finance through his tenure as chief financial
officer at Price Club as well as his service on numerous audit committees in the past. This
experience allows him to provide guidance and counsel in his role as chairman of our finance
committee.
Jack W. Eugster was elected a director of our company in October 2009. Mr. Eugster served as
the chairman, president and chief executive officer of Musicland Stores Corporation, a retail music
and home video company, for 21 years before his retirement in 2001. Prior to Musicland, Mr. Eugster
held executive leadership positions with The Gap, Inc. and Target Corporation. He currently serves
on the board of directors of three public companies, Donaldson Company, Inc., Graco Inc. and Black
Hills Corporation. Within the last five years, Mr. Eugster has also served on the board of
directors of Golf Galaxy, Inc.
Mr. Eugster has a history of demonstrated leadership with major retail organizations. His
significant experience in leadership positions, including chief executive officer, of retail
companies is particularly valuable for us as he can provide strategic input on
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center development and in-center offerings and programs. Mr. Eugster also brings extensive
governance experience to our board and company as he has served as a director of numerous
publicly-held companies, including big-box retailers.
Guy C. Jackson was elected a director of our company in March 2004. In June 2003, Mr. Jackson
retired from the accounting firm of Ernst & Young LLP after 35 years with the firm and one of its
predecessors, Arthur Young & Company. During his career, Mr. Jackson served as the audit
partner for
numerous public companies. He also serves as a director, and the chair of the audit committee, of
the following public companies: Cyberonics, Inc., Digi International Inc. and EpiCept Corporation.
Within the last five years, Mr. Jackson has also served on the board of directors of Urologix, Inc.
Mr. Jackson brings more than 35 years of finance, audit and accounting experience to our
board. Along with his years of experience with the accounting firm of Ernst & Young, LLP, serving
many different companies and industries, Mr. Jackson is also a director, and chair of the audit
committee, for three other publicly-held companies. Mr. Jacksons significant experience in the
finance area allows him to provide analysis and input to our finance, accounting and internal audit
functions. This experience, and his service on other boards and audit committees, qualifies Mr.
Jackson to serve as chairman of our audit committee.
John K. Lloyd was elected a director of our company in October 2009. Since 1997, Mr. Lloyd has
been the president of Meridian Health, a New Jersey-based integrated health system which
encompasses five hospitals and an extensive network of non-hospital healthcare services. Prior to
Meridian Health, Mr. Lloyd held executive leadership positions with Jersey Shore University Medical
Center, Modern Health Affiliates, Inc. and Episcopal Hospital. He currently serves as chairman of
the board of directors of QualCare Preferred Providers and QualCare Alliance Networks, Inc. Within
the last five years, Mr. Lloyd has also served on the board of directors of Commerce Bancorp, Inc.,
which was subsequently acquired by T.D. Bank Group.
As the president of Meridian Health, Mr. Lloyd has significant experience in the strategic
development and operation of a network of health and wellness businesses within one corporate
system. This experience allows Mr. Lloyd to provide valuable insight and guidance on organizational
structure and employee programs within the health and wellness sector, as well as our technological
systems and information safeguarding processes and procedures. Mr. Lloyd also brings additional
public company governance experience to our board from his prior service as a director of Commerce
Bancorp, Inc.
Martha (Marti) A. Morfitt was elected a director of our company in August 2008. Since October
2009, Ms. Morfitt has been the chief executive officer of Airborne, Inc., a privately held
manufacturer of dietary supplements. Ms. Morfitt is the former president and chief executive
officer of CNS, Inc., a manufacturer and marketer of consumer healthcare products. She held this
position from 2001 through March 2007. From 1998 to 2001, she was chief operating officer of CNS,
Inc. Ms. Morfitt left her position at CNS, Inc. effective March 2007 as a result of the acquisition
of CNS, Inc. by GlaxoSmithKline plc in December 2006. Prior to 1998, Ms. Morfitt held an executive
position at the Pillsbury Company. Ms. Morfitt is also a director of Graco Inc. and lululemon
athletica inc. Within the last five years, Ms. Morfitt has also served on the board of directors of
CNS, Inc., Intrawest Corporation and Solta Medical, Inc.
As the president and chief executive officer of CNS, Inc., Ms. Morfitt gained significant
experience leading a publicly-held consumer products company. Now Ms. Morfitt continues to gain
leadership experience in the consumer products industry as the chief executive officer of Airborne,
Inc. In addition to her leadership experience at CNS, Inc. and Airborne, Inc., Ms. Morfitt also
serves as a director of two other publicly-held companies. Ms. Morfitt is well suited as a director
of our company, as her consumer marketing and business strategy expertise allows Ms. Morfitt to
provide insight on strategic plans relating to our business.
John B. Richards was elected a director of our company in October 2006. Mr. Richards is
currently a managing partner of the New England Consulting Group, a firm specializing in creative
marketing and growth strategies for a wide range of branded consumer businesses. Mr. Richards also
serves as an interim consulting executive to various retail companies. Previously, he served as the
president and chief executive officer of Elizabeth Arden Red Door Spa Holdings from October 2001
until May 2006. Elizabeth Arden Red Door Spa Holdings is a developer and operator of prestige day
and resort spas. Mr. Richards also served as President of Starbucks Coffee Company, and held senior
leadership and management positions with Four Seasons Hotels, Inc., Royal Viking Line, McKinsey &
Company and The Procter & Gamble Company. Within the last five years, Mr. Richards has also served
on the board of directors of Elizabeth Arden Red Door Spa Holdings.
In his senior leadership roles at companies in the hospitality industry, Mr. Richards gained
significant marketing and operating experience. Also, his expertise in marketing health and beauty
services, gained through his role as chief executive officer at Elizabeth Arden Red Door Spa
Holdings, is particularly valuable as we continue to provide health and wellness services in a
resort-like environment.
Joseph S. Vassalluzzo was elected a director of our company in October 2006 and our lead
director in October 2008. Since August 2005, Mr. Vassalluzzo has been an independent advisor to
retail organizations, with a primary emphasis on real estate. From 1989
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until August 2005, Mr. Vassalluzzo held executive and senior leadership positions with
Staples, Inc., an office products retailer. Previously, Mr. Vassalluzzo has held management, sales,
operations and real estate positions with Mobile Corp., Amerada Hess Corp. and American Stores
Company. Mr. Vassalluzzo is the non-executive chairman and a member of the compensation committee
and nominating and governance committee of the Board of Trustees of Federal Realty Investment
Trust, a publicly held real estate investment trust. He is also a director and a member of the
nominating and governance committee and real estate committee of iParty Corporation, a publicly
held chain of party supply superstores. Within the last five years, Mr. Vassalluzzo has also served
on the board of directors of Commerce Bancorp, Inc., which was subsequently acquired by T.D. Bank
Group.
Mr. Vassalluzzo has a history of demonstrated leadership in real estate acquisition and
expansion in his roles at Staples, Inc. His real estate and expansion experience is particularly
valuable as we continue to research and develop sites for new centers. His executive and senior
leadership positions at numerous retailers make him well suited to be our Lead Director.
None of the above nominees is related to each other or to any of our executive officers.
Board of Directors Meetings and Attendance
Our board of directors held five meetings during fiscal year 2010. During fiscal year 2010
each director attended at least 75% of the aggregate number of the meetings of our board of
directors and of the board committees on which she/he serves.
Director Independence and Board Structure
Our board of directors reviews at least annually the independence of each director. During
these reviews, our board of directors considers relationships between each director (considering
all relevant facts and circumstances) and our company and its management to determine whether any
such relationships are material. In February 2011, our board of directors conducted its annual
review of director independence and determined that no material relationships existed that would
disqualify any of our directors as independent under the listing standards of the New York Stock
Exchange or require disclosure under Securities and Exchange Commission rules, with the exception
of Mr. Akradi, who is also our chairman, president and chief executive officer. Based on a review
of information provided by the directors and other information we reviewed, our board of directors
concluded that none of our non-employee directors have any material relationship with our company
as defined by the listing standards of the New York Stock Exchange.
Our board specifically considered that Mr. Eugster is a director and 15% equity owner of a
privately-held company that provides security and video surveillance related services to our
company. We paid less than $17,000 to this company in fiscal 2010, which is significantly less than
the NYSE threshold for such transactional relationships. Our board also considered that Ms.
Morfitt is a director of, and has a less than 1% equity interest in, lululemon athletic inc., a
company from which we purchase certain apparel. We paid less than $250,000 to lululemon athletic
inc. in fiscal 2010, which is also significantly less than the NYSE threshold for such
transactional relationships. Finally, our board considered that Mr. Lloyd is the president of
Meridian Health, which contracted with a third-party wellness program provider to provide certain
services as part of Meridian Healths employee wellness program. The third-party wellness program
provider then subcontracted with our company to provide certain blood screening services to be
included in the wellness program. While our agreement provides us a minimum of $180,000 from the
third-party wellness program provider for providing the blood screening services, the exact amount
of payment is still not determined due to the timing of the services, and no payment has been
received. Our board determined that the above relationships were at arms-length and not
material to any of the entities or the directors, and that Ms. Morfitt, Mr. Eugster and Mr. Lloyd
had no personal interest in the transactions. After review of these transactions, our board of
directors determined that Messrs. Bateman, Eugster, Jackson, Lloyd, Richards and Vassalluzzo, and
Ms. Morfitt are independent.
At this time, our board of directors believes it is appropriate and efficient for Mr. Akradi,
our chairman, president and chief executive officer, to also serve as chairman of the board, based
on Mr. Akradis extensive knowledge of our company and the healthy way of life marketplace. The
independent members of our board have named Mr. Vassalluzzo our independent lead director. Mr.
Vassalluzzo, as lead director, chairs the executive sessions of the non-management members of our
board of directors, acts as a liaison with Mr. Akradi, in consultation with the independent
directors and assists in developing the agendas for each board of directors meeting. During 2010,
our board of directors held an executive session of the non-management members of our board of
directors at every meeting.
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Committees of Our Board of Directors
Our board of directors has an audit committee, a compensation committee, a governance and
nominating committee and a finance committee. The charters for our audit committee, compensation
committee, governance and nominating committee and finance committee are available on the Corporate
Governance section of the Investor Relations page on our website at
lifetimefitness.com.
Our board of directors committee composition is as follows:
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Governance and |
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Director |
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Audit |
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Compensation |
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Nominating |
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Finance |
Bahram Akradi |
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Giles H. Bateman
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X |
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Chair
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Jack W. Eugster
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Guy C. Jackson
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Chair
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X |
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John K. Lloyd
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X |
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X |
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Martha A. Morfitt
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X |
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X |
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John B. Richards
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Chair
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Joseph S. Vassalluzzo
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Chair
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Meetings Held in 2010
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6 |
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6 |
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3 |
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5 |
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Audit Committee.
Our audit committee consists of Messrs. Jackson (Chair) and Eugster and Ms. Morfitt. The
functions of the audit committee include oversight of the integrity of our consolidated financial
statements, our internal controls and internal audit function, our compliance with legal and
regulatory requirements and the performance, qualifications and independence of our independent
auditors. Our audit committee is directly responsible (subject to non-binding shareholder
ratification) for the appointment of any independent auditor engaged for the purpose of preparing
or issuing an audit report or related work. Our audit committee is also responsible for the
retention, compensation, evaluation, termination and oversight of our independent auditors. The
purpose and responsibilities of our audit committee are set forth in the Audit Committee Charter
approved by our board of directors and most recently amended on December 17, 2010. Our audit
committee held six meetings in fiscal year 2010.
Our board of directors has determined that all members of our audit committee are
independent, as defined in Section 10A of the Securities Exchange Act of 1934 and pursuant to the
rules of the New York Stock Exchange, and that each member of our audit committee also qualifies as
an audit committee financial expert, as defined by applicable regulations of the SEC. Our board
of directors has also determined that Mr. Jacksons service on the audit committees of three other
public companies does not impair his ability to effectively serve on our audit committee.
Compensation Committee.
Our compensation committee consists of Messrs. Vassalluzzo (Chair), Bateman and Lloyd and Ms.
Morfitt. The functions of the compensation committee include reviewing and approving the goals and
objectives relevant to the compensation of our chief executive officer, analyzing the chief
executive officers performance in light of those goals and objectives based upon the evaluation
completed by the governance and nominating committee, and then determining and approving the chief
executive officers compensation level based on that evaluation. Our compensation committee also
approves and makes recommendations to our board of directors with respect to the compensation of
other executive officers, incentive-compensation plans and equity-based plans. Our compensation
committee also makes recommendations to our board of directors with respect to any changes in
director compensation. The purpose and responsibilities of our compensation committee are set forth
in the Compensation Committee Charter approved by our board of directors and most recently amended
on December 17, 2010. Our compensation committee held six meetings in fiscal year 2010.
Governance and Nominating Committee.
Our governance and nominating committee consists of Messrs. Richards (Chair), Jackson and Lloyd.
The functions of the governance and nominating committee include identifying individuals qualified
to become members of our board and overseeing our corporate governance principles. Our governance
and nominating committee also performs the evaluation of the chief executive officer and reviews
his process for the evaluation of the members of the senior management team. The purpose and
responsibilities of our
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governance and nominating committee are set forth in the Governance and Nominating Committee
Charter approved by our board of directors and most recently amended on December 17, 2010. Our
governance and nominating committee held three meetings in fiscal year 2010.
Finance Committee.
Our finance committee consists of Messrs. Bateman (Chair), Eugster, Richards and Vassalluzzo. The
purpose of the finance committee is to assist the board in fulfilling its oversight
responsibilities for financial-related activities. Its responsibilities and duties include, among
other items, reviewing and approving proposed borrowings and indebtedness from $5 million to $25
million, individual club center business plans within the scope of our core business where our
investment exceeds $5 million and is within other board approved parameters, business plans for
investments outside the scope of our core business from $5 million to $10 million, individual
capital items not in our approved annual budget between $5 million and $10 million (with an annual
limit of $15 million), and our cash management and investment policy. The finance committee also
reviews and recommends to the board as necessary borrowings and indebtedness over $25 million,
acquisitions over $5 million, dividend and stock repurchase policies and financial hurdle rates for
investments of our company. Finally, the finance committee also reviews and oversees managements
reports to the board on a variety of financial-related matters. The purpose and responsibilities of
our finance committee are set forth in the Finance Committee Charter approved by our board of
directors and most recently amended on December 17, 2010. Our finance committee held five meetings
in fiscal year 2010.
Corporate Governance Guidelines
In December 2004, our board of directors adopted Corporate Governance Guidelines. These
guidelines were most recently amended and approved by the board on December 17, 2010. The
guidelines are available on the Corporate Governance section of the Investor Relations page on our
website at lifetimefitness.com.
Boards Role in Risk Oversight
In exercising its overall responsibility to direct our business and affairs, our board of
directors has established various processes and procedures with respect to risk oversight and
management. As an annual core agenda item of the full board, management presents to the board a
comprehensive and detailed risk assessment after completing an enterprise risk review and analysis.
Pursuant to the risk assessment, we have categorized the most relevant risks as follows: capital,
competitive and talent, data privacy, physical assets, regulatory and catastrophic. In addition to
that assessment, our board of directors also reviews any internal control and financial reporting
risk and compensation-related risk. As part of this annual risk assessment, the board of directors
determines whether any of our overall risk management processes or control procedures requires
modification or enhancement. Our board of directors has allocated oversight of the respective risk
categories discussed below between the board of directors and its committees as follows, with
oversight of all other risk residing with the board of directors: capital risk finance
committee; competitive risk and talent risk board of directors; data privacy audit committee;
physical assets audit committee; regulatory audit committee; catastrophic audit committee;
internal control and financial reporting risk audit committee; and compensation related risk
compensation committee.
Capital risk relates to proper management of our liquidity and plans for expansion. Capital
risk is regularly monitored and managed by our finance committee through its regular and consistent
review of our capital structure and expansion plans. For example, at each of the finance
committees regularly scheduled meetings throughout the year, management provides presentations on
our capital structure as a whole, individual financing considerations and plans for expansion.
Pursuant to its charter, our finance committee is charged with reviewing and approving our various
financing and expansion plans. For certain financings or acquisitions, full board approval is
required.
Competitive risk and talent risk relate to the proper definition and achievement of our
high-level goals and mission and retaining talent throughout that process, and are regularly
monitored and managed by the full board through the boards regular and consistent review of our
operating performance and strategic plan. For example, at each of the boards regularly scheduled
meetings throughout the year, management provides the board presentations on our various business
units as well as our performance as a whole. Agenda items are included for significant developments
as appropriate, including for example, an overview of the competitive landscape, important market
developments and management succession.
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Data privacy risk relates to the collection, use, retention, sharing and security of our data,
primarily all information collected from our members as part of the membership enrollment process
and the provision of member services. Data privacy risk is primarily overseen by our audit
committee as the processes, procedures and internal controls we have established concerning our
data privacy and protection are integrally related to the internal controls we have established for
financial reporting and compliance. Our audit committee monitors and reviews the processes,
procedures and internal controls relating to our data privacy and protection, and makes adjustments
as needed, through regular reporting by management on our data privacy and protection process and
compliance with applicable data privacy regulations.
Physical assets risk relates to the possibility of damage to our property, clubs and
infrastructure from catastrophes, terrorism or cyber-terrorism. Physical assets risk is primarily
overseen by our audit committee, with some oversight by the board of directors. Our audit committee
receives reports from management on the institution of appropriate safeguards that help to mitigate
the risks of loss or damage to our physical assets. Our audit committee will also review, as
needed, our insurance structure, which protects our company financially from
the risk of loss or damage to our physical assets.
Regulatory risk relates to our business being subject to government regulation, and the fact
that changes in these regulations could have a negative effect on operations. Our audit committee
receives regular updates from our legal department, which include updates on any risks arising from
changes in government regulation to which we are subject.
Catastrophic risk relates to epidemics, pandemics, terrorism or catastrophes that have an
effect on individuals utilizing our clubs, and therefore, a negative impact on our operations.
Similar to the physical assets risk, our audit committee is charged with oversight of catastrophic
risk. Our audit committee receives reports from management on pandemic, epidemic and catastrophic
response plans and safeguards to mitigate any risk arising from such catastrophes.
Internal control and financial reporting risk relates to the reliability of our financial
reporting and compliance. Internal control and financial reporting risk is primarily overseen by
our audit committee. Pursuant to its charter and core agendas, our audit committee receives input
directly from management as well as our independent registered public accounting firm, Deloitte &
Touche, LLP, regarding our financial reporting process, internal controls and public filings. The
audit committee also receives regular updates from our legal and internal audit departments on
various legal or compliance items.
Compensation-related risk relates to the compensation plans of our executive and other team
members incentivizing behavior that may not be in our best long-term interests.
Compensation-related risk is regularly monitored and managed by our compensation committee through
its regular and consistent review of our compensation plans. For example, at each of the
compensation committees regularly scheduled meetings throughout the year, management provides to
the compensation committee a presentation on the year-to-date performance of the compensation plans
for our executives. Pursuant to its charter, our compensation committee is charged with reviewing
and approving the compensation plans for our executives.
With respect to any compensation-related risk for 2010, we completed a review of our
compensation policies and practices for our employees to determine the extent to which any risks
arising from such policies and practices are reasonably likely to have a material adverse effect on
our company. To complete this review, we first considered all compensation policies and practices
for our employees, including the base salaries, annual bonuses and long-term incentive award plans
of our executive officers, as well as the compensation plans of our area directors, general
managers and sales employees. The compensation arrangements and policies were then reviewed with
the assistance of our internal audit, finance, human resources and legal departments, to determine
any risk-taking incentives inherent in our compensation policies and practices, our internal
controls that mitigate any such risks, and whether any resulting risks are reasonably likely to
have a material adverse effect on our company. As part of our review, we took numerous factors into
consideration relating to the overall risk management of our company, including whether any of our
compensation policies and practices varied significantly from the overall risk and reward structure
of our company, and whether any of our compensation policies and practices incentivized individuals
to take short-term risks that were inconsistent with our long-term goals. In addition, as part of
its regular oversight of the compensation plan structure and administration, our compensation
committee reviewed our policies and practices to ensure that they were consistent with our
companys long-term interests. Upon completion of this review, we determined there were no risks
arising from our companys compensation policies and practices that are reasonably likely to have a
material adverse effect on our company.
Code of Business Conduct and Ethics
We have adopted the Life Time Fitness, Inc. Code of Business Conduct and Ethics, which applies
to all of our employees, directors, agents, consultants and other representatives. The Code of
Business Conduct and Ethics includes particular provisions applicable to
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our senior financial management, which includes our chief executive officer, chief financial
officer, controller and other employees performing similar functions. A copy of our Code of
Business Conduct and Ethics is available on the Corporate Governance section of the Investor
Relations page on our website at lifetimefitness.com. We intend to post on our website any
amendment to, or waiver from, a provision of our Code of Business Conduct and Ethics that applies
to any director or officer, including our principal executive officer, principal financial officer,
principal accounting officer, controller and other persons performing similar functions, promptly
following the date of such amendment or waiver.
Corporate Governance Documents Available on Our Website
Copies of our key corporate governance documents are available on the Investor Relations page
of our website at lifetimefitness.com. The charters for our audit committee, compensation
committee, governance and nominating committee and finance committee, as well as copies of our
Corporate Governance Guidelines and our Code of Business Conduct and Ethics, are available on our
website. Paper copies of any of these corporate governance documents may be obtained without charge
by writing to Investor Relations, Life Time Fitness, Inc., 2902 Corporate Place, Chanhassen, MN
55317.
Director Qualifications
Candidates for director nominees are reviewed in the context of the current composition of our
board of directors, our operating requirements and the long-term interests of our shareholders. The
governance and nominating committee will consider, at a minimum, the following factors in
recommending potential new members, or the continued service of existing members, to our board of
directors in addition to other factors it deems appropriate based on the current needs and desires
of our board of directors:
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demonstrated character and integrity; an inquiring mind; experience at a strategy/policy
setting level; sufficient time to devote to our affairs; high-level managerial experience;
and financial literacy; |
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whether the member/potential member is subject to a disqualifying factor, such as,
relationships with our competitors, customers, suppliers, contractors, counselors or
consultants, or recent previous employment with us; |
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the members/potential members independence and ability to serve on our committees; |
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whether the member/potential member assists in achieving a mix of members that represents
a diversity of background and experience; |
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whether the member/potential member, by virtue of particular experience, technical
expertise or specialized skills, will add specific value as a member; |
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any factors related to the ability and willingness of a new member to serve, or an
existing member to continue his/her service; |
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experience in one or more fields of business, professional, governmental, communal,
scientific or educational endeavor; and |
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whether the member/potential member has a general appreciation regarding major issues
facing publicly traded companies of a similar size and scope. |
Although we do not have a formal policy with regard to the consideration of diversity in
identifying director nominees, diversity of background and experience, as noted above, is one of
the factors the governance and nominating committee considers in recommending potential new members
to our board of directors.
Director Nomination Process
Our governance and nominating committee selects nominees for directors pursuant to the
following process:
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the identification of director candidates by our governance and nominating committee
based upon suggestions from current directors and senior management, recommendations by
shareholders and/or use of a director search firm; |
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a review of the candidates qualifications by our governance and nominating committee to
determine which candidates best meet our board of directors required and desired criteria; |
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interviews of interested candidates among those who best meet these criteria by the chair
of the governance and nominating committee, the chair of our board of directors and certain
other directors; |
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a report to our board of directors by our governance and nominating committee on the
selection process; and |
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formal nomination by our governance and nominating committee for inclusion as a director
nominee at the annual meeting of shareholders or appointment by our board of directors to
fill a vacancy during the intervals between shareholder meetings. |
Prior to recommending a director for reelection to another term, our governance and nominating
committee will reassess the qualifications of a director, including the directors past
contributions to our board of directors and contributions at board of directors and board committee
meetings.
Shareholders who wish to recommend individuals for consideration by our governance and
nominating committee to become nominees for election to our board of directors may do so by
submitting a written recommendation to our governance and nominating committee, c/o General
Counsel, 2902 Corporate Place, Chanhassen, MN 55317. Submissions must include a written
recommendation and the reason for the recommendation, biographical information concerning the
recommended individual, including age, a description of the recommended individuals past five
years of employment history and any past and current board memberships. The submission must be
accompanied by a written consent of the individual to stand for election if nominated by our
governance and nominating committee and to serve if elected by our board of directors or our
shareholders, as applicable. Alternatively, shareholders may directly nominate a person for
election to our board of directors by complying with the procedures set forth in our bylaws, any
applicable rules and regulations of the Securities and Exchange Commission and any applicable laws.
Compensation Committee Interlocks and Insider Participation
During 2010, Messrs. Bateman, Lloyd and Vassalluzzo and Ms. Morfitt, served as the members of
our compensation committee. No executive officer serves, or in the past has served, as a member of
the board of directors or compensation committee of any entity that has any of its executive
officers serving as a member of our board of directors or compensation committee.
Attendance at Annual Meeting
One member of our board of directors attended our 2010 annual meeting of shareholders.
Communication with our Board of Directors
All interested parties, including our shareholders, may contact our board of directors by mail
addressed to the attention of our board of directors, our lead director, all independent directors
or a specific director identified by name or title c/o General Counsel, Life Time Fitness, Inc.,
2902 Corporate Place, Chanhassen, MN 55317. Our General Counsel will review all communications and
then forward them to the appropriate director or directors on a periodic basis. The board of
directors has instructed our General Counsel to review such correspondence and, with discretion,
not to forward items that he deems to be of a commercial or frivolous nature or otherwise
inappropriate for the boards consideration.
Our board of directors recommends that the shareholders vote for the election of each of the
eight nominees listed above to constitute our board of directors.
PROPOSAL NO. 2
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The firm of Deloitte & Touche LLP and its affiliates (Deloitte & Touche) has been our
independent registered public accounting firm since 2002. Our audit committee has selected Deloitte
& Touche to serve as our independent registered public accounting firm for the fiscal year ending
December 31, 2011, subject to ratification by our shareholders. While it is not required to do so,
our audit committee is submitting the selection of that firm for ratification in order to ascertain
the view of our shareholders on its selection of Deloitte & Touche. If the selection is not
ratified, our audit committee will reconsider its selection. Proxies solicited by our board of
directors will, unless otherwise directed, be voted to ratify the appointment of Deloitte & Touche
as our independent registered public accounting firm for the fiscal year ending December 31, 2011.
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A representative of Deloitte & Touche will be present at the meeting and will be afforded an
opportunity to make a statement if the representative so desires and will be available to respond
to appropriate questions during the meeting.
Fees
The following table presents the aggregate fees for professional services provided by Deloitte
& Touche in fiscal years 2010 and 2009:
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Fiscal Year |
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Fiscal Year |
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Description of Fees |
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2010 Amount |
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2009 Amount |
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Audit Fees |
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$ |
716,815 |
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$ |
750,525 |
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Audit-Related Fees |
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62,696 |
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67,074 |
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Total Audit and Audit-Related Fees |
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779,511 |
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817,599 |
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Tax Fees |
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172,340 |
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243,416 |
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Total |
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$ |
951,851 |
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$ |
1,061,015 |
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Audit Fees.
The audit fees set forth above include fees for the audit of our annual consolidated financial
statements and our internal control over financial reporting. The audit fees also include fees for
audit services in connection with Deloitte & Touches review of our interim consolidated financial
statements for the first three quarters of each fiscal year.
Audit-Related Fees.
The audit-related fees set forth above consist of fees for the audits of our employee benefit
plan as well as fees related to accounting consultations and certain agreed-upon procedures.
Tax Fees.
The tax fees set forth above consist of fees for the preparation of original and amended tax
returns, tax planning and analysis services and assistance with tax audits. Of the fees set forth
above, Deloitte & Touche billed $172,340 and $243,416 for tax preparation and compliance services
and $0 for other tax-related items during 2010 and 2009, respectively.
Approval of Independent Registered Public Accounting Firm Services and Fees
The Audit Committee Charter requires that our audit committee approve the retention of our
independent registered public accounting firm for any non-audit service and consider whether the
provision of these non-audit services by our independent registered public accounting firm is
compatible with maintaining our independent registered public accounting firms independence, prior
to engagement for these services. Our audit committee also actively monitors the relationship
between fees for audit and audit-related services and fees for other non-audit services. Our audit
committee has delegated to the chair the authority to pre-approve additional services by our
independent registered public accounting firm between committee meetings of up to $50,000, in the
aggregate, without prior approval of the audit committee; however, such additional services are
subsequently presented at the next meeting of the audit committee for ratification. All of the
services listed under the heading Tax Fees were pre-approved by our audit committee, or audit
committee chair under the above described delegation.
Our board of directors recommends that the shareholders vote for the ratification of the
appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the
fiscal year ending December 31, 2011.
AUDIT COMMITTEE REPORT
The role of our audit committee, which is composed of three independent non-employee
directors, includes oversight of the integrity of our companys consolidated financial statements,
our internal controls, our companys compliance with legal and regulatory requirements and the
performance, qualifications and independence of our independent auditors. In performing our
oversight function, we rely upon advice and information received in our discussions with management
and the independent registered public accounting firm.
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We have (a) reviewed and discussed our companys audited consolidated financial statements for
the fiscal year ended December 31, 2010 with management; (b) discussed with Deloitte & Touche, our
companys independent registered public accounting firm, the matters required to be discussed by
applicable auditing standards regarding communication with audit committees; and (c) received the
written disclosures and the letter from Deloitte & Touche required by applicable requirements of
the Public Company Accounting Oversight Board regarding Deloitte & Touches communications with the
audit committee concerning their independence, and discussed with Deloitte & Touche their
independence.
Based on the review and discussions with management and our companys independent registered
public accounting firm referred to above, we recommended to our companys board of directors that
our audited consolidated financial statements be included in our companys Annual Report on Form
10-K for the fiscal year ended December 31, 2010 for filing with the Securities and Exchange
Commission.
Audit Committee:
Guy C. Jackson, Chair
Jack W. Eugster
Martha A. Morfitt
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview
We operate distinctive and large, multi-use sports and athletic, professional fitness, family
recreation and spa centers in a resort-like environment. We participate in the large and growing
health and wellness industry, which we define to include health and fitness centers, fitness
equipment, athletics, physical therapy, wellness education, nutritional products, athletic apparel,
spa services and other wellness-related activities. For compensation purposes, we currently compare
our company against a peer group of companies listed below and selected from the consumer services
global industry classification, each with similar size or market capitalization to revenue ratios
as compared to our company.
Our compensation committee, which is composed of four independent, non-employee directors,
discharges our board of directors responsibilities with respect to all forms of compensation of
our companys executive officers and oversight of our companys compensation plans. The purpose of
this discussion and analysis is to summarize the philosophical principles, compensation
decision-making process, specific program elements and other factors we considered in making
decisions about executive compensation during fiscal year 2010.
Our compensation committee has the authority to retain outside counsel, experts and other
advisors as it determines appropriate to assist it in the performance of its functions.
Compensation Philosophy
We believe that the quality, ability and commitment of our executive officers are significant
factors contributing to the proper leadership of our company and driving shareholder value for our
company. Our executive compensation goals are to:
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attract, retain and motivate qualified talent; |
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motivate executives to improve the overall performance of our company and reward
executives when our company achieves specific measurable results; |
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encourage accountability by determining salaries and incentive awards based on the
companys collective performance and contribution; |
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ensure compensation levels are externally competitive and create internal pay equity
among executives; and |
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align our executives long-term interests with those of our shareholders. |
Compensation Determination Process
Our company uses a variety of compensation elements to achieve our compensation philosophy,
including primarily base salary, annual bonuses and long-term incentive equity awards. Our
compensation committee does not use a specific formula to set compensation elements under each
component, but instead attempts to achieve the appropriate balance between short-term cash
compensation and long-term equity compensation and to reflect the level of responsibility of the
executive officer. The factors our compensation committee considers when determining each
compensation element and when considering a material increase or decrease in a compensation element
include, but are not limited to, the following:
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the executives current total compensation and the appropriate portion of the total
compensation that should be performance-based; |
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the executives performance as it impacts the overall performance of our company; |
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validation that compensation levels are externally competitive and create internal pay
equity among executives that have similar levels of overall contribution to our company; |
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the qualifications of the executive and the potential for development and performance in
the future;
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whether the total compensation is generally equivalent to the executive pay level for
comparable jobs at similar companies and the financial performance of those companies
relative to ours; |
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the application of our philosophy of retention and motivation, accountability and
alignment with shareholder interests; |
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the strategic goals and responsibilities for which the executive has responsibility; and |
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the recommendations of the chief executive officer (except with respect to his own
compensation). |
In 2010, our compensation committee reviewed the executive compensation program in connection
with our companys merit review and compensation plan process, which concluded on or about March
1st. In general, our compensation committee begins this review process by determining
the total cash compensation to be paid to an executive based on a review of the executive pay level
for comparable jobs at similar companies, as described below, and the financial performance of
those companies relative to ours, in addition to considering the other factors listed above. After
the total cash compensation has been determined, our compensation committee allocates a portion of
that amount to performance-based compensation to reflect the committees belief that a certain
portion of total compensation should be incentive compensation. The difference between the total
cash compensation and potential annual bonus portion, or the performance-based cash portion, of
total cash compensation is the executives base salary, which is also established by considering
the other factors listed above. Our compensation committee then uses total compensation to
establish long-term incentive equity awards, as well as the long-term incentive equity awards being
granted by similar companies, while also considering the other factors listed above.
In connection with the compensation applicable to our 2010 fiscal year for executives, our
compensation committee reviewed the base salary, annual bonuses and long-term incentive equity
award elements and levels for our executives. In the spirit of maintaining internal pay
consistency across all employees, Mr. Akradi informed our compensation committee that the members
of the executive management team, except for Mr. Akradi, had again elected that their total cash
compensation maintain relatively the same as the prior years levels. This would mark the fourth
year that the total cash compensation of our executive management team, except for Mr. Akradi,
remained relatively unchanged. However, Mr. Akradi did recommend that the other members of the
executive management team receive an increase in their long-term incentive equity award, due to the
financial performance of our company in 2009, the fact that their compensation plans had remained
relatively stagnant for four years and to provide for more competitive total compensation levels as
compared to the companies in our peer group, as described below. Our compensation committee
engaged the services of Mercer and instructed them to provide a competitive assessment of our total
cash compensation and long-term incentive elements. As part of this study, Mercer compared our base
salary, annual bonuses and long-term incentive award elements primarily against an updated peer
group. This peer group was comprised of 12 publicly traded companies from the consumer services
global industry classification as described above. The companies selected to be a part of this peer
group were Ameristar Casinos, Inc., Cedar Fair, L.P., Cheesecake Factory, Inc., Ethan Allen
Interiors, Gaylord Entertainment Company, International Speedway Corporation, JOS A Bank
Clothiers, Inc., Nutrisystem, Inc., Pinnacle Entertainment, Inc., Steiner Leisure Ltd., Town Sports
International Holdings, Inc. and Vail Resorts, Inc.
Our compensation committee determined that Mr. Akradis total compensation for 2010 should be
at approximately the 75th percentile of the total direct compensation awarded to the
highest paid executives in our peer group. This relative level of total direct compensation
represented an increase from 2009. Our compensation committee determined that this was appropriate
given Mr. Akradis performance in 2009, as determined through an annual performance review of Mr.
Akradi conducted by our board, and our companys actual financial performance in 2009 as compared
to our own expectations. Accordingly, our compensation committee offered Mr. Akradi a total direct
compensation package of $4,250,000, which consisted of a $750,000 base salary, a $1,090,000 target
annual bonus and a restricted stock grant of 83,710 shares, which had a grant date fair value of
$2,410,011, for our fiscal year 2010. The total cash compensation, consisting of base salary and
target annual bonus, as well as the long-term incentive award, consisting of the restricted stock
grant, each approximated the 75th percentile of cash compensation and long-term
incentive compensation offered to the highest paid executives of our peer group. Finally, our
compensation committee determined that the long-term incentive awards of the other members of the
executive management team should be at approximately the 75th percentile of the
long-term incentive compensation offered to similarly positioned executives of our peer group. The
compensation committee also considered the fact that total cash compensation for each member of the
executive management team, except for Mr. Akradi, was on average less than the 50th
percentile of total cash compensation offered to similarly positioned executives of our peer group.
This resulted in an increase to the long-term incentive compensation of each member of the
executive management team other than Mr. Akradi, for fiscal year 2010. The compensation committee
believed this increase for each member of the executive management team, except for Mr. Akradi, was
prudent due to the financial performance of the company in 2009 and the fact that each executive,
except Mr. Akradi and Mr. Zwiefel, had not had an increase in total target cash compensation for
four years, as well as to provide for more competitive total compensation
14
levels as compared to the companies in our peer group. The compensation committee also
believed this increase was an appropriate means of incentivizing the other members of the executive
management team to achieve a strong financial performance in 2010. The compensation plans for our
executive team, along with the equity awards for the entire executive team, including Mr. Akradi,
were approved in March 2010. Our compensation committee considered this information, in addition
to the factors described above, when determining the base salary, annual bonus and the long-term
incentives payable to our executives in fiscal 2010.
Management Participation. Members of executive management participate in our compensation
committees meetings at the committees request. Managements role is to contribute input and
analysis to the committees discussions. Management does not participate in the final determination
or recommendation of the amount or form of executive compensation, except that our chief executive
officer does participate in the final recommendation, but not determination, of the amount and form
of compensation to be paid to all other members of the executive management team. Our executive
vice president, Eric J. Buss, who oversees our compensation and human resources department,
provides information to the compensation consultants engaged by the committee and assists in the
design of our compensation programs.
Use of Consultants. From time to time and as noted above, our compensation committee uses
outside compensation consultants to assist it in analyzing our companys compensation programs and
determining appropriate levels of compensation and benefits. The decision to retain consultants
and, if so, which consultants to retain, is made solely by our compensation committee.
Executive Compensation Elements
Our companys executive compensation package ordinarily consists of base salaries, annual
bonuses, long-term incentive awards, other compensation, a deferred compensation plan, severance
resulting from employment agreements (except for Mr. Akradi) and change in control benefits.
Base Salary
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Purpose. Our base salaries are designed to provide regular recurring compensation for
the fulfillment of the regular duties and responsibilities associated with job roles. We
also use base salaries as an important part of attracting and retaining talented executives. |
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Structure; Determination Process; Factors Considered. Our compensation committee
generally establishes base salaries for executives after first determining the executives
total cash compensation amount and the portion of the total cash compensation amount that
will be an annual bonus opportunity, with the difference being the executives base salary.
Our compensation committee then may adjust the executives base salary based on a
consideration of the factors outlined under Compensation Determination Process in making
its decisions. Our compensation committee reviews base salaries annually. |
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2010 Results. For fiscal year 2010, our compensation committee determined that Mr.
Akradis base salary would amount to $750,000, which was equal to the base salary that Mr.
Akradi received in 2009. |
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Our compensation committee further determined that the base salaries for Mr. Robinson, our
chief financial officer, Mr. Buss, executive vice president, and
Mr. Zaebst, our executive
vice president, real estate and development, would remain unchanged from the base salaries
that were provided to each of these executives in 2008 and 2009. The base salary of Mr.
Zwiefel, our executive vice president, club operations, increased significantly from 2008 to
2009, due to his promotion from senior vice president to executive vice president. However,
Mr. Zwiefels base salary in 2010 remained unchanged from 2009. The slight increase to the
base salary amounts of the members of the executive management team in 2010, other than Mr.
Akradi, relates to reimbursement for the cost of medical benefits purchased by each named
executive officer, due to the elimination of our executive medical benefits program in the
fourth quarter of 2009. |
Annual Bonuses
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Purpose. All executive officers, as well as certain other senior and management-level
employees, ordinarily participate in our annual bonus program. We believe that this program
provides an incentive to the participants to deliver upon the financial performance goals of
our company. The financial performance goals are derived from our annual financial budget
and are based on our actual performance during the applicable fiscal year. |
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Structure. Our compensation committee generally establishes annual bonus opportunities
for executives after first determining the executives total cash compensation amount and
then determining the proportion of the total cash compensation amount |
15
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that will be an annual bonus opportunity. Our compensation committee feels that individual
executive performances should not be highlighted in the area of annual bonuses given the
executive teams focus on collaborative decision making and its intent to use this
compensation element to link the interests of executives with our companys bottom line. Our
compensation committee reviews the program annually, however, and may adjust the executives
annual bonus opportunity based on a consideration of the factors outlined under Compensation
Determination Process in making its decisions. |
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Under our annual bonus program, we provide for the payment of cash bonuses to each
participant, on a monthly basis throughout the year, based upon our year-to-date performance
in relation to predetermined year-to-date financial objectives. We withhold payout on a
portion of the monthly portion of the year-to-date bonus component to offset a potential
negative variance that could arise in the annual bonus component. Our compensation committee
approves the financial objectives that are utilized for purposes of determining all bonuses
and assigns Target Bonuses for each executive participant to create a Target Bonus which
typically approximates 33% of an executives total target cash compensation, except for Mr.
Akradi as discussed below. The Target Bonus amount is prorated on a year-to-date basis to
determine the monthly portion of the year-to-date cash bonus payout and the full-year Target
Bonus amount is used to determine the annual cash bonus opportunity at the end of a fiscal
year. |
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Actual bonuses paid to participants are calculated based upon the relationship of our actual
financial performance to budgeted financial performance on a monthly year-to-date basis.
Accordingly, if actual financial performance is less than budgeted financial performance, the
actual bonus paid to the participant would be proportionately less than the participants
Target Bonus. At the same time, if actual financial performance exceeds budgeted financial
performance, the actual bonus paid to the participant would proportionately exceed the
participants Target Bonus. At all participation levels, the actual bonuses paid are based
upon the relationship of actual financial performance to budgeted financial performance, on a
monthly year-to-date or annual basis, as applicable. Accordingly, the total actual bonus paid
to each participant could exceed the participants Target Bonus if actual financial
performance exceeded budgeted financial performance for such participant. We withhold payout
of any portion of the year-to-date bonus that exceeds the year-to-date Target Bonus until the
final year-end financial results are determined. |
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Target Bonus and Measurement Determination Process. For fiscal year 2010, the financial
objective selected under our bonus components for all of our executives receiving bonuses
were earnings before taxes (EBT) for the year-to-date period (YTD) as compared against our
2010 financial plan, provided, however, that the EBT would exclude any compensation expense
associated with performance-based restricted shares that were granted in June 2009. Payouts
pursuant to EBT were made monthly. EBT consists of net income plus provision for income
taxes. Our company uses EBT as a measure of operating performance. Our compensation
committee believes that applying this specific financial metric to the executive team is
appropriate given the requirement that they work collectively in order to achieve top-level
growth while reducing operating expenses. The targeted EBT objective of $132.3 million set
for fiscal 2010 was the same as for our companys internal plan for EBT in fiscal 2010. The
compensation committee believed that the EBT objective represented an achievable but
challenging goal. |
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For fiscal 2010, our compensation committee determined that the Target Bonus for Mr. Akradi
should amount to approximately 60% of his total target cash compensation, which represented an
increase in the ratio of incentive cash compensation to total cash compensation that was given
to Mr. Akradi in 2009. Overall, Mr. Akradis Target Bonus increased from $750,000 to
$1,090,000 from 2009 to 2010. Our compensation committee determined that increasing the
percentage of Mr. Akradis Target Bonus would continue to incentivize Mr. Akradi to lead our
company to strong financial performance in 2010, and at the same time, the overall increase in
Mr. Akradis Target Bonus would help to put Mr. Akradis total direct compensation at
approximately the 75th percentile of the total direct compensation awarded to the
highest paid executives in our peer group. Our compensation committee once again determined
that the Target Bonuses for all executives other than Mr. Akradi should remain at
approximately 33% of their total cash compensation based on the committees belief that
approximately one-third of total cash compensation should be performance-based for this level
of management within our company. Our compensation committee has consistently made this
determination over the past several years in order to create Target Bonus percentage equity
among all executives receiving Target Bonuses. Given that the total target cash compensation for each
of the executives, other than Mr. Akradi, remained relatively unchanged for the past four
years, the Target Bonus for each executive, other than Mr. Akradi, remained relatively
unchanged for the past four years as well. The slight increase to the Target Bonus of the
members of the executive management team in 2010, other than Mr. Akradi, relates to reimbursement for the cost of medical
benefits purchased by each named executive officer, due to the
elimination of our executive medical benefits program in the fourth quarter of 2009.
A portion of the overall increase to each named executive officers total target cash compensation, other
than Mr. Akradi, due to the elimination of the executive medical benefits program, was applied
to the Target Bonus to remain consistent on the ratio of performance based compensation to
total cash compensation. |
16
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2010 Results. Our company achieved EBT of $139.6 million for fiscal 2010, which excludes
$5.6 million of compensation expense recognized in 2010 associated with performance-based
restricted shares that were granted in June 2009, which was above the target and resulted in
a payout equal to 105.6% of target total cash compensation. |
Long-Term Incentive Awards
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Purpose. We believe that equity-based incentives are an important part of total
compensation for our executives as well as for certain other senior and management-level
employees. We believe that this type of compensation creates the proper incentive for
management and aligns the interests of our management with the interests of our
shareholders. Our compensation committee views the grant of equity-based compensation to be
a key component of our overall compensation program. |
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Structure; Determination Process; Factors Considered. The Amended and Restated Life Time
Fitness, Inc. 2004 Long-Term Incentive Plan, referred to as the 2004 Plan, allows us to
issue incentive or non-qualified stock options, restricted stock, stock units, performance
stock units and/or other cash or equity-based incentive awards. The terms of our 2004 Plan
dictate that award repricing cannot occur without shareholder approval and that awards
cannot be granted with exercise prices below fair market value. To date, our compensation
committee, as administrator of our 2004 Plan, has granted time-based vesting and
performance-based vesting stock options as well as time-based vesting and performance-based
vesting restricted stock. |
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In general, we grant awards that as of the grant date are over 50% of the executives total
compensation for the current fiscal year, which our compensation committee believes, based on
the review and analysis provided by our compensation consultants, is the best measure to use
in order to remain competitive with total compensation granted to executives of the companies
in the peer groups identified in the Compensation Determination Process section, and at the
same time, incentivize our executives to achieve long-term goals and align with shareholder
interests. The proportion of equity to total cash compensation to be granted, as well as the
actual number of shares awarded to each executive officer, is determined and approved by our
compensation committee after considering the expected expense to our company in addition to
the factors outlined under the Compensation Determination Process. Our compensation
committee annually reviews the long-term incentive program and information relevant to
approving annual awards for executive officers. |
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2010 Results. For fiscal 2010, our compensation committee determined that the executive
team in place at that time should each be granted restricted shares that vest as to 25% of
the total number of shares on March 1 of each of 2011, 2012, 2013 and 2014, subject to
accelerated vesting in certain circumstances. |
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Our compensation committee determined, however, that the number of restricted shares vesting
on each regular vesting date will be reduced pursuant to the sliding scale described below
in the event that our company does not achieve earnings per share (EPS) targets for fiscal
2010. If the EPS hurdle is not achieved, one percent (1%) of the restricted shares shall be
forfeited for every one percent (1%) by which our companys actual EPS for 2010 is less than
budgeted EPS for 2010, but once actual EPS drops to ten percent (10%) less than budgeted EPS,
then two percent (2%) of the restricted shares shall be forfeited for every additional one
percent (1%) actual EPS for 2010 is less than budgeted EPS for 2010; however, in no event will
the number of forfeited shares exceed 25% of the original number of restricted shares granted. |
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On March 12, 2010, our compensation committee issued Mr. Akradi 83,710 restricted shares, Mr.
Robinson 25,000 restricted shares, and Messrs. Buss, Zaebst and Zwiefel 20,000 restricted
shares, under the provisions described above. The value of the restricted shares granted to
Mr. Akradi amounted to $2,410,011, which was an increase of
$410,011 compared to
the $2,000,000 value of the restricted shares granted to Mr. Akradi in 2009. This increase put
Mr. Akradis long-term incentive compensation in approximately the 75th percentile
of the long-term incentive compensation offered to the highest paid executives of our peer
group. The value of the restricted shares granted to each of Messrs. Robinson, Buss and Zaebst
increased approximately 33% from the value of the restricted shares granted to each of them in
connection with their fiscal 2009 long-term incentive compensation. The value of the
restricted shares granted to Mr. Zwiefel increased approximately 60% from the value of the
restricted shares granted to him in connection with his fiscal 2009 long-term incentive
compensation. Our compensation committee believed this increase in the long-term incentive
awards granted to each executive team member, other than Mr. Akradi, was appropriate due to
the financial performance of the company in 2009, as well as the fact that each executive team
member, other than Mr. Akradi, had his total target cash compensation remain relatively unchanged for
the past four years, with the exception of Mr. Zwiefel, due to his promotion in 2009. Further,
the compensation committee believed this increase would provide for more competitive total
compensation levels for each executive team member, except for Mr. Akradi, as compared to the
executives of the companies in our peer group. The compensation committee believed that the
larger increase to Mr. Zwiefels long-term incentive compensation award was appropriate
to keep his overall compensation
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17
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consistent with that of Messrs. Buss and Zaebst. The EPS hurdle for 2010 of $1.95 was
achieved, and accordingly, no restricted shares were forfeited. |
Other Compensation
We provide our executive officers with perquisites and benefits that we believe are
reasonable, competitive and consistent with the companys overall executive compensation program in
order to attract and retain talented executives. Our executives are entitled to few benefits that
are not otherwise available to all of our employees. The compensation committee periodically
reviews the levels of perquisites and other personal benefits provided to executive officers.
Deferred Compensation
We offer the Executive Nonqualified Excess Plan of Life Time Fitness, a non-qualified deferred
compensation plan, for the benefit of our highly compensated employees, which our plan defines as
our employees whose projected compensation for the upcoming plan year would meet or exceed the IRS
limit for determining highly compensated employees. This unfunded, non-qualified deferred
compensation plan allows participants the ability to defer and grow income for retirement and
significant expenses in addition to contributions made to our 401(k) plan.
Employment Agreements and Change in Control Provisions
In July and August 2004, we entered into employment agreements for certain of our executive
officers and other members of senior management. We amended and restated these employment
agreements in December 2008 in response to requirements under Section 409A of the Internal Revenue
Code. We believe that our company has achieved growth through innovative, confidential and
proprietary management and marketing methods and plans. Therefore, it was necessary to enter into
employment agreements, which include non-compete and non-solicitation clauses, to assure protection
of our goodwill and confidential and proprietary information, management and marketing plans. We do
not have an employment agreement with Mr. Akradi.
In addition, we also wanted to assure that certain of our executive officers and other members
of senior management would continue to serve us under circumstances in which there was possible
threatened or actual change of control at our company. We believe it is imperative to diminish the
inevitable distraction of certain of our executive officers and other members of senior management
by virtue of the personal uncertainties and risks created by a potential severance of employment
and to encourage their full attention and dedication to our company currently and in the event of
any threatened or impending change of control, and to provide these persons with compensation and
benefits arrangements upon a severance of employment which ensure that their compensation and
benefits expectations will be satisfied and which are competitive with those of other companies.
For these reasons, our company also included accelerated vesting of equity awards upon a change in
control under our 2004 Plan and the Life Time Fitness, Inc. 1998 Stock Option Plan, referred to as
our 1998 Plan.
Accounting and Tax Impacts of Executive Compensation
Section 162(m) of the Internal Revenue Code generally precludes a public corporation from
taking a federal income tax deduction for compensation paid in excess of one million dollars per
year to certain covered officers. Under this section, compensation that qualifies as
performance-based is excludable in determining what compensation amount shall qualify for tax
deductibility. Covered employees include each of our named executive officers.
Our compensation committee considers our ability to fully deduct compensation in accordance
with the one million dollar limitations of Section 162(m) in structuring our compensation programs.
However, our compensation committee retains the authority to authorize the payment of compensation
that may not be deductible if it believes such payments would be in the best interests of the
company and its shareholders. In 2010, Section 162(m) limited the deductibility of $1,975,756 in
compensation to Mr. Akradi, which we recognized in connection with the compensation plans for all
of our named executive officers.
Fiscal 2011 Update
For fiscal 2011, our compensation committee again engaged the services of Mercer to provide a
competitive assessment of our base salary, annual bonuses and long-term incentive equity award
elements and levels for our executives. After reviewing the competitive assessment provided by
Mercer as well as other factors, our compensation committee approved an increase in total
compensation for fiscal 2011 for each named executive officer. Our compensation committee believed
this was prudent due to our actual financial
18
performance in 2010 as compared to our own expectations as well as our financial performance
compared to that of the companies in the Mercer survey data. Further, the compensation committee
believed the increase was necessary to achieve competitive compensation levels compared to those of
the executives of the companies included in the Mercer survey data. Mr. Akradis base salary
increased 25% compared to his 2010 base salary. Similarly, Mr. Akradis Target Bonus increased 22%
from 2010 to 2011. Our compensation committee believed this was appropriate given Mr. Akradis
performance in 2010, as determined through an annual performance review, and our companys
financial performance in 2010. This increase to Mr. Akradis base salary and Target Bonus would put
his total cash compensation at the highest level of the executives in our peer group. The base
salary and Target Bonus of each named executive officer, except for Mr. Akradi, also increased in
2011. The compensation committee believed this was appropriate due to the companys financial
performance in 2010 as well as the fact that none of the named executive officers, except for Mr.
Akradi and Mr. Zwiefel, had received an increase in base salary or Target Bonus for four years.
Accordingly, the base salary for each of the executive officers, except for Mr. Akradi, increased
by approximately 8% from 2010 to 2011, and each of their Target Bonuses increased by approximately
10%. Prior to this increase each named executive officer, except for Mr. Akradi, had on average,
received total cash compensation below the 50th percentile of total cash compensation
offered to similarly positioned executives of our peer group in 2010. Finally, the compensation
committee determined it would be in the our best interests to establish an annual fixed share
amount for each of the named executive officers long-term incentive equity awards for a three year
period. The compensation committee believed this would continue to incentivize the executive
management team to achieve long-term goals and align our executives interest with those of our
shareholders. The compensation committee will have the right to review the share amounts annually,
such that the fixed share amounts are not guaranteed for the three-year period. Accordingly on
February 23, 2011, the compensation committee approved a grant of 100,000 restricted shares to Mr.
Akradi, with a grant date value of $3,763,000. The compensation committee also approved a grant of
25,000 restricted shares to Mr. Robinson, with a grant date value of $940,750, as well as a grant
of 20,000 restricted shares to Messrs. Buss, Zaebst and Zwiefel, each with a grant date value of
$752,600. The long-term incentive equity award for each named executive officer was greater than
60% of total compensation. Our compensation committee believes that establishing a more substantial
portion of total compensation as long-term inventive equity compensation will continue to align our
executives interests with those of our shareholders and incentivize our executives to achieve
long-term growth.
Compensation Committee Report
The compensation committee has discussed and reviewed the Compensation Discussion and Analysis
with management. Based upon this review and discussion, the compensation committee recommended to
the board of directors that the Compensation Discussion and Analysis be included in this proxy
statement.
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Compensation Committee:
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Joseph S. Vassalluzzo, Chair
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Giles H. Bateman |
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John K. Lloyd
Martha A. Morfitt |
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19
Summary Compensation Table
The following table shows, for our chief executive officer, our chief financial officer and
our three other most highly compensated executive officers who were serving at fiscal year-end,
together referred to as our named executive officers, information concerning compensation earned
for services in all capacities during the fiscal years ended December 31, 2010, 2009 and 2008:
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Non-Equity |
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Incentive |
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Stock |
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Option |
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Plan |
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All Other |
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Salary |
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|
Bonus |
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|
Awards |
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Awards |
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Compensation |
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Compensation |
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Total |
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Name and Principal Position |
|
Year |
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|
($) |
|
|
($) |
|
|
($)(1) |
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|
($)(1) |
|
|
($) |
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|
($)(2) |
|
|
($) |
|
Bahram Akradi |
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2010 |
|
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|
750,000 |
|
|
|
|
|
|
|
2,410,011 |
(3) |
|
|
|
|
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|
1,193,592 |
|
|
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72,453 |
|
|
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4,426,056 |
|
Chairman of the Board
of |
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|
2009 |
|
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|
750,000 |
|
|
|
|
|
|
|
1,999,997 |
|
|
|
|
|
|
|
835,479 |
|
|
|
63,582 |
|
|
|
3,649,058 |
|
Directors, President and Chief Executive Officer |
|
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2008 |
|
|
|
|
|
|
|
|
|
|
|
4,999,882 |
(4) |
|
|
460,379 |
|
|
|
|
|
|
|
225,859 |
|
|
|
5,686,120 |
|
Michael Robinson |
|
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2010 |
|
|
|
340,025 |
|
|
|
|
|
|
|
719,750 |
(5) |
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|
|
|
|
|
196,047 |
|
|
|
22,002 |
|
|
|
1,277,824 |
|
Executive Vice President |
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2009 |
|
|
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335,000 |
|
|
|
|
|
|
|
540,004 |
|
|
|
|
|
|
|
193,410 |
|
|
|
31,732 |
|
|
|
1,100,146 |
|
and Chief Financial Officer |
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2008 |
|
|
|
335,000 |
|
|
|
|
|
|
|
600,113 |
(6) |
|
|
61,393 |
|
|
|
93,500 |
|
|
|
25,360 |
|
|
|
1,115,366 |
|
Mark L. Zaebst |
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2010 |
|
|
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273,025 |
|
|
|
|
|
|
|
575,800 |
(7) |
|
|
|
|
|
|
157,417 |
|
|
|
24,400 |
|
|
|
1,030,642 |
|
Executive Vice President, |
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2009 |
|
|
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268,000 |
|
|
|
|
|
|
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431,996 |
|
|
|
|
|
|
|
154,728 |
|
|
|
23,893 |
|
|
|
878,617 |
|
Real Estate and Development |
|
|
2008 |
|
|
|
268,000 |
(8) |
|
|
|
|
|
|
479,984 |
(9) |
|
|
38,374 |
|
|
|
74,800 |
|
|
|
26,432 |
|
|
|
887,590 |
|
Eric J. Buss (10) |
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2010 |
|
|
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273,025 |
|
|
|
|
|
|
|
575,800 |
(11) |
|
|
|
|
|
|
157,417 |
|
|
|
19,122 |
|
|
|
1,025,364 |
|
Executive Vice President |
|
|
2009 |
|
|
|
268,000 |
|
|
|
|
|
|
|
431,996 |
|
|
|
|
|
|
|
154,728 |
|
|
|
22,294 |
|
|
|
877,018 |
|
|
|
|
2008 |
|
|
|
268,000 |
|
|
|
|
|
|
|
479,984 |
(12) |
|
|
38,374 |
|
|
|
74,800 |
|
|
|
22,101 |
|
|
|
883,259 |
|
Jeffrey G. Zwiefel |
|
|
2010 |
|
|
|
273,025 |
(13) |
|
|
|
|
|
|
575,800 |
(14) |
|
|
|
|
|
|
157,417 |
|
|
|
18,616 |
|
|
|
1,024,858 |
|
Executive Vice President,
Club Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Valuation of awards based on the grant date fair value of those awards
computed in accordance with FASB ASC Topic 718 utilizing assumptions
discussed in note 8 to our consolidated financial statements for the
fiscal year ended December 31, 2010. |
|
|
|
On June 11, 2009, our compensation committee approved certain
restricted stock grants to each of our named executive officers and
certain other employees. For the restricted stock granted on June 11,
2009, under our 2004 plan, 50% of the restricted stock will vest if a
specified EPS target is achieved for fiscal 2011 and if a higher EPS
target is achieved for fiscal 2011, 100% of the restricted stock will
vest. If 50% of the restricted stock vests after fiscal 2011, the
remaining restricted stock will vest if a specified EPS target is
achieved for fiscal 2012. If none of the restricted stock vests in
2011, 50% of the restricted stock will vest if a specified EPS target
is achieved for fiscal 2012 and if a higher EPS target is achieved for
fiscal 2012, 100% of the restricted stock will vest. At the time of
the grant, we deemed the achievement of the EPS targets as not
probable, and therefore, the aggregate grant date fair value of these
awards, calculated in accordance with FASB ASC Topic 718, is zero. In
the fourth quarter of 2010, we determined that achieving the fiscal
2011 EPS target was probable, with respect to 50% of the restricted
stock. |
|
|
|
The Stock Award values listed above for the fiscal year ended December 31, 2008, represent the grant date
fair value of certain restricted shares issued to our named executive officers on March 14, 2008. The restricted
shares granted on March 14, 2008, vest as to 25% of the total number of shares on March 1 of each of 2009, 2010, 2011
and 2012, subject to accelerated vesting in certain circumstances. However, our compensation committee provided that the
number of restricted shares vesting on each regular vesting date would be reduced in the event that our company did not
achieve budgeted EBT for fiscal 2008. Accordingly, because the EBT hurdle for 2008 was not achieved, 25%
of Mr. Akradis restricted shares, a grant date value of $1,249,971, were forfeited in February 2009; 50%
of Mr. Robinsons restricted shares, a grant date value of $300,057, were forfeited in February 2009;
and 50% of each of Messrs. Buss and Zaebsts restricted shares,
a grant date value of $239,992 for each, were forfeited in February 2009. |
20
(2) |
|
The following table sets forth all other compensation amounts for 2010 by type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Use of |
|
|
|
|
|
|
|
|
|
|
Matching |
|
|
Long-term |
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
|
|
|
|
|
|
|
|
401(k) and |
|
|
Disability |
|
|
|
|
|
|
|
|
|
|
|
|
|
Car and |
|
|
|
|
|
|
Executive |
|
|
Retirement |
|
|
and Life |
|
|
Private |
|
|
Total All |
|
|
|
Home |
|
|
Related |
|
|
Car |
|
|
Medical |
|
|
Plan |
|
|
Insurance |
|
|
Club |
|
|
Other |
|
|
|
Connectivity |
|
|
Expenses |
|
|
Allowance |
|
|
Benefits |
|
|
Contributions |
|
|
Premiums |
|
|
Dues |
|
|
Compensation |
|
Name |
|
($)(a) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
Bahram Akradi |
|
|
34,866 |
|
|
|
16,965 |
|
|
|
12,000 |
|
|
|
|
|
|
|
7,350 |
|
|
|
1,272 |
|
|
|
|
|
|
|
72,453 |
|
Michael R. Robinson |
|
|
4,380 |
|
|
|
|
|
|
|
9,000 |
|
|
|
|
|
|
|
7,350 |
|
|
|
1,272 |
|
|
|
|
|
|
|
22,002 |
|
Mark L. Zaebst |
|
|
900 |
|
|
|
14,878 |
|
|
|
|
|
|
|
|
|
|
|
7,350 |
|
|
|
1,272 |
|
|
|
|
|
|
|
24,400 |
|
Eric J. Buss |
|
|
900 |
|
|
|
|
|
|
|
9,600 |
|
|
|
|
|
|
|
7,350 |
|
|
|
1,272 |
|
|
|
|
|
|
|
19,122 |
|
Jeffrey G. Zwiefel |
|
|
900 |
|
|
|
|
|
|
|
9,000 |
|
|
|
|
|
|
|
7,444 |
(b) |
|
|
1,272 |
|
|
|
|
|
|
|
18,616 |
|
|
|
|
(a) |
|
Home connectivity includes a high-speed network providing seamless
integration of the computing and telephonic environments at Mr.
Akradis home office with those of our corporate headquarters,
including the ability to use his home as a full-service remote
location for business meetings. We directly paid a vendor for Mr.
Akradis home connectivity along with his cell phone plan and
wireless card. |
|
|
In addition to the amounts set forth above, our named executive
officers received perquisites for which there was no incremental cost
to us. These perquisites include use of company tickets to certain
entertainment events, minor personal travel expenses associated with
travel and lodging for which the purpose of the trip was primarily
business-related, and use of our companys support staff for
assistance with personal matters. In addition, certain personal
guests accompanied Mr. Akradi, while utilizing our plane for
business-related purposes. |
|
(b) |
|
Includes $3,722 contributed by our company to Mr.
Zwiefels Executive Nonqualified Excess Plan.
|
|
(3) |
|
This value includes the aggregate grant date fair value of 83,710
shares of restricted stock, granted to Mr. Akradi on March 12, 2010,
at a share price of $28.79, which was the closing price for a share
of our common stock on the New York Stock Exchange on March 12, 2010,
for an aggregate grant date fair value of $2,410,011 computed in
accordance with FASB ASC Topic 718. |
|
(4) |
|
This value represents the aggregate grant date fair value of 188,960
shares of restricted stock, granted to Mr. Akradi on March 14, 2008,
at a share price of $26.46, which was the closing price for a share
of our common stock on the New York Stock Exchange on March 14, 2008,
for an aggregate grant date fair value of $4,999,882 computed in
accordance with the FASB ASC Topic 718. However, as discussed in
footnote 1, 25% of Mr. Akradis March 14, 2008 restricted stock award
was forfeited in February 2009 because we did not achieve budgeted
EBT for fiscal 2008. As a result of this forfeiture, the adjusted
value of the restricted stock granted to Mr. Akradi on March 14,
2008, at a share price of $26.46, was $3,749,911. |
|
(5) |
|
This value includes the aggregate grant date fair value of 25,000
shares of restricted stock, granted to Mr. Robinson on March 12,
2010, at a share price of $28.79, which was the closing price for a
share of our common stock on the New York Stock Exchange on March 12,
2010, for an aggregate grant date fair value of $719,750 computed in
accordance with FASB ASC Topic 718. |
|
(6) |
|
This value represents the aggregate grant date fair value of 22,680
shares of restricted stock, granted to Mr. Robinson on March 14,
2008, at a share price of $26.46, which was the closing price for a
share of our common stock on the New York Stock Exchange on March 14,
2008, for an aggregate grant date fair value of $600,113, computed in
accordance with the FASB ASC Topic 718. However, as discussed in
footnote 1, 50% of Mr. Robinsons March 14, 2008 restricted stock
award was forfeited in February 2009 because we did not achieve
budgeted EBT for fiscal 2008. As a result of this forfeiture, the
adjusted value of the restricted stock granted to Mr. Robinson on
March 14, 2008, at a share price of $26.46, was $300,056. |
|
(7) |
|
This value includes the aggregate grant date fair value of 20,000
shares of restricted stock, granted to Mr. Zaebst on March 12, 2010,
at a share price of $28.79, which was the closing price for a share
of our common stock on the New York Stock Exchange on March 12, 2010,
for an aggregate grant date fair value of $575,800 computed in
accordance with FASB ASC Topic 718. |
|
(8) |
|
For the fiscal year ended December 31, 2008, $24,750 of Mr. Zaebsts
base salary shown on the Summary Compensation Table above was
deferred under the Executive Nonqualified Excess Plan. |
21
(9) |
|
This value represents the aggregate grant date fair value of 18,140
shares of restricted stock, granted to Mr. Zaebst on March 14, 2008,
at a share price of $26.46, which was the closing price for a share
of our common stock on the New York Stock Exchange on March 14, 2008,
for an aggregate grant date fair value of $479,984, computed in
accordance with the FASB ASC Topic 718. However, as discussed in
footnote 1, 50% of Mr. Zaebsts March 14, 2008 restricted stock award
was forfeited in February 2009 because we did not achieve budgeted
EBT for fiscal 2008. As a result of this forfeiture, the adjusted
value of the restricted stock granted to Mr. Zaebst on March 14,
2008, at a share price of $26.46, was $239,992. |
|
(10) |
|
In December 2010, Mr. Buss transitioned from the General Counsel and
Secretary positions and became responsible for our media division in
addition to his other responsibilities as Executive Vice President.
Mr. Buss continues to be an Executive Vice President. |
|
(11) |
|
This value includes the aggregate grant date fair value of 20,000
shares of restricted stock, granted to Mr. Buss on March 12, 2010, at
a share price of $28.79, which was the closing price for a share of
our common stock on the New York Stock Exchange on March 12, 2010,
for an aggregate grant date fair value of $575,800 computed in
accordance with FASB ASC Topic 718. |
|
(12) |
|
This value represents the aggregate grant date fair value of 18,140
shares of restricted stock, granted to Mr. Buss on March 14, 2008, at
a share price of $26.46, which was the closing price for a share of
our common stock on the New York Stock Exchange on March 14, 2008,
for an aggregate grant date fair value of $479,984, computed in
accordance with the FASB ASC Topic 718. However, as discussed in
footnote 1, 50% of Mr. Buss March 14, 2008 restricted stock award
was forfeited in February 2009 because we did not achieve budgeted
EBT for fiscal 2008. As a result of this forfeiture, the adjusted
value of the restricted stock granted to Mr. Buss on March 14, 2008,
at a share price of $26.46, was $239,992. |
|
(13) |
|
For the fiscal year ended December 31, 2010, $8,863 of Mr. Zwiefels
base salary shown on the Summary Compensation Table above was
deferred under the Executive Nonqualified Excess Plan. |
|
(14) |
|
This value includes the aggregate grant date fair value of 20,000
shares of restricted stock, granted to Mr. Zwiefel on March
12, 2010, at a share price of $28.79, which was the closing price for
a share of our common stock on the New York Stock Exchange on March
12, 2010, for an aggregate grant date fair value of $575,800 computed
in accordance with FASB ASC Topic 718. |
Grants of Plan-Based Awards in 2010
The following table sets forth certain information concerning plan-based awards granted to the
named executive officers during the 2010 fiscal year. No options were re-priced or modified during
the fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Payouts |
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Non- |
|
|
Estimated Future |
|
|
|
|
|
|
|
|
|
|
Equity Incentive |
|
|
Payouts Under Equity |
|
|
Grant Date Fair |
|
|
|
|
|
|
|
Plan Awards |
|
|
Incentive Plan Awards |
|
|
Value of Stock and |
|
|
|
|
|
|
|
Target |
|
|
Threshold |
|
|
Target |
|
|
Option Awards |
|
Name |
|
Grant Date |
|
|
($)(1) |
|
|
(#)(2) |
|
|
(#)(2) |
|
|
($)(3) |
|
Bahram Akradi |
|
|
3/12/2010 |
|
|
|
1,090,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/12/2010 |
|
|
|
|
|
|
|
62,782 |
|
|
|
83,710 |
|
|
|
2,410,011 |
|
Michael R. Robinson |
|
|
3/12/2010 |
|
|
|
167,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/12/2010 |
|
|
|
|
|
|
|
18,750 |
|
|
|
25,000 |
|
|
|
719,750 |
|
Mark L. Zaebst |
|
|
3/12/2010 |
|
|
|
134,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/12/2010 |
|
|
|
|
|
|
|
15,000 |
|
|
|
20,000 |
|
|
|
575,800 |
|
Eric J. Buss |
|
|
3/12/2010 |
|
|
|
134,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/12/2010 |
|
|
|
|
|
|
|
15,000 |
|
|
|
20,000 |
|
|
|
575,800 |
|
Jeffrey G. Zwiefel |
|
|
3/12/2010 |
|
|
|
134,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/12/2010 |
|
|
|
|
|
|
|
15,000 |
|
|
|
20,000 |
|
|
|
575,800 |
|
|
|
|
(1) |
|
These amounts represent the potential target bonus amounts available
to our executives for fiscal 2010 as described in the Annual Bonuses
section beginning on page 15. Actual target bonuses paid are
calculated based upon the relationship of our actual financial
performance to budgeted financial performance and are not limited by
any minimum or maximum thresholds. |
22
|
|
|
|
|
Accordingly, if actual financial
performance is less than budgeted financial performance, the actual
target bonus paid to the executive would be proportionately less than
the executives potential target bonus. At the same time, if actual
financial performance exceeds budgeted financial performance, the
actual target bonus paid to the executive would proportionately exceed
the executives potential target bonus. The actual amounts of the
target bonuses earned by our executives during fiscal 2010 are listed
in the Non-Equity Incentive Plan Compensation column of the Summary
Compensation Table on page 20. |
|
(2) |
|
The restricted stock granted on March 12, 2010, under our 2004 plan,
vest as to 25% of the total number of shares on March 1 of each of
2011, 2012, 2013 and 2014, subject to accelerated vesting in certain
circumstances. The number of restricted shares vesting on each regular
vesting date will be reduced pursuant to the sliding scale described
below in the event that we do not achieve budgeted EPS for fiscal
2010. If the budgeted EPS hurdle is not achieved, one percent (1%) of
the total restricted shares granted shall be forfeited for every one
percent (1%) by which our companys actual EPS for 2010 is less than
budgeted EPS for 2010, but once actual EPS drops to ten percent (10%)
less than budgeted EPS, then two percent (2%) of the total restricted
shares shall be forfeited for every additional one percent (1%) actual
EPS for 2010 is less than budgeted EPS for 2010; however, in no event
will the number of forfeited shares exceed 25% of the original number
of restricted shares. |
|
|
|
Executives may vote and receive dividends, if any, on restricted
shares that they hold. Restricted shares may not be transferred and
are subject to possible forfeiture until they vest. In the case of an
executives death or total disability (see Employment Agreements and
Change in Control Provisions on page 27), all restricted shares
(other than those granted in June 2009) then outstanding that have not
previously vested or been forfeited will vest. Finally, in the case of
the occurrence of a change in control (see Employment Agreements and
Change in Control Provisions on page 27), all restricted shares then
outstanding that have not previously vested or been forfeited will
vest immediately; provided that the restricted shares granted in June
2009 only vest if the employees employment is terminated for any
reason other than cause following a change of control or if the
restricted shares are not assumed or replaced by the surviving or
acquiring entity on economically equivalent terms, as determined by
our compensation committee. |
|
(3) |
|
Valuation of awards based on the grant date fair value of those awards
computed in accordance with FASB ASC Topic 718 utilizing assumptions
discussed in note 8 to our consolidated financial statements for the
fiscal year ended December 31, 2010. At the time of grant, we deemed
the achievement of the EPS targets for the June 2009 restricted stock
grants as not probable, and therefore, the aggregate grant date fair
market value of these awards is not included in the values listed in
this column. In the fourth quarter of 2010, we determined that
achieving the first fiscal 2011 EPS target was probable, with respect to 50% of the restricted
stock, as explained
in footnote 1 of the Summary Compensation Table on page 20. |
Outstanding Equity Awards at 2010 Fiscal Year-End
The following table sets forth certain information concerning equity awards outstanding to the
named executive officers at December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
Stock Awards |
|
|
Number of |
|
Number of |
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
Securities |
|
Securities |
|
|
|
|
|
|
|
|
|
Shares or Units |
|
Market Value of |
|
|
Underlying |
|
Underlying |
|
Option |
|
|
|
|
|
of Stock That |
|
Shares or Units |
|
|
Unexercised |
|
Unexercised |
|
Exercise |
|
Option |
|
Have Not |
|
of Stock That |
|
|
Options (#) |
|
Options (#) |
|
Price |
|
Expiration |
|
Vested |
|
Have Not Vested |
Name |
|
Exercisable |
|
Unexercisable |
|
($) |
|
Date |
|
(#) |
|
($)(1) |
Bahram Akradi |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
681,391 |
(2) |
|
|
27,930,217 |
|
Michael R. Robinson |
|
|
7,500 |
(3) |
|
|
|
|
|
|
8.00 |
|
|
|
3/13/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
2,000 |
(4) |
|
|
|
|
|
|
8.00 |
|
|
|
4/1/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
43,000 |
(5) |
|
|
|
|
|
|
12.00 |
|
|
|
12/17/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
67,500 |
(6) |
|
|
|
|
|
|
18.50 |
|
|
|
6/29/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
(7) |
|
|
|
|
|
|
25.47 |
|
|
|
3/1/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,837 |
(8) |
|
|
7,166,569 |
|
Mark L. Zaebst |
|
|
2,000 |
(9) |
|
|
|
|
|
|
8.00 |
|
|
|
4/1/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
9,375 |
(10) |
|
|
|
|
|
|
25.47 |
|
|
|
3/1/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140,118 |
(11) |
|
|
5,743,437 |
|
Eric J. Buss |
|
|
7,500 |
(12) |
|
|
|
|
|
|
12.00 |
|
|
|
12/17/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
21,600 |
(6) |
|
|
|
|
|
|
18.50 |
|
|
|
6/29/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
12,500 |
(10) |
|
|
|
|
|
|
25.47 |
|
|
|
3/1/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139,686 |
(13) |
|
|
5,733,189 |
|
Jeffrey G. Zwiefel |
|
|
2,000 |
(14) |
|
|
|
|
|
|
12.00 |
|
|
|
12/17/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
9,000 |
(15) |
|
|
|
|
|
|
25.47 |
|
|
|
3/1/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,928 |
(16) |
|
|
5,448,719 |
|
23
|
|
|
(1) |
|
Value based on a share price of $40.99, which was the closing price
for a share of our common stock on the New York Stock Exchange on
December 31, 2010. |
|
(2) |
|
Includes a restricted stock award of 50,000 shares granted on March
14, 2007, which vests 25% of the total number of shares on March 1 of
each of 2008, 2009, 2010 and 2011, subject to accelerated vesting in
certain circumstances. Also includes a restricted stock award of
188,960 shares granted on March 14, 2008, which vests 25% of the
total number of shares on March 1 of each of 2009, 2010, 2011 and
2012, subject to accelerated vesting in certain circumstances.
However, 25% of Mr. Akradis March 14, 2008 restricted stock award
was forfeited because we did not achieve budgeted EBT for fiscal 2008
as described in footnote 1 to the Summary Compensation Table. Also
includes a restricted stock award of 205,761 shares granted on March
13, 2009, which vests 25% of the total number of shares on March 1 of
each of 2010, 2011, 2012 and 2013, subject to accelerated vesting in
certain circumstances. Also includes a restricted stock award of
360,000 shares granted on June 11, 2009, which will only vest if
certain EPS hurdles are achieved as described in footnote 1 to the
Summary Compensation Table. Also includes a restricted stock award of
83,710 shares granted on March 12, 2010, which vests 25% of the total
number of shares on March 1 of 2011, 2012, 2013 and 2014, subject to
accelerated vesting in certain circumstances. |
|
(3) |
|
Stock option granted on March 13, 2002 for 100,000 shares vested and
became exercisable in 20% increments on each annual anniversary of
the date of grant. |
|
(4) |
|
Stock option granted on April 1, 2003 for 5,000 shares vested and
became exercisable in 20% increments on January 1 of each of 2004,
2005, 2006, 2007 and 2008. |
|
(5) |
|
Stock option granted December 17, 2003 for 45,000 shares vested and
became exercisable in a 50% increment on August 15, 2005 and in 25%
increments on August 15 of each of 2006 and 2007. |
|
(6) |
|
The stock options granted to Mr. Robinson (67,500 shares) and Mr.
Buss (54,000 shares) on June 29, 2004 each vest as to 50% of the
shares on each of June 29, 2010 and June 29, 2011, subject to
accelerated market condition vesting. Under the market condition
vesting provisions, 20% of the shares vested on May 25, 2005 because
the public market price of our common stock closed at or above $25.00
for 90 consecutive calendar days and 20% of the shares vested on
September 7, 2005 because the public market price of our common stock
closed at or above $30.00 for 90 consecutive calendar days. In
addition, under the original performance vesting terms of the option,
20% of the shares were to vest if the stock price closed at or above
$35.00 for 90 consecutive calendar days, 20% of the shares were to
vest if the stock price closed at or above $40.00 for 90 consecutive
calendar days and 20% of the shares were to vest if the stock price
closed at or above $45.00 for 90 consecutive calendar days. On
December 16, 2005, the compensation committee of our companys board
of directors approved an amendment that reduced the number of
consecutive days during which the price must close at or above
$35.00, $40.00 and $45.00 from 90 to 60 consecutive days in order for
each of the last three tranches (each equal to 20% of the original
number of shares granted) to vest. Under the market condition vesting
provisions, 20% of the shares vested on December 26, 2005 because the
public market price of our common stock closed at or above $35.00 for
60 consecutive calendar days, 20% of the shares vested on April 10,
2006 because the public market price of our common stock closed at or
above $40.00 for 60 consecutive days and 20% of the shares vested on
May 15, 2006 because the public market of our common stock closed at
or above $45.00 for 60 consecutive days. |
|
(7) |
|
Stock option granted March 1, 2005 for 20,000 shares vests and
becomes exercisable in 25% increments on each annual anniversary of
the date of grant. |
|
(8) |
|
Includes a restricted stock award of 10,000 shares granted on March
14, 2007, which vests as to 25% of the total number of shares on
March 1 of each of 2008, 2009, 2010 and 2011, subject to accelerated
vesting in certain circumstances. Also includes a restricted stock
award of 22,680 shares granted on March 14, 2008, which vests as to
25% of the total number of shares on March 1 of each of 2009, 2010,
2011 and 2012, subject to accelerated vesting in certain
circumstances. However, 50% of Mr. Robinsons March 14, 2008
restricted stock award was forfeited because we did not achieve
budgeted EBT for fiscal 2008 as described in footnote 1 to the
Summary Compensation Table. Also includes a restricted stock award of
55,556 shares granted on March 13, 2009, which vests as to 25% of the
total number of shares on March 1 of each of 2010, 2011, 2012 and 2013,
subject to accelerated vesting in certain circumstances. Also
includes a restricted stock award of |
24
|
|
|
|
|
100,000 shares granted on June
11, 2009, which will only vest if certain EPS hurdles are achieved as
described in footnote 1 to the Summary Compensation Table. Also
includes a restricted stock award of 25,000 shares granted on March
12, 2010, which vests as to 25% of the total number of shares on
March 1 of each 2011, 2012, 2013 and 2014, subject to accelerated
vesting in certain circumstances. |
|
(9) |
|
Stock option granted on April 1, 2003 for 5,000 shares vested and
became exercisable in 20% increments on January 1 of each of 2004,
2005, 2006, 2007 and 2008. |
|
(10) |
|
Stock option granted on March 1, 2005 for 12,500 shares vests and
becomes exercisable in 25% increments on each annual anniversary of
grant. |
|
(11) |
|
Includes a restricted award of 5,000 shares granted March 14, 2007,
which vests as to 25% of the total number of shares on March 1 of
each of 2008, 2009, 2010 and 2011, subject to accelerated vesting in
certain circumstances. Also includes restricted stock award of 4,000
shares granted on December 12, 2007, which vests as to 25% of the
total number of shares on March 1 of each of 2008, 2009, 2010 and
2011, subject to accelerated vesting in certain circumstances. Also
includes a restricted stock award of 18,140 shares granted on March
14, 2008, which vests as to 25% of the total number of shares on
March 1 of each of 2009, 2010, 2011 and 2012, subject to accelerated
vesting in certain circumstances. However, 50% of Mr. Zaebsts March
14, 2008 restricted stock award was forfeited because we did not
achieve budgeted EBT for fiscal 2008 as described in footnote 1 to
the Summary Compensation Table. Also includes a restricted stock
award of 44,444 shares granted on March 13, 2009, which vests as to
25% of the total number of shares on March 1 of each of 2010, 2011,
2012 and 2013, subject to accelerated vesting in certain circumstances.
Also includes a restricted stock award of 80,000 shares granted on
June 11, 2009, which will only vest if certain EPS hurdles are
achieved as described in footnote 1 to the Summary Compensation
Table. Also includes a restricted stock award of 20,000 shares
granted on March 12, 2010, which vests as to 25% of the total number
of shares on March 1 of each 2011, 2012, 2013 and 2014, subject to
accelerated vesting in certain circumstances. Includes 38,255.5
shares that have been transferred, directly or through transfer of
economic interests therein, pursuant to a domestic relations order. |
|
(12) |
|
Stock option granted December 17, 2003 for 15,000 shares vested and
became exercisable in a 50% increment on August 15, 2005 and in 25%
increments on August 15 of each of 2006 and 2007. |
|
(13) |
|
Includes a restricted stock award of 8,000 shares granted on March
14, 2007, which vests as to 25% of the total number of shares on
March 1 of each of 2008, 2009, 2010 and 2011, subject to accelerated
vesting in certain circumstances. Also includes a restricted stock
award of 18,140 shares granted on March 14, 2008, which vests as to
25% of the total number of shares on March 1 of each of 2009, 2010,
2011 and 2012, subject to accelerated vesting in certain
circumstances. However, 50% of Mr. Buss March 14, 2008 restricted
stock award was forfeited because we did not achieve budgeted EBT for
fiscal 2008 as described in footnote 1 to the Summary Compensation
table. Also includes a restricted stock award of 44,444 shares
granted on March 13, 2009, which vests as to 25% of the total number
of shares on March 1 of each of 2010, 2011, 2012 and 2013, subject to
accelerated vesting in certain circumstances. Also includes a
restricted stock award of 80,000 shares granted on June 11, 2009,
which will only vest if certain EPS hurdles are achieved as described
in footnote 1 to the Summary Compensation Table. Also includes a
restricted stock award of 20,000 shares granted on March 12, 2010,
which vests as to 25% of the total number of shares on March 1 of
each 2011, 2012, 2013 and 2014, subject to accelerated vesting in
certain circumstances. |
|
(14) |
|
Stock option granted December 17, 2003 for 5,000 shares vested and
became exercisable in a 50% increment on August 15, 2005 and in 25%
increments on August 15 of each of 2006 and 2007. |
|
(15) |
|
Stock option granted on March 1, 2005 for 18,000 shares vests and
becomes exercisable in 25% increments on each annual anniversary of
grant. |
|
(16) |
|
Includes a restricted stock award of 5,000 shares granted on March
14, 2007, which vests as to 25% of the total number of shares on
March 1 of each of 2008, 2009, 2010 and 2011, subject to accelerated
vesting in certain circumstances. Also includes a restricted stock
award of 10,600 shares granted on March 14, 2008, which vests as to
25% of the total number of shares on March 1 of each of 2009, 2010,
2011 and 2012, subject to accelerated vesting in certain
circumstances. However, 50% of Mr. Zwiefels March 14, 2008
restricted stock award was forfeited, a grant date value of $140,238,
because we did not achieve budgeted EBT for fiscal 2008. Also
includes a restricted stock award of 2,500 shares granted on June 11,
2008, which vests as to 25% of the total number of shares on March 1
of each of 2009, 2010, 2011 and 2012, subject to accelerated vesting in
certain circumstances. Also includes a restricted stock award of
37,037 shares granted on March 13, 2009, which |
25
|
|
|
|
|
vests as to 25% of the
total number of shares on March 1 of each of 2010, 2011, 2012 and 2013,
subject to accelerated vesting in certain circumstances. Also
includes a restricted stock award of 80,000 shares granted on June
11, 2009, which will only vest if certain EPS hurdles are achieved as
described in footnote 1 to the Summary Compensation Table. Also
includes a restricted stock award of 20,000 shares granted on March
12, 2010, which vests as to 25% of the total number of shares on
March 1 of each 2011, 2012, 2013 and 2014, subject to accelerated
vesting in certain circumstances. |
2010 Option Exercises and Stock Vested
The following table sets forth certain information concerning options exercised and stock
vested during fiscal 2010 for the named executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Stock Awards |
|
|
|
Number of Shares |
|
|
Value |
|
|
Number of Shares |
|
|
Value |
|
|
|
Acquired |
|
|
Realized on |
|
|
Acquired |
|
|
Realized on |
|
|
|
on Exercise |
|
|
Exercise |
|
|
on Vesting |
|
|
Vesting |
|
Name |
|
(#) |
|
|
($) |
|
|
(#) |
|
|
($) |
|
Bahram Akradi |
|
|
37,500 |
|
|
|
254,250 |
|
|
|
111,870 |
|
|
|
2,934,350 |
|
Michael R. Robinson |
|
|
|
|
|
|
|
|
|
|
22,099 |
|
|
|
586,057 |
|
Mark L. Zaebst |
|
|
|
|
|
|
|
|
|
|
17,754 |
|
|
|
468,887 |
|
Eric J. Buss |
|
|
|
|
|
|
|
|
|
|
17,504 |
|
|
|
459,130 |
|
Jeffrey G. Zwiefel |
|
|
|
|
|
|
|
|
|
|
13,834 |
|
|
|
362,866 |
|
Nonqualified Deferred Compensation for 2010
The following table sets forth certain information concerning nonqualified deferred
compensation contributed to the Executive Nonqualified Excess Plan of Life Time Fitness of amounts
earned during fiscal 2010 for the named executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive |
|
|
Registrant |
|
|
Aggregate |
|
|
Aggregate |
|
|
Aggregate |
|
|
|
Contributions in |
|
|
Contributions in |
|
|
Earnings in Last |
|
|
Withdrawals/ |
|
|
Balance at Last |
|
|
|
Last FY |
|
|
Last FY |
|
|
FY |
|
|
Distributions |
|
|
FYE |
|
Name |
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($)(1) |
|
Bahram Akradi |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael R. Robinson |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark L. Zaebst |
|
|
0 |
|
|
|
|
|
|
|
3,650 |
(2) |
|
|
|
|
|
|
28,536 |
|
Eric J. Buss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey G. Zwiefel |
|
|
8,863 |
(3) |
|
|
3,722 |
|
|
|
7,866 |
(4) |
|
|
|
|
|
|
56,246 |
|
|
|
|
(1) |
|
For fiscal 2009, Mr. Zaebst deferred $0 to our Executive Nonqualified
Excess Plan, however, Mr. Zaebsts prior balance had aggregate
earnings of $5,265 on a 26.83% rate of return for an aggregate balance
of $24,886. For fiscal 2008, Mr. Zaebst deferred $24,750 to our
Executive Nonqualified Excess Plan, which resulted in a loss of $5,129
on a -40.92% rate of return for an aggregate balance of $19,621 for
the fiscal year ended December 31, 2008. Of that amount, all $24,750
was reported in the Salary column of the Summary Compensation Table
for the fiscal year ended December 31, 2008. |
|
(2) |
|
The earnings listed represent, as determined by the third party
administrator of the Executive Nonqualified Excess Plan of Life Time
Fitness, the change in the value of the investment choices selected by
the participant during the fiscal year, weighted for activity, such as
increases credited under the plan, transfers, and distributions, and
taking into consideration any fees, reinvestments, net asset value
changes, and earnings credited to the investment choices. Mr. Zaebsts
rate of return was 14.66%. |
|
(3) |
|
This amount was reported in the Salary column of the Summary
Compensation Table for the fiscal year ended December 31, 2010. |
|
(4) |
|
The earnings listed represent, as determined by the third party
administrator of the Executive Nonqualified Excess Plan of Life Time
Fitness, the change in the value of the investment choices selected by
the participant during the fiscal year, weighted for activity, such as
increases credited under the plan, transfers, and distributions, and
taking into consideration any fees, reinvestments, net asset value
changes, and earnings credited to the investment choices. Mr.
Zwiefels rate of return was 16.32%. |
26
All highly compensated employees eligible to participate in the Executive Nonqualified
Excess Plan of Life Time Fitness, including but not limited to our executives, may elect to defer
up to 50% of their annual base salary and/or annual bonus earnings to be paid in any coming year.
The investment choices available to participants under the non-qualified deferred compensation plan
are of the same type and risk categories as those offered under our companys 401(k) plan and may
be modified or changed by the participant or our company at any time. Distributions can be paid out
as in-service payments or at retirement. Upon retirement, a participants account benefits can be
paid out as a lump sum or in annual installments over a term of up to 10 years. We may make
matching contributions and/or discretionary contributions to this plan. However, any matching
contribution made by the company to participants under this plan is limited to the maximum matching
contribution that such participant would have received under our 401(k) plan. If we did desire to
make contributions to this plan, the contributions would vest to each participant according to
their years of service with our company.
Equity Ownership Guidelines
We encourage our executives and directors to hold company shares, however, we do not have
formal stock ownership guidelines.
In February 2007 we adopted a formal equity grant policy governing all awards granted under
our stock incentive plans, including the grant of any shares of our common stock, restricted
shares, restricted stock units, stock options, stock appreciation rights, deferred stock units,
phantom stock and performance units. This policy was amended and restated in December 2010.
This policy maintains that no grants are to occur on a date when our insider trading window is
closed. Annual grants, which must be approved by our compensation committee if the grant is to an
executive vice president or vice president, are to occur on or about the same time every year. Any
new hire grants are to be approved by our compensation committee, if to an executive vice president
or vice president, at their next meeting that occurs during an open trading window, which shall, as
amended, be held on the first Monday following the close of each blackout period. However, any such
meeting may be cancelled by our compensation committee if it deems there are not a significant
number of grants to be approved. The policy requires that all grants of awards to any members of
our board of directors must be approved by our board of directors and that all grants of awards to
any current or new hire executive officers must be approved by our compensation committee. In
December 2010, we amended the policy to allow our chief executive officer to make grants to
employees that are not an executive vice president or vice president, subject to the policys
conditions. The grant of any awards made by our chief executive officer shall be reported to our
compensation committee at its next regularly scheduled meeting.
This policy also maintains that upon the compensation committees request, they may receive
and review a report from a compensation consultant hired by the compensation committee that
includes relevant survey and benchmarking data prior to approving annual awards for executive
officers as well as prior to approving awards to any new hire executive officers. In connection
with approving grants of awards to any executive officer, the policy holds that our compensation
committee is to review total compensation for such person for the most recent three year period, or
such lesser time as the person has been employed by us. The review is to include a listing of all
equity awards granted to such executive officer in the three year period and a listing of all
outstanding equity awards issued to such executive officer. Our compensation committee may consider
recommendations of any executive officer when approving awards, other than recommendations by an
individual for his or her own award.
Employment Agreements and Change of Control Provisions
In December 2008, our compensation committee approved a revised form of employment agreement
for certain of our executive officers. During December 2008, the revised employment agreements were
executed by each of our executive officers. As previously discussed, Mr. Akradi does not currently
have an employment agreement with us.
The employment agreements provide that if an executives employment is terminated by us other
than for cause, death or disability, or the executive terminates his employment for good reason,
other than within one year following a change of control, then we are to provide the executive with
(i) payment in an amount equal to 1 1/2 times the executives Target Salary (defined as the sum of
the executives annual base salary and annual target payout under our annual cash-based incentive
plan) in effect as of the termination date (or, if executive resigns for good reason due to a 25%
or greater reduction in executives Target Salary, the Target Salary in effect immediately prior to
the reduction) payable in accordance with the schedule and limitations described below; (ii) up to
$10,000 in aggregate reasonable outplacement costs associated with the executives search for new
employment during the first 12 months following the termination date; and (iii) continuation of
medical plan coverage and life insurance coverage for a period of up to 18 months, not to exceed
the COBRA continuation period, at the same level, in the same manner and at the same cost to the
executive as in effect on the termination date of employment.
27
The payment of executives Target Salary in (i) above will be paid in equal installments in
accordance with our regular payroll schedule commencing on the first regular payroll date after the
date of executives termination of employment, provided that the amount equal to 1/2 of executives
Target Salary that is otherwise payable in the first six months following the termination date
shall not exceed the amount that would cause the payments to be considered a deferral of
compensation under Section 409A.
The employment agreements define good reason as any of the following events, provided that
the executive gives written notice to our company within 90 days of the first occurrence of the
event and we fail to remedy the condition within 30 days thereafter:
|
|
|
our breach of any material terms or conditions of the employment agreement; |
|
|
|
|
our executive offices are relocated outside of a 75 mile radius of its current location,
if the relocation results in a material change to the location where the executive performs
services for us; |
|
|
|
|
our reduction of an executives Target Salary by 25% or more, or our material reduction
of an executives duties and responsibilities; or |
|
|
|
|
our assignment of duties and responsibilities to an executive that are materially
inconsistent with the executives position and experience, which results in a material
reduction in the executives duties, responsibilities or authority. |
The employment agreements generally define cause as our determination in good faith that an
executive has:
|
|
|
engaged in willful and deliberate acts of dishonesty, fraud or unlawful behavior that
adversely affects our business affairs; |
|
|
|
|
been convicted of or pleaded no contest to a felony; |
|
|
|
|
been grossly negligent or engaged in willful misconduct in performing his or her duties
and responsibilities and thereby materially adversely affected our business affairs; |
|
|
|
|
refused to substantially perform or persistently neglected his or her duties and
responsibilities, or experienced chronic unapproved absenteeism; |
|
|
|
|
demonstrated an inability to perform the duties of his or her position, and is unable to
satisfy within 60 days the conditions of any resulting performance improvement plan; or |
|
|
|
|
breached any material terms or conditions of the employment agreement. |
Events relating to executives absenteeism, neglect or refusal to perform, or inability to
perform, will constitute cause only if we provide the executive with written notice of the event
and the executive fails to remedy the event within 21 business days.
Termination Other than for Cause, Death or Disability or Termination for Good Reason (Other than
Within One Year Following a Change of Control)
The following table presents the estimated total amounts that would be paid out to the
executive officer if his employment was terminated other than for cause, death or disability, or
the executive terminated his employment for good reason, as of December 31, 2010, other than within
one year following a change of control of our company. In addition to the amounts included below,
certain terminations for good reason will result in acceleration of stock options, the
circumstances of which are described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
Continued |
|
|
|
|
|
|
Cash Severance |
|
|
Outplacement |
|
|
Benefits |
|
|
Total Potential |
|
|
|
Payments |
|
|
Costs |
|
|
Coverage |
|
|
Payout |
|
Name |
|
($)(1) |
|
|
($) |
|
|
($) |
|
|
($) |
|
Bahram Akradi |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael R. Robinson |
|
|
761,250 |
|
|
|
10,000 |
|
|
|
|
|
|
|
771,250 |
|
Mark L. Zaebst |
|
|
611,250 |
|
|
|
10,000 |
|
|
|
|
|
|
|
621,250 |
|
Eric J. Buss |
|
|
611,250 |
|
|
|
10,000 |
|
|
|
|
|
|
|
621,250 |
|
Jeffrey G. Zwiefel |
|
|
611,250 |
|
|
|
10,000 |
|
|
|
|
|
|
|
621,250 |
|
|
|
|
(1) |
|
Cash Severance Payments are calculated based on the executives Target Salary on the date of termination. |
28
Termination Other than for Cause, Death or Disability or Termination for Good Reason Within One
Year of a Change of Control
The employment agreements also provide that if the executives employment with us or a
successor is terminated by us within one year of a change of control for any reason other than
cause, death or disability, or by the executive within one year of a change of control for good
reason, then the executive will receive the same benefits as set forth above, subject to the same
schedule and limitations; and in addition, we will pay the executive an amount equal to 1/4 of the
Target Salary, payable in equal installments in accordance with our regular payroll schedule over
the 3-month period beginning after completion of the Target Salary payments described above.
In addition, our 2004 Plan and the agreements relating to stock option and restricted stock
awards subject to that plan provide that all stock option awards will become immediately
exercisable in full and all restricted stock awards will fully vest immediately upon a change of
control of our company. However, in the event of a change of control, our compensation committee
has the right to cancel any outstanding options under the 2004 Plan and to cause us to instead pay
the optionee the excess of the fair market value of the option shares covered by the option over
the exercise price of the option at the date that our compensation committee provides a buy-out
notice.
Awards granted before April 24, 2008, under the 2004 Plan, define change of control as
consisting of any of the following events:
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a change in the composition of our board of directors such that the individuals who
constitute the board of directors cease for any reason to constitute at least a majority of
our board of directors, provided that any director who was approved by a majority of our
incumbent directors (other than in connection with a proxy contest) shall be considered an
original member of our board of directors; |
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the consummation of a merger, tender offer or consolidation of our company with any other
corporation, other than a merger or consolidation that would result in the voting securities
of our company outstanding prior to the transaction continuing to represent at least 45% of
the combined voting power of the voting securities of us or the surviving entity; or |
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the consummation of a sale of all or substantially all of the assets of our company,
other than in connection with the sale-leaseback of our real estate. |
The employment agreements, as well as awards granted after April 24, 2008 under the 2004 Plan,
define change of control as consisting of any of the following events:
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a change in the composition of our board of directors such that the individuals who
constitute the board of directors cease for any reason to constitute at least 50% of our
board of directors, provided that any director who was approved by a majority of our
incumbent directors (other than in connection with a proxy contest) shall be considered an
original member of our board of directors; |
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the consummation of a merger or consolidation of our company with any other corporation
or other entity, a statutory share exchange involving our capital stock, or a sale or other
disposition of all or substantially all of our assets (other than in connection with a
sale-leaseback of our companys real estate) unless our shareholders own a majority of the
voting power and common stock of the surviving corporation and other conditions are
satisfied; |
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the acquisition of beneficial ownership by a person or group which results in aggregate
beneficial ownership of 30% or more of voting power or common stock, subject to certain
exceptions; or |
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a plan to liquidate or dissolve our company. |
The following table presents (i) the estimated total amounts that would be paid out (including
the cost of continued benefits coverage to our company) to each named executive officer if the
officers employment were terminated by us or a successor for any reason other than cause, death or
disability, or by the named executive officer for good reason, as of December 31, 2010, and within
29
one year of a change of control; and (ii) the intrinsic value of restricted stock awards whose
vesting would be accelerated, if a change of control occurred as of December 31, 2010:
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Aggregate |
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Continued |
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Value of |
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Cash Severance |
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Outplacement |
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Benefits |
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Accelerated |
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Total Potential |
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Payments |
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Costs |
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Coverage |
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Equity Awards |
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Payout |
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Name |
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($)(1) |
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($) |
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($) |
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($)(2) |
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($) |
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Bahram Akradi |
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27,930,217 |
(3) |
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27,930,217 |
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Michael R. Robinson |
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888,125 |
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10,000 |
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7,166,569 |
(4) |
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8,064,694 |
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Mark L. Zaebst |
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713,125 |
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10,000 |
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5,743,437 |
(5) |
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6,466,562 |
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Eric J. Buss |
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713,125 |
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10,000 |
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5,733,189 |
(5) |
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6,456,314 |
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Jeffrey G. Zwiefel |
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713,125 |
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10,000 |
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5,448,719 |
(5) |
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6,171,844 |
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(1) |
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Cash Severance Payments are calculated based on the executives Target Salary on the date of termination. |
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(2) |
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Value based on a share price of $40.99, which was closing price for a share of our common stock on the
NYSE on December 31, 2010. Value of restricted stock awards is determined by multiplying that closing
share price by the number of restricted shares. There were no unvested stock options as of December 31,
2010. |
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(3) |
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Of the amount shown, $14,756,400 relates to the June 2009 restricted stock award, which only vests if
the employees employment is terminated for any reason other than cause following a change of control or
if the restricted shares are not assumed or replaced by the surviving or acquiring entity on
economically equivalent terms, as determined by our compensation committee. |
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(4) |
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Of the amount shown, $4,099,000 relates to the June 2009 restricted stock award, which only vests if the
employees employment is terminated for any reason other than cause following a change of control or if
the restricted shares are not assumed or replaced by the surviving or acquiring entity on economically
equivalent terms, as determined by our compensation committee. |
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(5) |
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Of the amount shown, $3,279,200 relates to the June 2009 restricted stock award, which only vests if the
employees employment is terminated for any reason other than cause following a change of control or if
the restricted shares are not assumed or replaced by the surviving or acquiring entity on economically
equivalent terms, as determined by our compensation committee. |
Payment of severance benefits under our employment agreements, whether or not termination is
in connection with a change of control, is conditioned upon the executive signing and not
rescinding a global release of all claims against us, and remaining in compliance with his
obligations under the employment agreement to (i) protect our confidential information, (ii)
refrain from competing with us for 18 months (or 24 months in connection with a change of control)
after his termination of employment, (iii) refrain from hiring any of our employees for 12 months
after his termination of employment, and (iv) refrain from soliciting any of our customers or
inducing any customer or supplier to stop doing business with us for 12 months after his
termination of employment.
Acceleration of Vesting of Equity Awards
Under our 2004 Plan, if an executives employment is terminated due to death or disability,
any outstanding stock option will immediately become exercisable in full for one year (or until the
option expires, if that occurs sooner), and any restricted stock award will vest in proportion to
the term of the award during which the executive was employed.
Beginning in 2006, each restricted stock agreement granted by us to our employees, including
our executive officers, provides for the complete vesting of all restricted stock upon termination
of employment due to death or disability. However, the restricted stock agreements issued in
connection with the June 11, 2009, restricted stock grant do not provide for complete vesting of
all restricted stock upon termination of employment due to death or disability. If an executives
employment terminates for any reason other than death, disability or cause (defined in a manner
similar to that in our employment agreements), his outstanding stock options will remain
exercisable for a period of 90 days after termination to the extent they were exercisable
immediately before termination, but any unvested shares of restricted stock will be forfeited. The
following table presents the value of the restricted stock awards whose
vesting would be accelerated, if the named executive officers employment were terminated due
to death or disability as of December 31, 2010:
30
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Value of Accelerated |
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Equity Awards |
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Name |
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($)(1) |
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Bahram Akradi |
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13,173,817 |
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Michael R. Robinson |
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3,067,569 |
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Mark L. Zaebst |
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2,464,237 |
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Eric J. Buss |
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2,453,989 |
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Jeffrey G. Zwiefel |
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2,169,519 |
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(1) |
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Value based on a share price of $40.99 which was the closing price for
a share of our common stock on the NYSE on December 31, 2010. The
value of accelerated restricted stock awards is determined by
multiplying that closing share price by the number of restricted
shares whose vesting is accelerated. There were no unvested stock
options as of December 31, 2010. |
Compensation of Directors
Non-employee directors are compensated for serving as directors with a grant of restricted
stock, an annual stipend, and annual chairperson and lead director fees, if applicable, and are
also reimbursed for out-of-pocket traveling expenses incurred in attending board and committee
meetings.
Director Compensation Table
The following table shows, for each of our non-employee directors, information concerning
annual cash and long-term equity compensation earned for services in all capacities during the
fiscal year ended December 31, 2010.
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Fees Earned or Paid |
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Name |
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in Cash ($) |
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Stock Awards ($)(1) |
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Total ($) |
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Giles H. Bateman |
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73,231 |
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74,991 |
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148,222 |
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Jack W. Eugster |
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63,231 |
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74,991 |
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138,222 |
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Guy C. Jackson |
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78,231 |
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74,991 |
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153,222 |
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John K. Lloyd |
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63,231 |
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74,991 |
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138,222 |
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Martha A. Morfitt |
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63,231 |
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74,991 |
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138,222 |
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John B. Richards |
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73,231 |
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74,991 |
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148,222 |
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Joseph S. Vassalluzzo |
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168,231 |
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99,988 |
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268,219 |
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(1) |
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Valuation of awards based on the grant date fair value of those awards
computed in accordance with FASB ASC Topic 718 utilizing assumptions
discussed in note 8 to our consolidated financial statements for the fiscal
year ended December 31, 2010. |
All stock awards granted to non-employee directors have been in the form of restricted stock
issued under our 2004 Plan. Directors may vote and receive dividends, if any, at the normal
dividend rate on restricted shares that they hold. Restricted shares may not be transferred and are
subject to possible forfeiture until they vest, which occurs when a director ceases to be a member
of our board of directors for any reason other than death, total disability or retirement unless
our board of directors determines otherwise. In the event of the death, total disability or
retirement of a non-employee director prior to the granting of a restricted stock award in respect
of the fiscal year in which such event occurred, the restricted stock award may, in the discretion
of our board of directors, be granted in respect of such fiscal year to the retired or disabled
non-employee director or his or her estate. In addition, in the case of a non-employee directors
death, total disability or retirement or the occurrence of a change of control under our 2004 Plan
(see Employment Agreements and Change in Control
Provisions section on page 27), all restricted
shares outstanding to non-employee directors that have not previously vested or been forfeited will
vest immediately.
The following table shows, for each of our non-employee directors, the aggregate number of
stock awards outstanding as of December 31, 2010:
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Aggregate Stock |
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Awards |
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Outstanding as of |
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Name |
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12/31/10 (#) |
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Giles H. Bateman |
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5,839 |
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Jack W. Eugster |
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4,739 |
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Guy C. Jackson |
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5,839 |
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John K. Lloyd |
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4,739 |
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Martha A. Morfitt |
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6,113 |
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John B. Richards |
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5,839 |
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Joseph S. Vassalluzzo |
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7,545 |
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31
Stipend
An annual stipend of $60,000 is paid to each non-employee director. The stipend is paid in
cash quarterly after the end of each calendar quarter, in arrears.
Chairperson Fees
The chairpersons of our audit and compensation committees each receive an annual payment of
$15,000, and the chairpersons of our governance and nominating committee and finance committee each
receive an annual payment of $10,000. The annual committee chairperson fees are paid in cash
quarterly after the end of each calendar quarter, in arrears.
Lead Director Fees
Our companys non-employee lead director receives an additional fee of $90,000 annually. The
lead director fee is paid in cash quarterly after the end of each calendar quarter, in arrears.
Restricted Stock
Each non-employee director who joins our board of directors after March 1, 2004 receives an
initial grant of restricted stock with a fair market value at grant date of $100,000 in connection
with such a director becoming a member of our board of directors. The date of grant for such
director is the date of such directors election to our board of directors and the restrictions on
the restricted stock lapse ratably on each annual anniversary of the date of grant over a
three-year period. We had no new non-employee directors in fiscal year 2010.
Each non-employee director receives an annual restricted stock grant with a fair market value
at grant date of $75,000 on the date of our annual shareholder meeting, the restrictions on which
lapse ratably on each annual anniversary of the date of grant over a three-year period. Pursuant to
this provision, Messrs. Bateman, Eugster, Jackson, Lloyd and Richards and Ms. Morfitt were each
granted 2,067 shares of restricted stock on April 27, 2010.
Our lead director receives an annual restricted stock grant with a fair market value at grant
date of $100,000 on the date of our annual shareholder meeting, the restrictions on which lapse
ratably on each annual anniversary of the date of grant over a three-year period. Pursuant to this
provision, Mr. Vassalluzzo was granted 2,756 shares of restricted stock on April 27, 2010.
Other Compensation
For the fiscal year ended December 31, 2010, all non-employee directors were provided a
payment equal to the value of a one year Life Time Fitness Onyx Family Membership. Beginning fiscal
year 2011, we expect to provide a payment equal to the value of a one-year Life Time Fitness
Diamond Family Membership to all non-employee directors.
We reimburse all non-employee directors for out-of-pocket traveling expenses incurred in
attending board and committee meetings.
PROPOSAL NO. 3
APPROVAL OF THE LIFE TIME FITNESS, INC. 2011 LONG-TERM INCENTIVE
PLAN
Introduction
On February 28, 2011, our board of directors, upon recommendation of the compensation
committee of the board, approved the Life Time Fitness, Inc. 2011 Long-Term Incentive Plan (the
2011 Plan), subject to shareholder approval. The purpose of the 2011 Plan is to provide
long-term incentives to persons with responsibility for success and growth at our company. The
2011 Plan authorizes the issuance of up to 2,500,000 shares of our common stock pursuant to awards
granted under the 2011 Plan. We will
32
cease making awards under the Amended and Restated 2004
Long-Term Incentive Plan (the 2004 Plan) upon shareholder approval of the 2011 Plan.
Why We Believe You Should Vote for the 2011 Plan
Our board of directors believes that equity-based incentives are an important part of total
compensation for our executives as well as for certain other senior and management-level employees.
We believe that shareholders should approve this new plan for the following reasons:
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Compensation Philosophy. As described in our Compensation Discussion and Analysis, our
compensation goals include attracting, motivating and retaining qualified talent. We believe
that equity compensation is one of the most effective tools to achieve this goal. We also
strive to motivate our executives to improve the overall performance of our company and
reward executives for achieving measurable results. In the recent past, we have primarily
used restricted shares, with a performance-based vesting component, to achieve this goal. We
also seek to align our executives long-term interests with those of our shareholders, and
believe that equity-based incentives are the best way to achieve this alignment. Consistent
with our goals for the future, we believe that equity-based incentives will continue to play
an important role in our ability to incentivize our executives and other employees. |
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Significant Growth. Since the time of our initial public offering in 2004, we have grown
from approximately 7,700 employees to approximately 19,000 employees. Equity awards make up a
significant portion of total compensation for our employees, not just our executive officers.
We believe that awarding equity compensation to align the interests of many of our employees
with the interests of our shareholders has a material impact on our ability to provide
shareholder value. |
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Plan Provisions Designed to Serve Shareholders Interests and Promote Effective Corporate
Governance. The 2011 Plan, which is summarized in more detail below, includes several
provisions that are designed to service the interests of our shareholders and promote
effective corporate governance, including: |
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The 2011 Plan is administered by our independent compensation committee. |
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The 2011 Plan does not permit liberal share counting. Shares delivered or withheld
to pay the exercise price or satisfy a tax withholding obligation in connection with any
award and shares subject to a stock appreciation right that are not issued in connection
with the stock settlement of stock appreciation rights may not be used again for new
grants. We may not use shares repurchased using option exercise proceeds for new grants. |
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We cannot issue stock options or stock appreciation rights at an exercise price
that is less than the fair market value of our common stock on the date of grant. |
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Time-based restricted shares must vest over a period of at least three years and
performance-awards generally must vest over a period of at least one year, except as
determined by the compensation committee. |
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The 2011 Plan generally provides for the forfeiture of outstanding awards if our
compensation committee determines that the employee has engaged in certain misconduct,
including disclosure or misuse of confidential information, breach of a fiduciary duty to
the company, engaging in unlawful insider trading or commission of a felony or other
serious crime. |
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Dividends or dividend equivalents payable on restricted shares, restricted share
units and performance-based awards will be subject to the same restrictions as the
underlying shares or units. |
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The 2011 Plan has a ten year term. |
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We cannot materially modify the 2011 Plan without prior shareholder approval, which
includes amendments to increase the number of shares, extend the period for granting
awards, add new award types, change the performance measures for performance-based awards
and modify the eligibility requirements. |
33
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The 2011 Plan prohibits repricing of stock options or stock appreciation rights
without prior shareholder approval. Unlike the 2004 Plan, the 2011 Plan specifically
provides that cash buy-outs and voluntary surrender/re-grants are prohibited repricings. |
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Unlike the 2004 Plan, the 2011 Plan provides that awards granted under the 2011
Plan will be subject to any recoupment policy we adopt. We anticipate adopting a
recoupment policy after issuance of final SEC rules on this topic that implement the
requirements of the Dodd-Frank Wall Street Reform and Consumer
Protection Act. |
Summary of the 2011 Plan
The 2011 Plan will be effective when approved by our shareholders at the annual meeting. A
copy of the 2011 Plan is attached to this proxy statement as Appendix A, and this
discussion is qualified in its entirety by reference to the full text of the 2011 Plan.
Purposes of the 2011 Plan
The purposes of the 2011 Plan are to provide long-term incentives to those persons with
responsibility for our success and growth, to associate the interests of such persons with those of
our shareholders, to assist us in recruiting, retaining and motivating a diverse group of
employees, consultants, advisors and non-employee directors on a competitive basis, and to ensure a
pay-for-performance linkage for such employees and non-employee directors.
Administration
The 2011 Plan will be administered by our compensation committee. The compensation committee
has the authority to establish, amend and waive rules relating to the 2011 Plan; determine the
identity of participants, timing, type and amount of any awards; and determine other terms and
conditions of awards. The compensation committee may delegate its responsibilities under the 2011
Plan to (i) a subcommittee, (ii) to any one or more of its members, and (iii) to our employees for
the purposes of executing documents on behalf of the compensation committee or to otherwise assist
the compensation committee in the administration and operation of the 2011 Plan, provided that no
delegation may be made that would cause the awards or other transactions under the 2011 Plan to
cease to be exempt from Section 16(b) of the Securities Exchange Act of 1934 or cause an award to
cease to qualify for a performance based exception section forth in Section 162(m)(4)(C) of the
Internal Revenue Code.
Eligibility
All of our officers, employees, non-employee directors, consultants or advisors are eligible
to receive awards, other than incentive stock options, under the 2011 Plan. Incentive stock options
may only be granted to our employees who do not, at the time of grant, own stock possessing more
than ten percent (10%) of the total combined voting power of all classes of our stock.
Number of Shares Available for Issuance under 2011 Plan
As of February 28, 2011, the total number of shares of our common stock remaining available
for issuance under the 2004 Plan is 582,754 subject to adjustment for future stock splits, stock
dividends and similar changes in our capitalization. If this proposal is approved by our
shareholders at the annual meeting, we will have 2,500,000 shares available for issuance under the
2011 Plan and for issuance as incentive stock options, subject to adjustment for changes in our
capitalization as described below. We will cease making awards under the Amended and Restated 2004
Long-Term Incentive Plan (the 2004 Plan) upon shareholder approval of the 2011 Plan.
Any shares of common stock subject to an award under the 2011 Plan, or an award under the 2004
Plan that is outstanding on the effective date of 2011 Plan, that expires, is forfeited, or is
settled or exchanged for cash or other property will, to the extent of such expiration, forfeiture,
settlement or exchange, automatically again become available for issuance under the 2011 Plan.
However, any shares tendered or withheld to pay the exercise price or satisfy a tax withholding
obligation in connection with any award under the 2011 Plan or 2004 Plan, any shares we repurchased
using option exercise proceeds from options under the 2011 Plan or 2004 Plan,
and any shares subject to a stock appreciation right that are not issued in connection with
the stock settlement of the stock appreciation right granted under the 2011 Plan or 2004 Plan on
its exercise, may not be used again for new grants.
34
Awards granted under the 2011 Plan upon the assumption of, or in substitution for, outstanding
equity awards previously granted by an entity acquired by our company will not reduce the number of
shares of common stock authorized for issuance under the 2011 Plan. Additionally, if a company
acquired by our company has shares available under a pre-existing plan approved by shareholders and
not adopted in contemplation of such acquisition, the shares available for grant pursuant to the
terms of that pre-existing plan may be used for awards under the 2011 Plan and will not reduce the
shares authorized for issuance under the 2011 Plan, but only if the shares are used for awards made
to individuals who were not employed by or providing services to our company.
The maximum number of stock options and stock appreciation rights that can be granted to any
eligible participant during a single calendar year cannot exceed 1,000,000. The maximum number of
shares subject to full value awards that can be granted to any eligible participant during a single
calendar year cannot exceed 1,000,000. The maximum amount of awards denominated in cash cannot not
exceed two (2) times the eligible participants base salary (up to a maximum base salary of
$2,000,000), per calendar year. The maximum award that may be granted to any eligible participant
for a performance period greater than one year shall not exceed the foregoing annual maximum
multiplied by the number of full years in the performance period.
Types of Awards
The types of awards that may be granted under the 2011 Plan include incentive and
non-qualified stock options, stock appreciation rights, restricted shares, restricted share units,
performance awards, and other stock-based awards. Subject to exception for a participants
termination, death or total disability, the incentive and non-qualified stock options and stock
appreciation rights will terminate after ten (10) years after the date of grant, unless otherwise
determined by the committee. Except for the participants death or total disability, restricted
shares and restricted share units will terminate at the date of the participants termination of
employment, unless otherwise determined by the committee.
In addition to the general characteristics of all of the awards described in this proxy
statement, the basic characteristics of awards that may be granted under the 2011 Plan are as
follows:
Incentive and Non-Qualified Stock Options
Both incentive and non-qualified stock options may be granted to recipients at such exercise
prices as the compensation committee may determine, but not less than the fair market value (as
defined in the 2011 Plan) of a share of our common stock as of the date the option is granted. We
determine fair market value of our common stock based on the closing price of our common stock on
the NYSE on the date of grant; however, if no sale of our stock occurred on that date, we will use
the closing price on the next preceding date on which a sale of our stock occurred. The aggregate
fair market value of all the shares of our common stock with respect to which incentive stock
options may first become exercisable by a participant for the first time during any year shall not
exceed $100,000 under the 2011 Plan. Incentive and non-qualified stock options may be granted alone
or in tandem with stock appreciation rights, however if the options are granted in tandem with
stock appreciation rights the exercise of either will result in the simultaneous cancellation of
the same number of tandem options or stock appreciation rights. The option exercise price for any
outstanding options may not be decreased after the date of grant nor may any outstanding options
granted under the 2011 Plan be surrendered to us as consideration for the grant of a new option
with a lower option exercise price or otherwise subject to any action that would be treated as a
repricing without the approval of our shareholders.
Stock Appreciation Rights
The value of a stock appreciation right granted to a recipient is determined by the
appreciation in our common stock. The recipient receives all or a portion of the amount by which
the fair market value of a specified number of shares, as of the date the stock appreciation right
is exercised, exceeds a purchase price specified by the compensation committee at the time the
right is granted. The purchase price specified by the compensation committee must be at least equal
to the fair market value (as defined in the 2011 Plan) of the specified number of shares of our
common stock to which the right relates determined as of the date the stock appreciation right is
granted. A stock appreciation right may be made in cash, common stock valued at fair market value
on the date of exercise, a combination of cash and common stock, or by any method the compensation
committee may determine. The purchase price per share of the common stock covered by a stock
appreciation right granted under the 2011 Plan may not, with limited exception, be decreased,
cancelled in conjunction with the grant of any new stock appreciation right with a lower purchase
price per share, or otherwise subject to any action that would be treated as a repricing. A stock
appreciation right may be granted alone or in tandem with incentive and
non-qualified stock options, however if the stock appreciation rights are granted in tandem
with options, the exercise of either will result in the simultaneous cancellation of the same
number of tandem options or stock appreciation rights.
35
Restricted Shares and Restricted Share Units
Our common stock granted to recipients may contain such restrictions as the compensation
committee may determine, including, without limitation: a requirement that participants pay a
stipulated purchase price for each restricted share or each restricted share unit; restrictions
based upon the achievement of specific performance goals; time-based restrictions on vesting;
and/or restriction under applicable Federal or state securities law. Any time-based restriction
period will not be less than three years, unless otherwise determined by the compensation committee
at the time of grant. Awards of restricted shares and restricted share units shall have the right
to receive dividends in cash or other property, unless the compensation committee determines
otherwise, provided that the dividends shall be distributed only if and when the restrictions
imposed on the restricted shares or restricted share units lapse. Awards of restricted shares shall
have the right to vote such shares as the record owner of the restricted shares, unless the
compensation committee determines otherwise. At the end of the restriction period, a certificate
representing the number of shares to which the participant is then entitled shall be delivered to
the participant free and clear of the restrictions.
Payments with respect to restricted share units that become payable in accordance with their
terms and conditions shall, as determined by the compensation committee, be settled in cash, shares
of common stock, or a combination of cash and shares.
Performance Awards
Performance awards consist of performance shares or performance units. Performance awards
entitle the recipient to payment in amounts determined by the compensation committee based upon the
achievement of specified performance measures over a performance period. The performance period
shall be one year, unless otherwise determined by the compensation committee. With respect to
participants who are covered employees under Section 162(m) of the Internal Revenue Code, the
performance measures are set by our compensation committee at the start of each performance period
and are based on one or more or any combination of the following criteria: stock price; market
share; sales; revenue; cash flow; sales volume; earnings per share; EBITDA; pre-tax income; return
on equity; return on assets; return on sales; return on invested capital; economic value added; net
earnings; total shareholder return; gross margin; and/or costs.
The performance measures may be described in terms of objectives that are related to the
individual participant or objectives that are company-wide or related to a subsidiary, division,
department, region, function, business unit or affiliate in which the participant is employed. In
addition to selecting the performance targets, the compensation committee will also approve the
level of attainment required to earn a payment under an award, which may be expressed in absolute
amounts, on a per share basis, as a growth rate or change from preceding periods, or as a
comparison to the performance of specified companies or other external measures.
Other Stock-Based Awards
The compensation committee is authorized to grant to eligible participants such other awards
that are denominated or payable in, valued in whole or in part by reference to, or otherwise based
on or related to, shares of common stock (including, without limitation, securities convertible
into shares of common stock), as are deemed by the compensation committee to be consistent with the
purpose of the 2011 Plan. The shares of common stock or other securities delivered shall be
purchased for such consideration, which may be paid by such method or methods and in such form or
forms (including, without limitation, cash, shares of common stock, other securities, other awards
or other property or any combination thereof), as the compensation committee shall determine. The
value of the consideration, as established by the compensation committee, shall not be less than
100% of the fair market value of such shares of common stock or other securities as of the date
such purchase right is granted, unless otherwise determined by the compensation committee.
Dividend Equivalents
The compensation committee is authorized to grant dividend equivalents to eligible
participants under which the participant shall be entitled to receive payments (in cash, shares of
common stock, other securities, other awards or other property as determined in the discretion of
the compensation committee) equivalent to the amount of cash dividends paid by us to holders of
shares of common stock with respect to a number of shares of common stock determined by the
compensation committee. Any dividends or
dividend equivalents issued in connection with performance-based awards must be subject to
vesting on the same terms as the underlying award.
36
Acceleration of Awards, Lapse of Restrictions
Consistent with the terms of the 2011 Plan, the compensation committee may accelerate vesting
requirements, performance periods, and the expiration of the applicable term or restrictions, and
adjust performance measures and payments, upon such terms and conditions as are set forth in the
participants award agreement, or otherwise in the compensation committees discretion. The 2011
Plan provides for acceleration upon a change of control (as defined in the 2011 Plan), unless the
award provides otherwise.
Adjustments, Amendments, Terminations
In the event of any equity restructuring within the meaning of FASB ASC Topic 718, such as a
stock dividend, stock split, spin off, rights offering or recapitalization through a large,
nonrecurring cash dividend, the 2011 Plan requires the compensation committee to equitably adjust
the number and type of shares available for awards or subject to outstanding awards, and the
exercise price of such awards. In the event of any other change in corporate capitalization, such
as a merger, consolidation, any reorganization, or any partial or complete liquidation of us, the
compensation committee has the discretion to make such equitable adjustments similar to those
described above as it deems appropriate to prevent enlargement or diminution of participants
rights.
The 2011 Plan provides that all awards are subject to agreements containing the terms and
conditions of the awards. Such agreements will be entered into by the recipients of the awards and
us on or after the time the awards are granted and are subject to amendment, including unilateral
amendment by the compensation committee, unless any such amendment is determined by the
compensation committee to be materially adverse to the participant and not required as a matter of
law. No amendment shall reduce the exercise price of, or reprice, any outstanding award, without
shareholder approval. The 2011 Plan also gives the board of directors the right to amend, modify,
terminate or suspend the 2011 Plan, except that amendments to the 2011 Plan are subject to
shareholder approval in certain circumstances, which generally require shareholder approval
pursuant to applicable law or stock exchange rules.
The 2011 Plan will remain in effect until April 21, 2021.
Awards to Non-Employee Directors
Non-employee directors are eligible to receive any and all types of awards other than
incentive stock options under the 2011 Plan. The board must approve all awards to non-employee
directors. If a non-employee director ceases to be a member of the board for any reason other than
death, total disability or retirement prior to the granting of an award in respect of the fiscal
year in which the event occurred, the non-employee directors rights to any award in respect of the
fiscal year during which such cessation occurred will terminate unless the board determines
otherwise.
Each stock option granted to a non-employee director shall have an exercise price equal to the
fair market value on the grant date and shall vest in accordance with the terms of an award
agreement and shall have a term of ten years. In the event a non-employee director terminates
membership on the board prior to the vesting date, or lapsing of any restrictions, of an award,
then (A) if such termination is the result of such non-employee directors death, total disability
or retirement, such award shall immediately vest or, as applicable, the restrictions shall lapse,
and, in the case of options, be exercisable, and (B) if such termination is the result of an event
other than death, total disability or retirement, such award shall immediately terminate and
expire. No options granted to a non-employee director may be exercised after he or she ceases to be
a member of the board, except that: (A) if such cessation occurs by reason of death, the options
then held by the non-employee director may be exercised by his or her designated beneficiary (or,
if none, his or her legal representative) until the expiration of such options in accordance with
the terms hereof; (B) if such cessation occurs by reason of the non-employee director incurring a
total disability, the options then held by the non-employee director may be exercised by him or her
until the expiration of such options in accordance with its terms; and (C) if such cessation occurs
by reason of the non-employee directors retirement, the options then held by the non-employee
director may be exercised by him or her until the expiration of such options in accordance with the
terms hereof.
Federal Tax Considerations
The following summary sets forth the tax events generally expected for United States citizens
under current United States federal income tax laws in connection with awards under the 2011 Plan.
37
Incentive Stock Options
A recipient will realize no taxable income, and we will not be entitled to any related
deduction, at the time an incentive stock option is granted under the 2011 Plan. If certain
statutory employment and holding period conditions are satisfied before the recipient disposes of
shares acquired pursuant to the exercise of such an option, then no taxable income will result upon
the exercise of such option, and we will not be entitled to any deduction in connection with such
exercise. Upon disposition of the shares after expiration of the statutory holding periods, any
gain or loss realized by a recipient will be a long-term capital gain or loss. We will not be
entitled to a deduction with respect to a disposition of the shares by a recipient after the
expiration of the statutory holding periods.
Except in the event of death, if shares acquired by a recipient upon the exercise of an
incentive stock option are disposed of by such recipient before the expiration of the statutory
holding periods (a disqualifying disposition), such recipient will be considered to have realized
as compensation, taxable as ordinary income in the year of disposition, an amount, not exceeding
the gain realized on such disposition, equal to the difference between the exercise price and the
fair market value of the shares on the date of exercise of the option. We will be entitled to a
deduction at the same time and in the same amount as the recipient is deemed to have realized
ordinary income. Any gain realized on the disposition in excess of the amount treated as
compensation or any loss realized on the disposition will constitute capital gain or loss,
respectively. Such capital gain or loss will be long-term or short-term based upon how long the
shares were held. If the recipient pays the option price with shares that were originally acquired
pursuant to the exercise of an incentive stock option and the statutory holding periods for such
shares have not been met, the recipient will be treated as having made a disqualifying disposition
of such shares, and the tax consequence of such disqualifying disposition will be as described
above.
The foregoing discussion applies only for regular tax purposes. For alternative minimum tax
purposes, an incentive stock option will be treated as if it were a non-qualified stock option, the
tax consequences of which are discussed below.
Non-Qualified Stock Options
A recipient will realize no taxable income, and we will not be entitled to any related
deduction, at the time a non-qualified stock option is granted under the 2011 Plan. At the time of
exercise of a non-qualified stock option, the recipient will realize ordinary income, and we will
be entitled to a deduction, equal to the excess of the fair market value of the stock on the date
of exercise over the option price. Upon disposition of the shares, any additional gain or loss
realized by the recipient will be taxed as a capital gain or loss, long-term or short-term, based
upon how long the shares are held.
Stock Appreciation Rights and Performance Units
Generally: (a) the recipient will not realize income upon the grant of a stock appreciation
right or performance unit award; (b) the recipient will realize ordinary income, and we will be
entitled to a corresponding deduction, in the year cash or shares of common stock are delivered to
the recipient upon exercise of a stock appreciation right or in payment of the performance unit
award; and (c) the amount of such ordinary income and deduction will be the amount of cash received
plus the fair market value of the shares of common stock received on the date of issuance. The
federal income tax consequences of a disposition of unrestricted shares received by the recipient
upon exercise of a stock appreciation right or in payment of a performance unit award are the same
as described below with respect to a disposition of unrestricted shares.
Restricted and Unrestricted Shares; Restricted Share Units
Unless the recipient files an election to be taxed under Section 83(b) of the Internal Revenue
Code: (a) the recipient will not realize income upon the grant of restricted shares; (b) the
recipient will realize ordinary income, and we will be entitled to a corresponding deduction, when
the restrictions have been removed or expire; and (c) the amount of such ordinary income and
deduction will be the fair market value of the restricted shares on the date the restrictions are
removed or expire. If the recipient files an election to be taxed under Section 83(b) of the
Internal Revenue Code, the tax consequences to the recipient will be determined as of the date of
the grant of the restricted shares rather than as of the date of the removal or expiration of the
restrictions.
With respect to awards of unrestricted shares: (a) the recipient will realize ordinary income,
and we will be entitled to a corresponding deduction upon the grant of the unrestricted shares and
(b) the amount of such ordinary income and deduction will be the fair market value of such
unrestricted shares on the date of grant. When the recipient disposes of restricted or unrestricted
shares, the difference between the amount received upon such disposition and the fair market value
of such shares on the date the recipient realizes ordinary income will be treated as a capital gain
or loss, long-term or short-term, based upon how long the shares are held.
38
A recipient will not realize income upon the grant of restricted share units, but will realize
ordinary income, and we will be entitled to a corresponding deduction, when the restricted share
units have vested and been settled in cash and/or shares of our common stock. The amount of such
ordinary income and deduction will be the amount of cash received plus the fair market value of the
shares of our common stock received on the date of issuance.
Withholding
The 2011 Plan permits us to withhold from awards an amount sufficient to cover any required
withholding taxes.
Plan Benefits
The specific individuals who will be granted awards under the 2011 Plan and the type and
amount of any such awards will be determined by the compensation committee (or a subcommittee, to
the extent it has delegated authority), subject to annual limits on the maximum amounts that may be
awarded to any individual, as described above. Accordingly, future awards to be received by or
allocated to particular individuals under the 2011 Plan are not presently determinable.
Our board of directors, upon recommendation of our compensation committee, recommends that the
shareholders vote for the approval of the Life Time Fitness, Inc. 2011 Long-Term Incentive Plan.
PROPOSAL NO. 4 ADVISORY VOTE ON EXECUTIVE COMPENSATION
In accordance with Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection
Act, we are providing our shareholders the opportunity to vote on a non-binding, advisory
resolution to approve the 2010 compensation of our named executive officers, which is described in
the Compensation Discussion and Analysis section on page
13 of this Proxy Statement.
As
described in the Compensation Discussion and Analysis section on page 13, we believe that
the quality, ability and commitment of our executive officers are significant factors contributing
to the proper leadership of our company and driving shareholder value for our company. Accordingly,
our executive compensation programs are designed to:
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attract, retain and motivate qualified talent; |
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motivate executives to improve the overall performance of our company and reward
executives when our company achieves specific measurable results; |
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encourage accountability by determining salaries and incentive awards based on the
companys collective performance and contribution; |
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ensure compensation levels are externally competitive and create internal pay equity
among executives; and |
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align our executives long-term interests with those of our shareholders. |
Shareholders
are urged to read the Compensation Discussion and Analysis section on page 13,
which more thoroughly discusses how our compensation policies and procedures implement our
compensation philosophy. Our compensation committee and board of directors believe that these
policies and procedures are effective in implementing our compensation philosophy and in achieving
its goals.
This vote is merely advisory and will not be binding upon our board of directors. However, our
board of directors encourages all shareholders to vote their shares on this matter in order to
express their opinions on our named execute officers compensation packages.
Our board of directors recommends that the shareholders vote for the 2010 compensation of our
named executive officers, as disclosed in this proxy statement.
39
PROPOSAL NO. 5 FREQUENCY OF ADVISORY VOTES ON EXECUTIVE COMPENSATION
In accordance with Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection
Act, we are providing our shareholders the opportunity to cast an advisory vote on
whether the non-binding advisory vote to approve the compensation of our named executive officers
should occur every one, two or three years. Our board of directors recommends that the shareholders
vote for having an advisory vote on the compensation of our named executive officers included in
our proxy statement every three years.
First, while the board of directors intends that its compensation program be responsive to
shareholder concerns, the board is focused on long-term results. The board is concerned that
annual votes on the compensation program could foster a short-term focus and may undermine some of
its fundamental goals. Because of this, annual votes may lead to one size fits all formulas for
evaluating compensation that will impair the boards ability to design its compensation program to
align with its business model and performance drivers.
Second, our board of directors believes that a triennial vote promotes our goal of a
compensation program that aligns our executives long-term interests with those of our
shareholders. As described in the Compensation Discussion and
Analysis section on page 13, our
executive compensation program is designed to motivate executives to improve overall performance of
the company with a focus on providing long-term incentives that will help to align the interests of
our executives with the interests of our shareholders. To facilitate the alignment of our
executives long term interests with those of our shareholders, our compensation program has
continued to implement a long-term incentive component in our compensation program that accounts
for over 50% of the executives total compensation on annual basis. A triennial vote continues to
foster this compensation philosophy.
This vote is merely advisory and will not be binding upon our board of directors. However, our
board of directors encourages all shareholders to vote their shares on this matter in order to
express their opinions on our named executive officers compensation packages.
Our board of directors recommends that the shareholders vote for having an advisory vote on
the compensation of our named executive officers included in our proxy statement every three years.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial ownership of our
common stock as of February 28, 2011 by:
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each person who is known by us to own beneficially more than 5% of our voting securities; |
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each current director; |
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each director nominee; |
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each of the named executive officers; and |
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all directors and executive officers as a group. |
Beneficial ownership is determined in accordance with the Securities and Exchange Commissions
rules. In computing percentage ownership of each person, shares of common stock subject to options
held by that person that are currently exercisable, or exercisable within 60 days of February 28,
2011, are deemed to be outstanding and beneficially owned by that person. These shares, however,
are not deemed outstanding for the purpose of computing the percentage ownership of any other
person.
Except as indicated in the notes to this table, each shareholder named in the table has sole
voting and investment power with respect to the shares set forth opposite such shareholders name.
Percentage of ownership is based on 42,266,779 shares of our common stock outstanding on February
28, 2011. The address for each executive officer and director is 2902 Corporate Place, Chanhassen,
MN 55317.
40
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Amount and Nature of |
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Percent of |
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Name and Address of Beneficial Owner |
|
Beneficial Ownership |
|
|
Common Stock |
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Principal Shareholders: |
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Thornburg Investment Management Inc.(1) |
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4,577,712 |
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10.9 |
% |
2300 Ridgetop Rd.
Santa Fe, NM 87506 |
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Kornitzer Capital Management, Inc.(2) |
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3,425,473 |
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8.2 |
% |
5420 West 61st Place
Shawnee Mission, KS 66205 |
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BlackRock, Inc.(3) |
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2,986,991 |
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7.1 |
% |
40 East 52nd Street
New York, NY 10022 |
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Columbia Wanger Asset Management, L.P.(4) |
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2,875,000 |
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6.8 |
% |
227 West Monroe Street, Suite 3000
Chicago, IL 60606 |
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EARNEST Partners, LLC(5) |
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2,213,350 |
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5.3 |
% |
1180 Peachtree Street NE, Suite 2300
Atlanta, GA 30309 |
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Non-Employee Directors: |
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Giles H. Bateman |
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16,049 |
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* |
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Jack W. Eugster |
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10,175 |
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* |
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Guy C. Jackson |
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18,653 |
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* |
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John K. Lloyd |
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7,875 |
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* |
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Martha A. Morfitt |
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9,628 |
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* |
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John B. Richards |
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8,211 |
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* |
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Joseph S. Vassalluzzo |
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69,845 |
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* |
|
Named Executive Officers: |
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Bahram Akradi |
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2,281,391 |
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5.4 |
% |
Michael R. Robinson(6) |
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339,837 |
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* |
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Eric J. Buss(7) |
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201,964 |
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* |
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Mark L. Zaebst(8) |
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158,834 |
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* |
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Jeff Zwiefel (9) |
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164,432 |
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* |
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All directors and executive officers as a group (12 persons)(10) |
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3,286,894 |
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7.7 |
% |
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* |
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Less than 1% |
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(1) |
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Based on information contained in a Schedule 13G filed with the Securities and Exchange Commission on January 24,
2011, reflecting the shareholders beneficial ownership as of December 31, 2010. |
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(2) |
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Based on information contained in a Schedule 13G filed with the Securities and Exchange Commission on January 21,
2011, reflecting the shareholders beneficial ownership as of December 31, 2010. Kornitzer Capital Management, Inc.
had sole voting power for 3,425,473 shares, shared voting power for 0 shares, sole dispositive power for 3,335,008
shares and shared dispositive power for 90,465 shares. |
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(3) |
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Based on information contained in a Schedule 13G filed with the Securities and Exchange Commission on February 7,
2011, reflecting the shareholders beneficial ownership as of December 31, 2010. |
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(4) |
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Based on information contained in a Schedule 13G filed with the Securities and Exchange Commission on February 10,
2011, reflecting the shareholders beneficial ownership as of December 31, 2010. The shares reported by Columbia
Wanger Asset Management, LLC include shares held by Columbia Acorn Trust (CAT), a Massachusetts business trust that
is advised by the reporting person. CAT holds 5.8% of the shares of Life Time Fitness, Inc. These two funds have
sole voting power for 2,681,000 and sole dispositive power for 2,875,000. |
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(5) |
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Based on information contained in a Schedule 13G filed with the Securities and Exchange Commission on February 10,
2011, reflecting the shareholders beneficial ownership as of December 31, 2010. EARNEST Partners, LLC, had sole
voting power for 722,043 shares, shared voting power for 470,807 shares, sole dispositive power for 2,213,350
shares and shared dispositive power for 0 shares. |
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(6) |
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Includes 140,000 shares of common stock underlying options that are exercisable within 60 days of February 28, 2011. |
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(7) |
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Includes 41,600 shares of common stock underlying options that are exercisable within 60 days of February 28, 2011. |
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(8) |
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Includes 11,375 shares of common stock underlying options that are exercisable within 60 days of February 28, 2011. |
41
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(9) |
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Includes 11,000 shares of common stock underlying options that are exercisable within 60 days of February 28, 2011. |
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(10) |
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Includes 203,975 shares of common stock underlying options issued to five executive officers that are exercisable
within 60 days of February 28, 2011. |
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Related Person Transaction Approval Policy
In February 2007, our board of directors adopted a formal related person transaction approval
policy, which sets forth our companys policies and procedures for the review, approval or
ratification of any transaction required to be reported in our companys filings with the
Securities and Exchange Commission. This policy was most recently amended in December 2010. Our
policy applies to any financial transaction, arrangement or relationship or any series of similar
transactions, arrangements or relationships in which our company is a participant and in which a
related person has a direct or indirect interest, but exempts the following:
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payment of compensation by our company to a related person for the related persons
service to our company in the capacity or capacities that give rise to the persons status
as a related person; |
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transactions available to all employees or all shareholders of our company on the same
terms; and |
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transactions, which when aggregated with the amount of all other transactions between the
related person and our company, involve less than $120,000 in a fiscal year, which is the
threshold for disclosure of related person transactions under applicable SEC rules. |
The audit committee of our board of directors must approve any related person transaction
subject to this policy before commencement of the related party transaction. The committee will
analyze the following factors, in addition to any other factors the committee deems appropriate, in
determining whether to approve a related party transaction:
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whether the terms are fair to our company; |
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whether the transaction is material to our company; |
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the role the related person has played in arranging the related person transaction; |
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the structure of the related person transaction; and |
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the interests of all related persons in the related person transaction. |
The committee may, in its sole discretion, approve or deny any related person transaction.
Approval of a related person transaction may be conditioned upon our company and the related person
taking such precautionary actions, as the committees deems appropriate.
Related Person Transaction Summary
Prior to the adoption of our related person transaction approval policy, our company entered
into the transaction described below. We believe that the transaction set forth below was on terms
no less favorable than we could have obtained from unaffiliated parties.
In October 2003, we leased a center located within a shopping center that is owned by a
general partnership in which Mr. Akradi has a 50% interest. We paid rent pursuant to this lease of
$530,132 in 2010. The terms of the lease were negotiated by one of our independent directors on
behalf of our company and were reviewed and approved by a majority of our independent and
disinterested directors. To assist our board of directors in evaluating this transaction, a
third-party expert was retained at the time of transaction to review the terms of the lease. The
third-party expert determined that the terms of the lease were at market rates.
42
Other than the transaction set forth above, our company had no other transactions during
fiscal 2010 which required review, approval or ratification under our related person transaction
approval policy or where the related person transaction approval policys policies and procedures
were not followed.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2010 for compensation plans under
which securities may be issued:
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Number of Securities |
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Weighted-Average |
|
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Number of Securities |
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to be Issued Upon |
|
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Exercise Price of |
|
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Remaining Available for |
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|
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Exercise of Outstanding |
|
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Outstanding Options, |
|
|
Future Issuance Under |
|
Plan Category |
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Options, Warrants and Rights |
|
|
Warrants and Rights |
|
|
Equity Compensation Plans |
|
Equity
Compensation Plans
Approved by
Security Holders |
|
|
552,625 |
(1) |
|
$ |
23.30 |
|
|
|
2,236,949 |
(2) |
Equity Compensation
Plans Not Approved
by Security Holders |
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|
|
|
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|
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|
|
|
|
|
|
|
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Total |
|
|
552,625 |
|
|
$ |
23.30 |
|
|
|
2,236,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This amount includes shares issuable upon the exercise of outstanding
stock options granted under the 1998 Plan and shares issuable upon the
exercise of outstanding stock options granted under the 2004 Plan.
This amount does not include 13,340 shares that were subject to
purchase under the Life Time Fitness, Inc. Employee Stock Purchase
Plan for the purchase period ended December 31, 2010. |
|
(2) |
|
This amount includes 894,289 shares available for issuance pursuant to
equity awards that could be granted in the future under the 2004 Plan
and 1,342,660 shares available for issuance under the Life Time
Fitness, Inc. Employee Stock Purchase Plan. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based upon a review of reports and written representations furnished to it, the company
believes that during the fiscal year ended December 31, 2010, all filings with the SEC by its
executive officers and directors complied with requirements for reporting ownership and changes in
ownership of our stock pursuant to Section 16(a) of the Exchange Act, except that, as a result of
the companys administrative oversight, Mr. Akradi failed to timely report a cash exercise of
37,500 options on June 29, 2010, and, also as a result of the companys administrative oversight,
Mr. Hugo, our controller and chief accounting officer, failed to timely report that shares sold on
November 18, 2010 had been acquired pursuant to an exercise of stock options.
43
ADDITIONAL INFORMATION
Our Annual Report for the year ended December 31, 2010, including consolidated financial
statements, is available on the Internet. Your Notice of Internet Availability of Proxy Materials
contains instructions on how to access these materials.
As of the date of this proxy statement, management knows of no matters that will be presented
for determination at the meeting other than those referred to herein. If any other matters properly
come before the meeting calling for a vote of shareholders, it is intended that the persons named
in the proxies solicited by our board of directors, in accordance with their best judgment, will
vote the shares represented by these proxies.
Shareholders
who wish to obtain an additional copy of our Annual Report for the
year ended December 31, 2010, to be filed with the
Securities and Exchange Commission for the fiscal year ended December 31, 2010, may do so without
charge by writing to Investor Relations, Life Time Fitness, Inc., 2902 Corporate Place, Chanhassen,
MN 55317.
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By Order of the Board of Directors, |
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Bahram Akradi
Chairman of the Board of Directors, President and
Chief Executive Officer
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Dated:
March 7, 2011
44
Appendix A
LIFE TIME FITNESS, INC.
2011 LONG-TERM INCENTIVE PLAN
(EFFECTIVE AS OF APRIL 21, 2011)
1. PURPOSES.
The purposes of this Plan are to provide long-term incentives to those persons with
responsibility for the success and growth of Life Time Fitness, Inc. (the Company) and its
subsidiaries, divisions and affiliated businesses, to associate the interests of such persons with
those of the Companys shareholders, to assist the Company in recruiting, retaining and motivating
a diverse group of employees, consultants, advisors and non-employee directors on a competitive
basis, and to ensure a pay-for-performance linkage for such employees and outside directors.
2. DEFINITIONS.
For purposes of this Plan:
(a) Affiliate means any corporation that is a parent corporation or subsidiary
corporation of the Company, as those terms are defined in Code Sections 424(e) and 424(f), or any
successor provisions, and, for purposes other than the grant of Incentive Stock Options, any joint
venture in which the Company or such parent corporation or subsidiary corporation owns an
equity interest.
(b) Award or Awards means a grant under this Plan in the form of Options, Stock
Appreciation Rights, Restricted Shares, Restricted Share Units, Performance Awards, or any or all
of them.
(c) Award Agreement means any written or electronic agreement contract or other
instrument or document evidencing the grant of an Award, which may but is not required to be signed
by a Participant, in such form and including such terms as the Committee in its sole discretion
shall determine.
(d) Board means the Board of Directors of the Company.
(e) Cause means, unless otherwise defined in an Individual Agreement, (i) dishonesty or
violation of any duty owed to the Company; (ii) conviction of a felony crime; (iii) any material
act or omission involving willful malfeasance or gross negligence in the performance of duties to
the Company; (iv) willful damage to the Companys business and/or relationships with customers or
suppliers; and, (v) failure, refusal or inability to perform duties in accordance with the
directions, policies, and practices of the Company. The Committee shall, unless otherwise provided
in an Individual Agreement with the Participant have the sole discretion to determine whether
Cause exists, and its determination shall be final.
(f) Change in Control is defined in Section 11(b).
(g) Code means the Internal Revenue Code of 1986, as amended.
(h) Committee means the Compensation Committee of the Board.
(i) Common Stock means the common stock, par value $.02 per share, of the Company.
(j) Effective Date shall have the meaning set forth in Section 13.
(k) Eligible Participants means any of the following individuals who is designated by
the Committee as eligible to receive Awards, subject to the conditions set forth in this Plan: any
officer, employee, non-employee director, consultant or advisor of the Company or its Affiliates.
The term employee does not include any individual who is not, as of the grant date of an Award,
classified by the Company or any Affiliate as an employee on its corporate books and records even
if that individual is later reclassified (by the Company, such Affiliate, any court or any
governmental or regulatory agency) as an employee as of the grant date.
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Except when referring to ISOs, all references in this Plan to employee, employment or
similar words shall, with respect to consultants or advisors, refer to the consulting or advisory
services provided by such consultants or advisors to the Company and shall, with respect to
Non-Employee Directors, refer to service as a member of the Board.
(l) Exchange Act means the Securities Exchange Act of 1934, as amended from time to time
and any successor thereto.
(m) Fair Market Value on any date means:
(i) the closing price of the stock as reported for composite transactions, if the
Companys Common Stock is then traded on a national securities exchange;
(ii) the average of the closing representative bid and asked prices of the Companys
Common Stock as reported on a quotation system on the date as of which fair market value is
being determined, if the Companys Common Stock is then so traded; or
(iii) if the Common Stock of the Company is not publicly traded on the date of grant
of any Award under this Plan, the Committee shall make a good faith attempt to determine the
fair market value of a share of Common Stock using such criteria as it shall determine, in
its sole discretion, to be appropriate for valuation.
(n) Individual Agreement means an employment, consulting or similar written agreement
between a Participant and the Company or any one of its Affiliates.
(o) ISO means an Option satisfying the requirements of Section 422 of the Code and
designated by the Committee as an ISO.
(p) Non-Employee Director means a member of the Board who is not an employee of the
Company.
(q) NQSO or Non-Qualified Stock Option means any Option that is not designated as an
ISO or even if so designated does not qualify as an ISO on or subsequent to its grant date.
(r) Options means the right to purchase shares of Common Stock at a specified price for
a specified period of time.
(s) Option Exercise Price means the purchase price per share of Common Stock covered by
an Option granted pursuant to this Plan.
(t) Participant means an individual who has received an Award under this Plan.
(u) Performance Awards means an Award of Performance Shares or Performance Units based
on the achievement of Performance Goals during a Performance Period.
(v) Performance Based Exception means the performance-based exception set forth in Code
Section 162(m)(4)(C) from the deductibility limitations of Code Section 162(m).
(w) Performance Goals means the goals established by the Committee under Section 7(d).
(x) Performance Measures means the criteria set out in Section 7(d) that may be used by
the Committee as the basis for a Performance Goal.
(y) Performance Period means the period established by the Committee during which the
achievement of Performance Goals is assessed in order to determine whether and to what extent a
Performance Award has been earned.
(z) Performance Shares means shares of Common Stock awarded to a Participant based on
the achievement of Performance Goals during a Performance Period.
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(aa) Performance Units means an Award denominated in shares of Common Stock, cash or a
combination thereof, as determined by the Committee, awarded to a Participant based on the
achievement of Performance Goals during a Performance Period.
(bb) Plan means the Life Time Fitness, Inc. 2011 Long-Term Incentive Plan, as amended
and restated from time to time.
(cc) Prior Plan means the Life Time Fitness, Inc. Amended and Restated 2004 Long-Term
Incentive Plan.
(dd) Restriction Period means, with respect to Restricted Shares or Restricted Share
Units, the period during which any restrictions set by the Committee remain in place. Restrictions
remain in place until such time as they have lapsed under the terms and conditions of the
Restricted Shares or Restricted Share Units or as otherwise determined by the Committee.
(ee) Restricted Shares means shares of Common Stock that may not be traded or sold until
the date that the restrictions on transferability imposed by the Committee with respect to such
shares have lapsed.
(ff) Restricted Share Units means the right, as described in Section 7(c), to receive an
amount, payable in either cash or shares of Common Stock, equal to the value of a specified number
of shares of Common Stock.
(gg) Retirement with respect to a Non-Employee Director shall mean termination from the
Board after such Non-Employee Director shall have attained at least age 70 or after such
Non-Employee Director shall have satisfied the criteria for Retirement established by the Committee
from time to time.
(hh) Stock Appreciation Rights or SARs means the right to receive the difference
between the Fair Market Value of a share of Common Stock on the grant date and the Fair Market
Value of a share of Common Stock on the date the Stock Appreciation Right is exercised.
(ii) Total Disability shall have the meaning set forth in the long-term disability
program of the Company, unless otherwise defined in an Individual Agreement.
3. ADMINISTRATION OF THIS PLAN.
(a) Authority of Committee. This Plan shall be administered by the Committee, which shall
have all the powers vested in it by the terms of this Plan, such powers to include the authority
(within the limitations described herein):
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to select the persons to be granted Awards under this Plan, |
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to determine the type, size and terms of Awards to be made to each person
selected, |
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to determine the time when Awards are to be made and any conditions which must be
satisfied before an Award is made, |
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to establish objectives and conditions for earning Awards, |
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to determine whether an Award shall be evidenced by an agreement and, if so, to
determine the terms of such agreement (which shall not be inconsistent with this
Plan) and who must sign such agreement, |
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to determine whether the conditions for earning an Award have been met and
whether an Award will be paid at the end of the Performance Period, |
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to determine if and when an Award may be deferred, |
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to determine the guidelines and/or procedures for the payment or exercise of
Awards, and |
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to determine whether an Award should qualify, regardless of its amount, as
deductible in its entirety for federal income tax purposes, including whether any
Awards granted under this Plan comply with the Performance Based Exception under
Code Section 162(m). |
(b) Interpretation of Plan. The Committee shall have full power and authority to
administer and interpret this Plan and to adopt or establish such rules, regulations, agreements,
guidelines, procedures and instruments, which are not contrary to the terms of this Plan and which,
in its opinion, may be necessary or advisable for the administration and operation of this Plan.
The Committees interpretations of this Plan, and all actions taken and determinations made by the
Committee pursuant to the powers vested in it hereunder, shall be conclusive and binding on all
parties concerned, including the Company, its shareholders and any person receiving an Award under
this Plan.
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(c) Delegation of Authority. To the extent not prohibited by law, the Committee may (i)
delegate its authority and administrative powers hereunder to a subcommittee, (ii) allocate all or
any portion of its responsibilities and powers to any one or more of its members and, (iii) grant
authority to employees or designate employees of the Company to execute documents on behalf of the
Committee or to otherwise assist the Committee in the administration and operation of this Plan,
provided that no such delegation may be made that would cause Awards or other transactions under
this Plan to cease to be exempt from Section 16(b) of the Exchange Act or cause an Award intended
to qualify for the Performance Based Exception to case to qualify for such exception. Any such
allocation or delegation may be revoked by the Committee at any time.
(d) Section 162(m) and Rule 16b-3 Compliance. In the case of any grants made to insiders
or Awards that are intended to qualify for the Performance Based Exception, the Committee shall
delegate its authority to a subcommittee composed solely of two or more directors who qualify as an
independent director within the meaning of the applicable stock exchange, as an outside
director within the meaning of Section 162(m) of the Code, and as a non-employee director within
the meaning of Rule 16b-3.
4. ELIGIBILITY.
Awards may be granted under this Plan to Eligible Participants.
5. SHARES OF COMMON STOCK SUBJECT TO THIS PLAN.
(a) Authorized Number of Shares. Unless otherwise authorized by the Companys
shareholders and subject to the provisions of this Section 5 and Section 10, the maximum aggregate
number of shares of Common Stock available for issuance under this Plan shall be 2,500,000. Subject
to the provisions of this Section 5 and Section 10, the maximum number of shares of Common Stock
that may be issued pursuant to Options intended to be ISOs shall be 2,500,000 shares. After the
Effective Date, no additional awards may be granted under the Prior Plan.
(b) Share Counting. The following shall apply in determining the number of shares
remaining available for grant under this Plan:
(i) In connection with the granting of an Option or other Award (other than a
Performance Unit denominated in dollars), the number of shares of Common Stock available for
issuance under this Plan shall be reduced by the number of shares in respect of which the
Option or Award is granted or denominated; provided, however, that, in the case of Stock
Appreciation Rights granted in tandem with Options (so that only one may be exercised with
the other terminating upon such exercise), the number of shares of Common Stock shall only be
taken into account once (and not as to both Awards) for purposes of this Section 5 and the
limitations hereunder; and provided further where a SAR is settled in shares of Common Stock,
the number of shares of Common Stock available for issuance under this Plan shall be reduced
only by the number of shares issued in such settlement.
(ii) Whenever any outstanding Option or other Award (or portion thereof) granted
under this Plan, or an option or award granted under the Prior Plan that is outstanding on
the Effective Date (a Prior Plan Award), expires, is cancelled, is settled in cash or is
otherwise terminated for any reason without having been exercised or payment having been made
in respect of the entire Option or Award, the shares allocable to the expired, cancelled,
settled or otherwise terminated portion of such award may again be the subject of Options or
Awards granted under this Plan.
(iii) Awards granted through the assumption of, or in substitution for, outstanding
awards previously granted to individuals who become employees as a result of a merger,
consolidation, acquisition or other corporate transaction involving the Company as a result
of an acquisition will not count against the reserve of available shares under this Plan. The
terms and conditions of the substitute or assumed Awards may vary from the terms and
conditions set forth in this Plan to the extent the Committee at the time of the grant may
deem appropriate to conform, in whole or in part, to the provisions of the Awards in
substitution for which they are granted.
(iv) The following shares shall not, however, again become available for issuance
under this Plan or increase the number of shares of Common Stock available for issuance under
Section 5(a): (i) shares of Common Stock tendered by the Participant or withheld by the
Company in payment of the Option Exercise Price of an Option issued under this Plan or the
Prior Plan, (ii) shares of Common Stock tendered by the Participant or withheld by the
Company to satisfy any tax withholding obligation with respect to an Award or Prior Plan
Award, (iii) shares of Common Stock repurchased by the
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Company with proceeds received from the exercise of an option issued under this Plan or
the Prior Plan, and (iv) shares of Common Stock subject to a Stock Appreciation Right issued
under this Plan or the Prior Plan that are not issued in connection with the stock settlement
of that Stock Appreciation Right upon its exercise.
(c) If a company acquired by the Company or with which the Company combines has shares
available under a pre-existing plan approved by shareholders and not adopted in contemplation of
such acquisition or combination, the shares available for grant pursuant to the terms of such
pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other
adjustment or valuation ratio or formula used in such acquisition or combination to determine the
consideration payable to the holders of common stock of the entities party to such acquisition or
combination) may be used for Awards under this Plan and shall not reduce the shares authorized for
grant under this Plan. Awards using such available shares shall not be made after the date awards
or grants could have been made under the terms of the pre-existing plan, absent the acquisition or
combination, and shall only be made to individuals who were not employees of the Company or
Non-Employee Directors prior to such acquisition or combination.
(d) Shares to be Delivered. Shares of Common Stock to be delivered by the Company under
this Plan shall be determined by the Committee and may consist in whole or in part of authorized
but unissued shares or shares acquired on the open market.
(e) Fractional Shares. No fractional shares of Common Stock may be issued under this
Plan; however, cash shall be paid in lieu of any fractional shares in settlement of an Award.
6. AWARD LIMITATIONS.
The maximum number of Options and SARs that can be granted to any Eligible Participant during
a single calendar year cannot exceed 1,000,000. The maximum per Eligible Participant, per calendar
year amount for stock-settled Awards other than Options and SARs cannot exceed 1,000,000. The
maximum per Eligible Participant, per calendar year amount of Awards denominated in cash shall not
exceed two (2) times the Eligible Participants base salary, up to a maximum base salary of
$2,000,000. The maximum Award that may be granted to any Eligible Participant for a Performance
Period greater than one year shall not exceed the foregoing annual maximum multiplied by the number
of full years in the Performance Period.
7. AWARDS TO ELIGIBLE PARTICIPANTS.
(a) Options.
(i) Grants. Subject to the terms and provisions of this Plan, Options may be
granted to Eligible Participants. Options may consist of ISOs or NQSOs, as the Committee
shall determine. Options may be granted alone or in tandem with SARs. With respect to Options
granted in tandem with SARs, the exercise of either such Options or such SARs will result in
the simultaneous cancellation of the same number of tandem SARs or Options, as the case may
be. The grant of an Option shall occur on the date the Committee by resolution selects a
Participant to receive a grant of an Option, determines the number of shares of Common Stock
to be subject to such Option to be granted to such Participant and specifies the terms and
provisions of the Option. The Company shall notify a Participant of any grant of an Option,
and such Award shall be confirmed by, and subject to the terms of, an Award Agreement.
(ii) Option Exercise Price. The Option Exercise Price shall be equal to or greater
than the Fair Market Value on the date the Option is granted, unless the Option was granted
through the assumption of, or in substitution for, outstanding awards previously granted to
individuals who became employees of the Company or any Affiliate as a result of a merger,
consolidation, acquisition or other corporate transaction involving the Company or such
Affiliate.
(iii) ISO Limits. ISOs may only be granted to employees of the Company and its
Affiliates and may only be granted to an employee who, at the time the Option is granted,
does not own stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Affiliate. The aggregate Fair Market Value of
all shares with respect to which ISOs are exercisable by a Participant for the first time
during any year shall not exceed $100,000; provided, however, that any Options or portions
thereof that exceed such limit shall be treated as NQSOs notwithstanding any other provisions
of the Award Agreement, but only to the extent of such excess. The aggregate Fair Market
Value of such shares shall be determined at the time the Option is granted.
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(iv) No Repricing. Except for adjustments made pursuant to Section 10, the Option
Exercise Price for any outstanding Option granted under this Plan may not be decreased after
the date of grant nor may any outstanding Option granted under this Plan be surrendered to
the Company as consideration for the grant of a new Option with a lower Option Exercise Price
or otherwise be subject to any action that would be treated, for accounting purposes, as a
repricing of such Option without the approval of the Companys shareholders (including a
cash buyout or voluntary surrender/subsequent regrant of an underwater Option).
(v) Buy Out of Option Gains. In the event of a Change of Control, the Committee
shall have the right to elect, in its sole discretion and without the consent of the holder
thereof, to (1) accelerate the vesting of each outstanding Option, (2) cancel each
outstanding Option and (3) cause the Company to pay to the Participant, with respect to each
share of Common Stock covered by the Option immediately prior to its cancellation, the excess
of the Fair Market Value of a share of Common Stock over the Option Exercise Price for a
share of Common Stock covered by such Option at the date the Committee provides written
notice (the Buy Out Notice) of its intention to exercise such right. Buyouts pursuant to
this provision shall be effected by the Company as promptly as possible after the date of the
Buy Out Notice. Payments of buy out amounts may be made in cash, in shares of Common Stock,
or partly in cash and partly in Common Stock, as the Committee deems advisable. To the extent
payment is made in shares of Common Stock, the number of shares shall be determined by
dividing the amount of the payment to be made by the Fair Market Value of a share of Common
Stock at the date of the Buy Out Notice. For purposes of this Section 7(a)(v) only, if the
Change of Control is of the nature described in clause (B) of Section 11(b)(i) or clause (C)
of 11(b)(ii) or the result of a tender offer or exchange offer that constitutes a Change of
Control under clause (B) of Section 11(b)(ii), Fair Market Value of a share of Common Stock
means the fair market value, as determined in good faith by the Committee, of the
consideration to be received per share of Common Stock by those shareholders of the Company
electing to, or required to, receive such consideration upon the occurrence of such Change of
Control, notwithstanding anything to the contrary provided in this Agreement.
(b) Stock Appreciation Rights.
(i) Grants. Subject to the terms and provisions of this Plan, SARs may be granted
to Eligible Participants. SARs may be granted alone or in tandem with Options. With respect
to SARs granted in tandem with Options, the exercise of either such Options or such SARs will
result in the simultaneous cancellation of the same number of tandem SARs or Options, as the
case may be.
(ii) Purchase Price. The purchase price per share of Common Stock covered by a SAR
granted pursuant to this Plan shall be equal to or greater than Fair Market Value on the date
the SAR is granted, unless the SAR was granted through the assumption of, or in substitution
for, outstanding awards previously granted to individuals who became employees of the Company
of any Affiliate as a result of a merger, consolidation, acquisition or other corporate
transaction involving the Company or such Affiliate.
(iii) Form of Payment. The Committee may authorize payment of a SAR in the form of
cash, Common Stock valued at its Fair Market Value on the date of the exercise, a combination
thereof, or by any other method as the Committee may determine.
(iv) No Repricing. Except for adjustments pursuant to Section 10, in no event may
any Stock Appreciation Right granted under this Plan be amended to decrease the purchase
price per share of Common Stock covered thereby, cancelled in conjunction with the grant of
any new Stock Appreciation Right with a lower purchase price per share, or otherwise be
subject to any action that would be treated, for accounting purposes, as a repricing of
such Stock Appreciation Right, without the approval of the Companys shareholders (including
a cash buyout or voluntary surrender/subsequent regrant of an underwater Stock Appreciation
Right).
(c) Restricted Shares/Restricted Share Units.
(i) Grants. Subject to the terms and provisions of this Plan, Restricted Shares or
Restricted Share Units may be granted to Eligible Participants.
(ii) Restrictions. The Committee shall impose such terms, conditions and/or
restrictions on any Restricted Shares or Restricted Share Units granted pursuant to this Plan
as it may deem advisable including, without limitation: a
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requirement that Participants pay a stipulated purchase price for each Restricted Share
or each Restricted Share Unit; restrictions based upon the achievement of specific
performance goals (Company-wide, divisional, and/or individual); time-based restrictions on
vesting; and/or restrictions under applicable Federal or state securities laws. Unless
otherwise determined by the Committee at the time of grant, any time-based restriction period
shall be for a minimum of three years. To the extent the Restricted Shares or Restricted
Share Units are intended to be deductible under Code Section 162(m), the applicable
restrictions shall be based on the achievement of Performance Goals over a Performance
Period, as described in Section 7(d) below.
(iii) Payment of Units. Restricted Share Units that become payable in accordance
with their terms and conditions shall be settled in cash, shares of Common Stock, or a
combination of cash and shares, as determined by the Committee.
(iv) No Disposition During Restriction Period. During the Restriction Period,
Restricted Shares may not be sold, assigned, transferred or otherwise disposed of, or
mortgaged, pledged or otherwise encumbered. In order to enforce the limitations imposed upon
the Restricted Shares, the Committee may (a) cause a legend or legends to be placed on any
certificates relating to such Restricted Shares, and/or (b) issue stop transfer
instructions, to its transfer agent as it deems necessary or appropriate.
(v) Dividend and Voting Rights. Unless otherwise determined by the Committee,
during the Restriction Period, Participants who hold Restricted Shares and Restricted Share
Units shall have the right to receive dividends in cash or other property or other
distribution or rights in respect of such shares, and Participants who hold Restricted Shares
shall have the right to vote such shares as the record owner thereof. Unless otherwise
determined by the Committee, any dividends payable to a Participant during the Restriction
Period shall be distributed to the Participant only if and when the restrictions imposed on
the applicable Restricted Shares or Restricted Share Units lapse.
(vi) Share Certificates. Each certificate issued for Restricted Shares shall be
registered in the name of the Participant and deposited with the Company or its designee. At
the end of the Restriction Period, a certificate representing the number of shares to which
the Participant is then entitled shall be delivered to the Participant free and clear of the
restrictions. No certificate shall be issued with respect to a Restricted Share Unit unless
and until such unit is paid in shares of Common Stock.
(d) Performance Awards.
(i) Grants. Subject to the provisions of this Plan, Performance Awards consisting
of Performance Shares or Performance Units may be granted to Eligible Participants.
Performance Awards may be granted either alone or in addition to other Awards made under this
Plan.
(ii) Performance Goals. Unless otherwise determined by the Committee, Performance
Awards shall be conditioned on the achievement of Performance Goals (which shall be based on
one or more Performance Measures, as determined by the Committee) over a Performance Period.
The Performance Period shall be one year, unless otherwise determined by the Committee.
(iii) Performance Measures. The Performance Measure(s) to be used for purposes of
Performance Awards may be described in terms of objectives that are related to the individual
Participant or objectives that are Company-wide or related to a subsidiary, division,
department, region, function, business unit or Affiliate of the Company in which the
Participant is employed, and may consist of one or more or any combination of the following
criteria: stock price, market share, sales, revenue, cash flow, sales volume, earnings per
share, EBITDA, pre-tax income, return on equity, return on assets, return on sales, return on
invested capital, economic value added, net earnings, total shareholder return, gross margin,
and/or costs. The Performance Goals based on these Performance Measures may be expressed in
absolute amounts, on a per share basis, as a growth rate or change from preceding periods, or
as a comparison to the performance of specified companies or other external measures. The
Performance Measures to be used for Performance Awards that are not intended to satisfy the
conditions for the Performance Based Exception under Code Section 162(m) may consist of other
criteria determined by the Committee.
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(iv) Extraordinary Events. At, or at any time after, the time an Award is granted,
and to the extent permitted under Code Section 162(m) and the regulations thereunder without
adversely affecting the treatment of the Award under the Performance Based Exception, the
Committee may provide for the manner in which performance will be measured against the
Performance Goals (or may adjust the Performance Goals) to reflect the impact of specific
corporate transactions, accounting or tax law changes and other extraordinary and
nonrecurring events.
(v) Interpretation. With respect to any Award that is intended to satisfy the
conditions for the Performance Based Exception under Code Section 162(m): (A) the Committee
shall interpret this Plan and this Section 7 in light of Code Section 162(m) and the
regulations thereunder; (B) the Committee shall have no discretion to amend the Award in any
way that would adversely affect the treatment of the Award under Code Section 162(m) and the
regulations thereunder; and (C) such Award shall not be paid until the Committee shall first
have certified that the Performance Goals have been achieved.
(e) Other Stock-Based Awards. The Committee is hereby authorized to grant to Eligible
Participants, subject to the terms of this Plan, such other Awards that are denominated or payable
in, valued in whole or in part by reference to, or otherwise based on or related to, shares of
Common Stock (including, without limitation, securities convertible into shares of Common Stock),
as are deemed by the Committee to be consistent with the purpose of this Plan. Shares of Common
Stock or other securities delivered pursuant to a purchase right granted under this Section 7(e)
shall be purchased for such consideration, which may be paid by such method or methods and in such
form or forms (including, without limitation, cash, shares of Common Stock, other securities, other
Awards or other property or any combination thereof), as the Committee shall determine, the value
of which consideration, as established by the Committee, shall not be less than 100% of the Fair
Market Value of such shares of Common Stock or other securities as of the date such purchase right
is granted, unless otherwise determined by the Committee.
(f) Dividend Equivalents. The Committee is hereby authorized to grant dividend
equivalents to Eligible Participants under which the Participant shall be entitled to receive
payments (in cash, shares of Common Stock, other securities, other Awards or other property as
determined in the discretion of the Committee) equivalent to the amount of cash dividends paid by
the Company to holders of shares of Common Stock with respect to a number of shares of Common Stock
determined by the Committee. Subject to the terms of this Plan, such dividend equivalents may have
such terms and conditions as the Committee shall determine, provided that any dividend equivalents
issued in connection with an Award subject to performance-based vesting conditions be subject to
vesting on the same terms and conditions as the underlying Award.
(g) Termination of Awards. Unless otherwise provided in an Award Agreement, Awards shall
terminate in accordance with this Section 7(g).
(i) Options and SARs Granted to Eligible Participants. Each Option and SAR granted
to an Eligible Participant pursuant to this Section 7 shall terminate:
If the Participant is then living, at the earliest of the following times:
(A) ten (10) years after the date of grant of the Option or SAR, except in
the event of death or Total Disability as provided below;
(B) ninety (90) days after termination of employment with the Company or any
Affiliate other than termination because of death or Total Disability or through
discharge for Cause; provided, however, that if any Option or SAR is not fully
exercisable at the time of such termination of employment, such Option or SAR shall
expire on the date of such termination of employment to the extent not then
exercisable;
(C) immediately upon termination of Participants employment through
discharge for Cause; or
(D) any other time set forth in the Award Agreement describing and setting
the terms of the Award.
In the event of death or Total Disability of the Participant while employed by the Company or
any Affiliate, or if no longer so employed such Participant dies prior to termination of the
entire Option or SAR under Section 7(g)(i)(B) or (D) hereof, the Participants Option or SAR
shall become exercisable in full on the date of such death or Total Disability and shall
remain exercisable for a minimum period of one (1) year after the date of death or Total
Disability, unless it terminates earlier
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pursuant to Section 7(g)(i)(A) or (D). To the extent
an Option or SAR is exercisable after the death of the Participant, it may
be exercised by the person or persons to whom the Participants rights under the agreement
have passed by will or by the applicable laws of descent and distribution and to the extent
an Option or SAR is exercisable after the Total Disability of the Participant who is
incompetent, it may be exercised by the Participants legal representative.
(ii) Restricted Shares and Restricted Share Units. Unless otherwise provided in the
related Award Agreement, in the case of a Participants death or Total Disability, the
Participant shall be entitled to receive a number of shares of Common Stock under outstanding
Restricted Shares, or in the case of Restricted Share Units, an amount of cash or number of
shares of Common Stock, that has been prorated for the portion of the term of the Award
during which the Participant was employed by the Company or any Affiliate, and, with respect
to any shares, all restrictions shall lapse. Any Restricted Shares or Restricted Share Units
as to which the restrictions do not lapse under the preceding sentence shall terminate at the
date of the Participants termination of employment and such Restricted Shares or Restricted
Share Units shall be forfeited to the Company; provided, however, that Awards of Restricted
Shares or Restricted Share Units subject to Performance Measures shall be treated the same as
Performance Awards according to Section 7(g)(iii).
(iii) Performance Awards. If a Participants employment or other relationship with
the Company or any Affiliate terminates during a Performance Period applicable to a
Performance Award because of death or Total Disability, or under other circumstances provided
by the Committee in its discretion in the related Award Agreement or otherwise, the
Participant, unless the Committee shall otherwise provide in the Award Agreement, shall be
entitled to a payment with respect to such Performance Awards at the end of the Performance
Period based upon the extent to which achievement of the Performance Measures was satisfied
at the end of such period (as determined at the end of the Performance Period) and prorated
for the portion of the Performance Period during which the Participant was employed by the
Company or any Affiliate. Except as provided in this paragraph, if a Participants employment
with the Company or any Affiliate terminates during a Performance Period, then such
Participant shall not be entitled to any payment with respect to that Performance Award.
8. AWARDS TO NON-EMPLOYEE DIRECTORS.
(a) Awards. Non-Employee Directors are eligible to receive any and all types of Awards
under this Plan other than ISOs. The Board must approve all Awards to Non-Employee Directors. Any
Award to a Non-Employee Director shall be subject to the terms of Section 7 of this Plan, provided
that to the extent the provisions of this Section 8 conflict with the terms of Section 7, this
Section 8 shall prevail with respect to Awards to Non-Employee Directors.
(b) Death, Total Disability and Retirement. In the event of the death, Total Disability
or Retirement of a Non-Employee Director prior to the granting of an Award in respect of the fiscal
year in which such event occurred, an Award may, in the discretion of the Board, be granted in
respect of such fiscal year to the retired or disabled Non-Employee Director or his or her estate.
If any Non-Employee Director ceases to be a member of the Board for any reason other than death,
Total Disability or Retirement prior to the granting of an Award in respect of the fiscal year in
which such event occurred, his or her rights to any Award in respect of the fiscal year during
which such cessation occurred will terminate unless the Board determines otherwise.
(c) Terms of Awards Granted to Non-Employee Directors.
(i) Each Option granted to a Non-Employee Director shall have an Option Exercise
Price equal to the Fair Market Value on the grant date.
(ii) Each Option granted to a Non-Employee Director shall vest in accordance with
the terms of an Award Agreement and shall have a term of ten years.
(iii) In the event a Non-Employee Director terminates membership on the Board prior
to the vesting date, or lapsing of any restrictions, of an Award, then (A) if such
termination is the result of such Non-Employee Directors death, Total Disability or
Retirement, such Award shall immediately vest or, as applicable, the restrictions shall
lapse, and, in the case of Options, be exercisable, and (B) if such termination is the result
of an event other than death, Total Disability or Retirement, such Award shall immediately
terminate and expire.
A-9
(iv) No Options granted to a Non-Employee Director may be exercised after he or she
ceases to be a member of the Board, except that: (A) if such cessation occurs by reason of
death, the Options then held by the Non-Employee Director
may be exercised by his or her designated beneficiary (or, if none, his or her legal
representative) until the expiration of such Options in accordance with the terms hereof; (B)
if such cessation occurs by reason of the Non-Employee Director incurring a Total Disability,
the Options then held by the Non-Employee Director may be exercised by him or her until the
expiration of such Options in accordance with its terms; and (C) if such cessation occurs by
reason of the Non-Employee Directors Retirement, the Options then held by the Non-Employee
Director may be exercised by him or her until the expiration of such Options in accordance
with the terms hereof.
(d) Exercise of Options Granted to Non-Employee Directors.
(i) To exercise an Option, a Non-Employee Director must provide to the Company (A) a
written notice specifying the number of Options to be exercised and (B) to the extent
applicable, any required payments due upon exercise.
(ii) Non-Employee Directors may exercise Options under either of the following
methods:
(A) Cashless Exercise. To the extent permitted by law, Non-Employee
Directors may exercise Options through a registered broker-dealer pursuant to cashless
exercise procedures that are, from time to time, approved by the Committee. Proceeds
from any such exercise shall be used to pay the exercise costs, which include the
Option Exercise Price, applicable taxes and brokerage commissions. Any remaining
proceeds from the sale shall be delivered to the Non-Employee Director in cash or
stock, as specified by the Non-Employee Director.
(B) Standard Exercise. Non-Employee Directors may exercise Options by
paying to the Company an amount in cash from his or her own funds equal to the Option
Exercise Price and any taxes required at exercise. A certificate representing the
shares of Common Stock that the Non-Employee Director purchased shall be delivered to
him or her only after the Option Exercise Price and the applicable taxes have been
paid.
9. DEFERRED PAYMENTS.
Subject to the terms of this Plan, the Committee may determine that all or a portion of any
Award to a Participant, whether it is to be paid in cash, shares of Common Stock or a combination
thereof, shall be deferred or may, in its sole discretion, approve deferral elections made by
Participants. Deferrals shall be for such periods and upon such terms as the Committee may
determine in its sole discretion.
10. DILUTION AND OTHER ADJUSTMENTS.
In the event of any equity restructuring (within the meaning of FASB ASC Topic 718 Stock
Compensation) that causes the per share value of shares of Common Stock to change, such as a stock
dividend, stock split, spin off, rights offering, or recapitalization through a large, nonrecurring
cash dividend, the Committee shall make equitable adjustments in the class and aggregate number of
shares which may be delivered under this Plan as described in Section 5, the individual award
maximums under Section 6, the class, number, and Option Exercise Price of outstanding Options and
the class and number of shares subject to any other Awards granted under this Plan (provided the
number of shares of any class subject to any Award shall always be a whole number), as may be
determined to be appropriate by the Committee, and any such adjustment may, in the sole discretion
of the Committee, take the form of Options covering more than one class of Common Stock; provided,
in each case, that with respect to ISOs, no such adjustment shall be authorized to the extent that
such adjustment would cause such options to violate Section 422(b) of the Code or any successor
provision; provided further, with respect to all Awards, no such adjustment shall be authorized to
the extent that such adjustment would cause the Awards to be subject to adverse tax consequences
under Section 409A of the Code. In the event of any other change in corporate capitalization, such
as a merger, consolidation, any reorganization (whether or not such reorganization comes within the
definition of such term in Section 368 of the Code), or any partial or complete liquidation of the
Company, such equitable adjustments described in the foregoing sentence may be made as determined
to be appropriate and equitable by the Committee to prevent dilution or enlargement of benefits or
potential benefits. In either case, any such adjustment shall be conclusive and binding for all
purposes of this Plan. Unless otherwise determined by the Committee, the number of shares of Common
Stock subject to an Award shall always be a whole number. In no event shall an outstanding Option
be amended for the sole purpose of reducing the Option Exercise Price thereof, except in accordance
with Section 7(a)(iv) of this Plan.
A-10
11. CHANGE IN CONTROL.
(a) Impact of Change in Control. Notwithstanding any other provision of this Plan to the
contrary, unless otherwise provided by the Committee in any Award Agreement, in the event of a
Change in Control:
(i) Any Options and SARs outstanding as of the date of such Change in Control, and
which are not then exercisable and vested, shall become fully exercisable and vested.
(ii) The restrictions and deferral limitations applicable to any Restricted Shares
and Restricted Share Units shall lapse, and such Restricted Shares and Restricted Share Units
shall become free of all restrictions and become fully vested.
(iii) All Performance Awards shall be considered to be earned and payable in full,
and any deferral or other restriction shall lapse and such Performance Awards shall be
settled in cash or shares of Common Stock, as determined by the Committee, as promptly as is
practicable.
(iv) All restrictions on other Awards shall lapse and such Awards shall become free
of all restrictions and become fully vested.
(b) Definition. Change in Control means (i) a change in the composition of the Board
such that the individuals who, as of the Effective Date, constitute the Board (such Board shall be
hereinafter referred to as the Incumbent Board) cease for any reason to constitute at least 50%
of the Board; provided, however, for purposes of this definition, that any individual who becomes a
member of the Board subsequent to the Effective Date, whose election, or nomination for election by
the Companys shareholders, was approved by a vote of at least a majority of those individuals who
are members of the Board and who were also members of the Incumbent Board (or deemed to be such
pursuant to this proviso) shall be considered as though such individual were a member of the
Incumbent Board; but, provided, further, that any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or consents by or on
behalf of a person other than the Board shall not be so considered as a member of the Incumbent
Board; (ii) an acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act) (a Person), of beneficial ownership (within the meaning
of Rule 13d-3 under the Exchange Act) which, together with other acquisitions by such Person,
results in the aggregate beneficial ownership by such Person of 30% or more of either (A) the then
outstanding shares of Common Stock of the Company (the Outstanding Company Common Stock) or (B)
the combined voting power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the Outstanding Company Voting Securities); provided,
however, that the following acquisitions will not result in a Change of Control (1) an acquisition
by any employee benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (2) an acquisition by any entity pursuant to a
transaction that complies with the exemption in clause (iii) below; (iii) consummation of a merger
or consolidation of the Company with any other corporation or other entity, a statutory share
exchange involving the capital stock of the Company, or a sale or other disposition (in one
transaction or a series of transactions) of all or substantially all of the assets of the Company
(except in connection with the sale-leaseback of the Companys real estate), other than a merger,
consolidation, statutory share exchange, or disposition of all or substantially all assets that
would result in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted into or exchanged
for voting securities of the surviving or acquiring entity or its direct or indirect parent entity)
beneficial ownership, directly or indirectly, of more than 50% of the combined voting power of the
voting securities of the Company or such surviving or acquiring entity (including, without
limitation, such beneficial ownership of an entity that as a result of such transaction
beneficially owns 100% of the outstanding shares of common stock and the combined voting power of
the then outstanding voting securities (or comparable equity securities) or all or substantially
all of the Companys assets either directly or indirectly) outstanding immediately after such
merger, consolidation, statutory share exchange or disposition of all or substantially all assets
in substantially the same proportions (as compared to other holders of the Outstanding Company
Common Stock and Outstanding Company Voting Securities prior to the transaction as their respective
ownership, immediately prior to such transaction; or (iv) consummation or, if earlier, shareholder
approval, of a definitive agreement or plan to liquidate or dissolve the Company.
12. MISCELLANEOUS PROVISIONS.
(a) Misconduct. Except as otherwise provided in agreements covering Awards hereunder, a
Participant shall forfeit all rights in his or her outstanding Awards under this Plan, whether or
not such Awards have been earned or are vested or remain unearned or unvested, and all such
outstanding Awards shall automatically terminate and lapse, if the Committee determines that such
A-11
Participant has (i) used for profit or disclosed to unauthorized persons, confidential
information or trade secrets of the Company, (ii) breached any contract with or violated any
fiduciary obligation to the Company, including, without limitation, a violation of any Company code
of conduct, (iii) engaged in unlawful trading in the securities of the Company or of another
company based on information gained as a result of that Participants employment or other
relationship with the Company, or (iv) committed a felony or other serious crime.
(b) Rights as Shareholder. Except as otherwise provided herein, a Participant shall have
no rights as a holder of Common Stock with respect to Awards hereunder, unless and until
certificates for shares of Common Stock are issued to the Participant.
(c) No Loans. No loans from the Company to Participants shall be permitted under this
Plan.
(d) Assignment or Transfer. Except as provided in this Section 12(d), no Award under this
Plan or any rights or interests therein shall be transferable other than by will or the laws of
descent and distribution and shall be exercisable, during the Participants lifetime, only by the
Participant. Once awarded, the shares of Common Stock received by Participants may be freely
transferred, assigned, pledged or otherwise subjected to lien, subject to the restrictions imposed
by the Securities Act of 1933, Section 16 of the Exchange Act and the Companys policy concerning
insider trading, each as amended from time to time. The Committee may provide in an Agreement or
otherwise that an Award (other than an ISO) may be transferred pursuant to a qualified domestic
relations order or may be transferable by gift to any family member (as defined in General
Instruction A(5) to Form S-8 under the Securities Act of 1933) of the Participant. Any Award held
by a transferee shall continue to be subject to the same terms and conditions that were applicable
to that Award immediately before the transfer thereof. For purposes of any provision of the Plan
relating to notice to a Participant or to acceleration or termination of an Award upon the death or
termination of employment of a Participant, the references to Participant shall mean the original
grantee of an Award and not any transferee.
(e) Withholding Taxes. The Company shall have the right to deduct from all Awards paid in
cash (and any other payment hereunder) any federal, state, local or foreign taxes required by law
to be withheld with respect to such Awards and, with respect to Awards paid in stock or upon
exercise of Options, to require the payment (through withholding from the Participants salary or
otherwise) of any such taxes. The obligations of the Company to make delivery of Awards in cash or
Common Stock shall be subject to currency or other restrictions imposed by any government.
(f) No Rights to Awards. Neither this Plan nor any action taken hereunder shall be
construed as giving any employee any right to be retained in the employ of the Company or any of
its subsidiaries, divisions or Affiliates. Except as set forth herein, no employee or other person
shall have any claim or right to be granted an Award under this Plan. By accepting an Award, the
Participant acknowledges and agrees that (i) that the Award will be exclusively governed by the
terms of this Plan, including the right reserved by the Company to amend or cancel this Plan at any
time without the Company incurring liability to the Participant (except for Awards already granted
under this Plan), (ii) Awards are not a constituent part of salary and that the Participant is not
entitled, under the terms and conditions of employment, or by accepting or being granted Awards
under this Plan to require Awards to be granted to him or her in the future under this Plan, or any
other plan, (iii) the value of Awards received under this Plan will be excluded from the
calculation of termination indemnities or other severance payments, and (iv) the Participant will
seek all necessary approval under, make all required notifications under and comply with all laws,
rules and regulations applicable to the ownership of Options and stock and the exercise of Options,
including, without limitation, currency and exchange laws, rules and regulations.
(g) Beneficiary Designation. To the extent allowed by the Committee, each Participant
under this Plan may, from time to time, name any beneficiary or beneficiaries (who may be named on
a contingent or successive basis) to whom any benefit under this Plan is to be paid in case of his
or her death before he or she receives any or all of such benefit. Each such designation shall
revoke all prior designations by the same Participant, and unless the Committee determines
otherwise shall be in a form prescribed by the Committee, and will be effective only when filed by
the Participant in writing with the Company during the Participants lifetime. In the absence of
any such designation, benefits remaining unpaid at the Participants death shall be paid to the
Participants estate.
(h) Costs and Expenses. The cost and expenses of administering this Plan shall be borne
by the Company and not charged to any Award or to any Participant.
(i) Fractional Shares. Fractional shares of Common Stock shall not be issued or
transferred under an Award, but the Committee may pay cash in lieu of a fraction or round the
fraction, in its discretion.
A-12
(j) Funding of Plan. The Company shall not be required to establish or fund any special
or separate account or to make any other segregation of assets to assure the payment of any Award
under this Plan.
(k) Indemnification. Provisions for the indemnification of officers and directors of the
Company in connection with the administration of this Plan shall be as set forth in the Companys
articles of incorporation and bylaws as in effect from time to time.
(l) Successors. All obligations of the Company under this Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the existence of such
successor is the result of a direct or indirect purchase, by merger, consolidation, or otherwise,
of all or substantially all of the business and/or assets of the Company.
(m) Section 16 Compliance; Section 162(m) Administration. This Plan is intended to comply
in all respects with Rule 16b-3 or any successor provision, as in effect from time to time, and in
all events this Plan shall be construed in accordance with the requirements of Rule 16b-3. If any
Plan provision does not comply with Rule 16b-3 as hereafter amended or interpreted, the provision
shall be deemed inoperative. The Board, in its absolute discretion, may bifurcate this Plan so as
to restrict, limit or condition the use of any provision of this Plan with respect to persons who
are officers or directors subject to Section 16 of the Exchange Act without so restricting,
limiting or conditioning this Plan with respect to other Eligible Participants. The Company intends
that all Awards granted under this Plan to individuals who are or who the Committee believes will
be covered employees (within the meaning of Section 162(m)(3) of the Code) will qualify for the
Performance Based Exception.
(n) Compensation Recoupment Policy. Awards may be made subject to any compensation
recoupment policy adopted by the Board or the Committee at any time prior to or after the Effective
Date, and as such policy may be amended from time to time after its adoption.
13. EFFECTIVE DATE, GOVERNING LAW, AMENDMENTS AND TERMINATION.
(a) Effective Date. This Plan shall be effective as of April 21, 2011 (the Effective
Date), provided that it is approved by the shareholders of the Company in accordance with all
applicable laws, regulations and stock exchange rules and listing standards.
(b) Amendments. The Board may at any time terminate or from time to time amend this Plan
in whole or in part, but no such action shall adversely affect any rights or obligations with
respect to any Awards granted prior to the date of such termination or amendment. Notwithstanding
the foregoing, unless the Companys shareholders shall have first approved the amendment, no
amendment of this Plan shall be effective which would (i) increase the maximum number of shares of
Common Stock which may be delivered under this Plan or to any one individual (except to the extent
such amendment is made pursuant to Section 10 hereof), (ii) extend the maximum period during which
Awards may be granted under this Plan, (iii) add to the types of awards that can be made under this
Plan, (iv) change the Performance Measures pursuant to which Performance Awards are earned, (v)
modify the requirements as to eligibility for participation in this Plan, or (vi) require
shareholder approval pursuant to this Plan, applicable law or applicable stock exchange standards,
to be effective. With the consent of the Participant affected, the Committee may amend outstanding
agreements evidencing Awards under this Plan in a manner not inconsistent with the terms of this
Plan.
(c) Governing Law. All questions pertaining to the construction, interpretation,
regulation, validity and effect of the provisions of this Plan shall be determined in accordance
with the laws of the State of Minnesota without giving effect to conflict of laws principles.
(d) Termination. No Awards shall be made under this Plan after the tenth anniversary of
the Effective Date.
A-13
MAP AND DIRECTIONS
2011 Annual Meeting of Shareholders
April 21, 2011 l 1:00 p.m. CDT
2902 Corporate Place, Chanhassen, MN 55317
Directions from Minneapolis/St. Paul International Airport
(approximately 30-40 minutes):
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Highway 5 towards Bloomington |
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Merge onto I-494 West (11.2 miles) |
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Take exit 11-C to merge onto Highway 5 West (6.6 miles) |
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Turn left at Century Boulevard |
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Turn right at Corporate Place (very first right) |
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Corporate office is located on the right hand side of parking lot |
Directions from downtown Minneapolis
(approximately 30-40 minutes):
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35W South (5.4 miles) |
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Highway 62 West (4.9 miles) |
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212 West (3.1 miles) |
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212 turns into Highway 5 West (6.6 miles) |
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Turn left at Century Boulevard |
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Turn right at Corporate Place (very first right) |
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Corporate office is located on the right hand side of parking lot |
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Shareowner ServicesSM P.O. Box 64945 St. Paul, MN 55164-0945 |
Address Change? Mark box, sign, and indicate changes below: o |
TO VOTE BY INTERNET OR
TELEPHONE, SEE REVERSE SIDE
OF THIS PROXY CARD.
TO VOTE BY MAIL AS THE BOARD OF DIRECTORS RECOMMENDS ON ALL ITEMS BELOW, SIMPLY SIGN, DATE, AND RETURN THIS PROXY CARD.
The Board of Directors Recommends a Vote FOR the Nominees Listed in Item 1, FOR Items 2, 3
and 4 and 3 years for Item 5.
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1.
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Election of directors:
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Bahram Akradi
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Guy C. Jackson
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John B. Richards
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Vote FOR all nominees
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Vote WITHHELD |
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02 |
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Giles H. Bateman
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John K. Lloyd
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Joseph S. Vassalluzzo |
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(except as marked) |
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from all nominees |
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03 |
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Jack W. Eugster
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Martha A. Morfitt |
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(Instructions: To withhold authority to vote for any
indicated nominee, write the number(s) of the nominee(s) in
the box provided to the right.) |
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Please fold here Do not separate
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2.
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To ratify the appointment of Deloitte & Touche LLP as our independent registered
public accounting firm for the fiscal year ending December 31, 2011.
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o For
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o Against
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o Abstain |
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3.
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To approve the Life Time Fitness, Inc. 2011 Long-Term Incentive Plan.
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o For
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o Against
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o Abstain |
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4.
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To approve, on an advisory basis, the 2010 compensation of our
named executive officers as disclosed in our proxy statement.
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o For
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o Against
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o Abstain |
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5.
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To vote, on an advisory basis, on the frequency of including an
advisory vote on the compensation of our named executive
officers in our proxy statement.
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o 3 years
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o 2 years
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o 1 year
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o Abstain |
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE
VOTED FOR EACH NOMINEE, FOR EACH PROPOSAL IN ITEMS 2, 3 AND 4 AND 3 YEARS ON ITEM 5. IN CASE ANY
NOMINEE IS NOT A CANDIDATE FOR ANY REASON, THE PROXIES MAY VOTE FOR A SUBSTITUTE NOMINEE SELECTED
BY THE GOVERNANCE AND NOMINATING COMMITTEE. THE PROXIES ARE AUTHORIZED TO VOTE IN THEIR DISCRETION
WITH RESPECT TO OTHER MATTERS, WHICH MAY PROPERLY COME BEFORE THE MEETING.
Date
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Signature(s) in Box |
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Please sign exactly as your name(s) appears on Proxy. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the Proxy. |
LIFE TIME FITNESS, INC.
ANNUAL MEETING OF SHAREHOLDERS
Thursday, April 21, 2011
1:00 p.m. Central Time
Life Time Fitness, Inc. Corporate Office
2902 Corporate Place
Chanhassen, MN 55317
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LifeTime Fitness, Inc. 2902 Corporate Place Chanhassen, MN 55317 |
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proxy
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This proxy is solicited by the Board of Directors for use at the Annual Meeting on April 21,
2011.
The shares of stock you hold in your account will be voted as you specify on the reverse side.
If no choice is specified, the proxy will be voted FOR the nominees listed in Item 1, FOR Items
2, 3 and 4 and 3 years for Item 5.
By signing the proxy, you revoke all prior proxies and appoint Bahram Akradi and Erik A. Lindseth
and each of them acting in the absence of the other, with full power of substitution, to vote your
shares of common stock of Life Time Fitness, Inc. held of record at the close of business on
February 28, 2011 on the matters shown on the reverse side and any other matters which may come
before the Annual Meeting and all adjournments.
Vote by Internet, Telephone or Mail
24 Hours a Day, 7 Days a Week
Your phone or Internet vote authorizes the named proxies to vote your shares in the same
manner as if you marked, signed and returned your proxy card.
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INTERNET
www.eproxy.com/ltm |
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PHONE
1-800-560-1965
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MAIL |
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Mark, sign and date your proxy
card and return it in the
postage-paid envelope provided. |
Use the Internet to vote your proxy
until 12:00 p.m. (CT) on
April 20, 2011.
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Use a touch-tone telephone to
vote your proxy until 12:00 p.m.
(CT) on April 20, 2011.
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If you vote your proxy by Internet or by Telephone, you do NOT need to mail back your Proxy Card.
110742