Exhibit 10.1
CONFIDENTIAL
This
Separation Agreement (this “Agreement”) is entered into
on May 1, 2009 (the “Effective Date”) by and
between by and between Life Time Fitness, Inc. (the
“Company”), and Michael J. Gerend
(“Executive”).
A.
Executive was employed by the Company as its President and Chief
Operating Officer, pursuant to an Executive Employment Agreement
dated December 29, 2008 (the “Employment
Agreement”).
B.
Executive holds options to purchase an aggregate of 114,000 shares
of common stock of the Company, all of which are vested as of the
Separation Date (as defined below), and 74,811 shares of restricted
stock of the Company.
C.
In his capacity as President and Chief Operating Officer of the
Company, Executive held certain reasonable expectations regarding
the evolution of his leadership role for the Company and regarding
his future duties and responsibilities, consistent with his
position and experience.
D.
Executive and the Company have determined that the Company does not
anticipate fulfilling Executive’s reasonable future
expectations, and that in fact Executive has perceived a reduction
in his current duties and responsibilities.
E.
The parties have agreed that it is in their mutual interests that
Executive’s position as an employee and officer of the
Company terminate effective May 1, 2009 (the “Separation
Date”) and that the parties provide for a smooth transition
in connection with Executive’s separation from the
Company.
F.
Executive and the Company agree that the terms of this Agreement
have been developed as an expression of the Company’s new
agreement to compensate Executive following his separation from
service from, and agreement to provide post-separation services
for, the Company, and not as an expression of Executive’s
entitlement to severance benefits under the terms of the Employment
Agreement.
G.
The Company desires to secure cooperation from Executive with the
transition of his duties, and to ensure Executive’s
availability to consult with the Company from time to time with
respect to the business and operations of the Company.
H.
The parties are concluding their relationship amicably, but
mutually recognize that such a relationship may give rise to
potential claims or liabilities. The parties desire to resolve all
issues Executive may have relating to the termination of
Executive’s relationship with the Company, as set forth in
this Agreement.
NOW
THEREFORE, in consideration of the mutual promises and provisions
contained in this Agreement and the Release referred to below, the
parties, intending to be legally bound, agree as
follows:
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1.
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Separation
.
Executive and the
Company mutually agree that Executive’s employment as an
employee and officer of the Company and as an officer of certain of
the Company’s affiliates shall terminate effective at the
close of business on the Separation Date. Executive will sign such
other documents as deemed reasonably necessary to accurately
reflect his resignation from all such offices in the
Company’s corporate records.
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2.
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Final Pay
.
Executive confirms that
he has been paid in full for his base salary, compensation, and
benefits owing to him to date, with the understanding, however,
that the Company acknowledges that the Executive shall remain
entitled to those benefits provided for under any employee benefit
plans sponsored by the Company in which Executive is a participant.
The Company will pay Executive’s final base salary and earned
but unpaid bonus through the Separation Date, pursuant to the
Company’s normal payroll practices. In addition, the Company
will pay Executive for his accrued and unused vacation time that he
has earned and not forfeited through the Separation Date, in
accordance with the regular payroll practices of the
Company.
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3.
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Expense Reimbursement
.
The Company will
reimburse Executive for his regular and necessary business expenses
incurred through the Separation Date in accordance with the
Company’s regular policies and practices. Executive will
submit all requests for reimbursement to the Company no later than
thirty days after the Separation Date.
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4.
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Release. At the same time that Executive
executes this Agreement, he shall execute a Release in the form
attached to this Agreement as Exhibit A (the
“Release”). This Agreement will not be interpreted or
construed to limit the Release in any manner.
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5.
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Payments
.
The Company will
provide the benefits set forth in Sections 5 and 6 below in
lieu of any further payments or compensation that Executive would
otherwise be entitled to receive under any agreement with the
Company or as an employee or officer of the Company, with the
understanding, however, that the Company acknowledges that the
Executive shall remain entitled to those benefits provided for
under any employee benefit plans sponsored by the Company in which
Executive is a participant. The Company will make such payments and
provide such consideration only if (i) Executive has signed
this Agreement and the Release and has not rescinded the Release
within the rescission period set forth therein (the
“Rescission Period”), and (ii) Executive is in
compliance with the terms of this Agreement (or, in the case of
Section 9(b) of this Agreement, Executive is in compliance in all
material respects with such provision) and the Release as of the
date of such payment(s). The Company shall have no obligations
under Sections 5 or 6 if Executive rescinds or attempts to
rescind the Release.
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a.
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Cash Payments
.
The Company shall pay to
Executive an aggregate amount equal to $550,000. Such amount shall
be paid to Executive by the Company as follows: (i) the cash
lump sum of $183,334 on the first day of the seventh (7
th
) month following the
Effective Date hereof (the “First Payment Date”); and
thereafter (ii) the balance of $366,666 in equal bi-weekly
installments pursuant to the normal payroll practices and
procedures of the Company, beginning on the first regular payroll
date of the Company to occur after the First Payment Date and
continuing for 12 months thereafter.
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b.
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Benefits Continuation
.
The Company will provide
continuation of medical plan coverage and life insurance coverage
at the same level and in the same manner as that provided to
Executive as of the Separation Date, beginning on the Separation
Date and continuing for 18 months, provided that any benefit
continuation under this Section 5(b) shall be concurrent with any
coverage under the Company’s plans pursuant to COBRA or
similar laws, and continuation of medical plan coverage under this
Section 5(b) shall end when Executive is no longer entitled to
COBRA continuation coverage as a result of Executive qualifying for
medical coverage in connection with any new employment. Any
dependent medical plan coverage in effect for the Executive on the
Separation Date will also be continued for such period on the same
terms. Any costs Executive was paying for such coverages, if any,
as of the Separation Date shall continue to be paid by Executive.
If the terms of any benefit plan referred to in this section do not
permit continued participation by Executive, then the Company will
arrange for other insured coverage providing substantially similar
benefits at the same contribution level, if any, of Executive, and
Executive will cooperate with the Company to obtain the most
favorable rate for comparable coverage to Executive. The benefits
provided to Executive under this Section 5(b) in one calendar year
may not affect the benefits provided in any other calendar year
(except that a plan providing medical or health benefits may impose
a generally applicable limit on the amount that may be reimbursed
or paid), and Executive’s right to benefits under this
Section 5(b) cannot be exchanged for cash or any other
benefit.
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c.
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Club Membership
.
For a period of six
years beginning on the Separation Date, the Company will provide to
Executive membership privileges at health and fitness clubs owned
and operated by the Company. Such membership privileges shall be at
the “Onyx Family” level or such comparable level as may
be in effect from time pursuant to the Company’s normal
membership policies and procedures. The benefits provided to
Executive under this Section 5(c) in one calendar year may not
affect the benefits provided in any other calendar year, and
Executive’s right to benefits under this Section 5(c) cannot
be exchanged for cash or any other benefit.
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d.
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Reimbursement of Legal
Expenses. The
Company will reimburse Executive for reasonable attorneys’
fees incurred by him in connection with the separation of his
employment from the Company and the negotiation of this Agreement,
up to a maximum amount of $12,500 . Reimbursement of
eligible expenses will be made
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within
45 days after receipt of appropriate documentation from
Executive or such counsel.
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6.
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Stock Options, Restricted Stock and
other Benefit Plans .
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a.
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Stock Options
.
Executive holds the
following options to purchase shares of common stock of the
Company:
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Grant
Date
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Number of Vested
Shares
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Exercise Price Per
Share
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40,000
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$
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8.00
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54,000
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$
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18.50
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20,000
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$
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25.47
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By
virtue of this Agreement, the Company confirms that
Executive’s outstanding stock options shall remain covered by
the Amended and Restated 2004 Long-Term Incentive Plan (the
“2004 LTIP”), subject to the Stock Option Agreements,
as amended, referred to below.
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The
Company and Executive agree to execute an amendment to each of the
stock option agreements related to the stock options listed above
(the “Stock Option Agreements”) in the form attached
hereto as Exhibit B to extend the period of
exercisability of the options that are vested as of the Separation
Date such that they shall remain exercisable for a period of
24 months following the Separation Date, at which time they
will expire if they have not been exercised.
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b.
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Restricted Stock
.
Executive holds the
following shares of restricted common stock of the
Company:
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Grant
Date
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Number of Restricted
Shares
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Vesting Schedule
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5,750
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2,875 shares on
each of 5/1/2009 and 3/1/2010
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5,000
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2,500 shares on
each of 3/1/2010 and 3/1/2011
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8,505
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2,835 shares on
each of 3/1/2010, 3/1/2011 and 3/1/2012
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55,556
(subject to reduction as set forth in the applicable restricted
stock agreement)
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13,889 shares
on each of 3/1/2010, 3/1/2011, 3/1/2012, 3/1/2013
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By
virtue of this Agreement, the Company confirms that
Executive’s outstanding shares of restricted stock shall
remain covered by the 2004 LTIP, subject to the 2009 Restricted
Stock Grant, as amended, referred to below.
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The
shares of restricted stock granted on November 1, 2006,
March 14, 2007 and March 14, 2008 will be forfeited on the
Separation Date. In addition, 27,778 of the shares of restricted
stock granted on March 13, 2009 will be forfeited on the
Separation Date. The Company and Executive agree to execute an
amendment to the restricted stock agreement related to the
restricted stock granted on March 13, 2009 (the “2009
Restricted Stock Grant”) in the form attached hereto as
Exhibit C to provide for the continued vesting of
27,778 of the shares of restricted stock granted on March 13,
2009 on the terms set forth in such amendment.
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c.
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Other Benefit Plans
. The Company
acknowledges that pursuant to its outstanding benefit plans,
following the Effective Date, Executive is entitled to certain
monies in connection with his participation in the following
Company benefit plans: (i) Life Time Fitness, Inc. 401(k)
Plan; and, (ii) the Executive Nonqualified Excess Plan of Life
Time Fitness, Inc. and its Affiliates.
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7.
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Confidential
Information . Except as permitted by the
Company’s Board of Directors, Executive will not at any time
divulge, furnish or make accessible to anyone or use in any way
other than in the ordinary course of the business of the Company,
any confidential, proprietary or secret knowledge or information of
the Company, whether developed by Executive or others, including
but not limited to (i) Company trade secrets,
(ii) confidential and proprietary plans, developments,
research, processes, designs, methods or material (whether or not
patented or patentable), (iii) customer and supplier lists,
(iv) strategic or other business, marketing or sales plans,
and (v) financial data and plans. Executive acknowledges that
the above-described knowledge and information constitutes a unique
and valuable asset of the Company and represents a substantial
investment of time and expense by the Company, and that any
disclosure or other use of such knowledge or information other than
for the sole benefit of the Company would be wrongful and would
cause irreparable harm to the Company. The foregoing obligations of
confidentiality shall not apply to any knowledge or information
that (i) is now or subsequently becomes generally publicly
known for reasons other than Executive’s violation of this
Agreement, (ii) is independently made available to Executive
in good faith by a third party who has not violated a confidential
relationship with the Company, or (iii) is required to be disclosed
by legal process, other than as a direct or indirect result of the
breach of this Agreement by Executive.
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8.
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Non-Competition;
Non-Solicitation .
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a.
Agreement Not to Compete . For a period of twenty-four
(24) consecutive months beginning on the Separation Date,
Executive shall not, directly or indirectly, engage in any manner
or capacity (including without limitation as a proprietor,
principal, agent, partner,
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officer, director, employee, member
of any association, consultant or otherwise) in any “Company
Business” in the “Territory.” For purposes of
this Section 8.a., “Company Business” means
(i) the design, development, management or marketing of health
and fitness clubs, and/or health and fitness club memberships and
services, and/or nutritional supplements, (ii) the publication
of any health and fitness publications and/or (iii) the sale,
design or promotion of and any other product or service that grows
into a core or primary business for the Company (or is under
development and is projected to grow into a core or primary
business for the Company) as of the Separation Date.
“Territory” means any of the United States or in any
other country in which the Company is doing Company Business as of
the Separation Date. Ownership by Executive, as a passive
investment, of less than 2.5% of the outstanding shares of capital
stock of any corporation listed on a national securities exchange
or publicly traded in the over-the-counter market shall not
constitute a breach of this Section 8.a.
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b.
Agreement Not to Hire . For a period of twenty-four
(24) consecutive months beginning on the Separation Date,
Executive shall not, directly or indirectly, hire, engage or
solicit any person who is then an employee of the Company or who
was an employee of the Company as of the Separation Date, in any
manner or capacity, including without limitation as a proprietor,
principal, agent, partner, officer, director, stockholder,
employee, member of any association, consultant or
otherwise.
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c.
Agreement Not to Solicit . For a period of twenty-four
(24) consecutive months beginning on the Separation Date,
Executive shall not, directly or indirectly, solicit, request,
advise or induce any current or potential customer, supplier or
other business contact of the Company to cancel, curtail or
otherwise change its relationship with the Company, in any manner
or capacity, including without limitation as a proprietor,
principal, agent, partner, officer, director, stockholder,
employee, member of any association, consultant or
otherwise.
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d.
Blue Pencil Doctrine . If the duration of, the scope of or
any business activity covered by any provision of this
Section 8 is in excess of what is valid and enforceable under
applicable law, such provision shall be construed to cover only
that duration, scope or activity that is valid and enforceable.
Executive hereby acknowledges that this Section 8 shall be
given the construction that renders its provisions valid and
enforceable to the maximum extent, not exceeding its express terms,
possible under applicable law.
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9.
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Cooperation; Consulting
Services .
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a.
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Documentation
.
At any time upon
reasonable request and notice from the Company, Executive will,
without further consideration but at no expense to Executive,
timely execute and deliver such acknowledgements, instruments,
certificates, and other ministerial documents (including without
limitation, certification as to specific actions performed by
Executive in his capacity for the Company) as may be necessary or
appropriate to formalize and complete the Company’s corporate
records; provided, however, that nothing in this Section 9
will require Executive to take any action that he reasonably
believes to be unlawful or unethical or to make any inaccurate
statement of actual facts.
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b.
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On-going Matters
.
At the Company’s
reasonable written request and upon at least 48 hours’
notice, without further consideration but without expense to
Executive, Executive will (i) provide complete and truthful
information to, and otherwise cooperate fully with, the Company and
any of its or their legal counsel, agents, insurers and
representatives in connection with any investigations, litigation
or other matters relating to the Company in which the Executive had
principal responsibility or relevant information not available to
other Company employees, and (ii) for a period of
24 months following the Separation Date (the “Consulting
Period”), make himself reasonably available upon reasonable
written notice upon at least 48 hours’ notice, to discuss and
consult with the Company regarding business matters with which he
was directly and substantially involved while employed by the
Company, and to assist in transitioning his duties as President and
Chief Operating Officer; provided, however, that Executive’s
obligations under this Section 9(b) shall not exceed 10 hours per
month on a non-cumulative basis, and provided further that such
consulting obligations shall not materially interfere with
Executive’s responsibilities in connection with new
employment or other active business ventures following the
Separation Date. The Company will reimburse Executive f
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