<PAGE> 1
SCHEDULE 14A INFORMATION
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-11(c) or 240.14a-12
THE SPORTS CLUB COMPANY, INC.
- --------------------------------------------------------------------------------
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[THE SPORTS CLUB COMPANY, INC. LOGO]
June 21, 1999
Dear Fellow Stockholders:
It is our pleasure to invite you to the 1999 Annual Meeting of Stockholders
of The Sports Club Company, Inc.
We will hold the meeting on Wednesday, July 21, 1999, at 2:00 p.m. at The
Sports Club/LA, 1835 Sepulveda Boulevard, Los Angeles, California. In addition
to the formal items of business, we will review recent major developments and
answer your questions.
This booklet includes the Notice of Annual Meeting and the Proxy Statement
of the Board of Directors of the Company. The Proxy Statement describes the
business that we will conduct at the meeting and provides information about the
Company.
Your vote is important. Whether you plan to attend the meeting or not,
please complete, date, sign and return the enclosed proxy card promptly. If you
attend the meeting and prefer to vote in person, you may do so.
This year, we have simplified the Proxy Statement to make it easier to
understand. The Securities and Exchange Commission is encouraging companies to
write documents for investors in plain English, and we have supported this
effort. Clear communication with our stockholders and members is crucial to our
efforts to continue to be what we believe is the finest sports and fitness club
company in the world.
We look forward to seeing you at the meeting.
Sincerely,
<TABLE>
<S> <C>
/s/ D. MICHAEL TALLA /s/ JOHN M. GIBBONS
- --------------------------- ------------------------
D. Michael Talla John M. Gibbons
Chairman of the Board and President and
Chief Executive Officer Chief Operating Officer
</TABLE>
<PAGE> 3
[THE SPORTS CLUB COMPANY, INC. LOGO]
11100 SANTA MONICA BOULEVARD
SUITE 300
LOS ANGELES, CA 90025
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
THE ANNUAL MEETING OF THE SPORTS CLUB COMPANY, INC. WILL BE HELD:
DATE: JULY 21, 1999
TIME: 2:00 P.M. PST
PLACE: THE SPORTS CLUB/LA
1835 SEPULVEDA BOULEVARD
LOS ANGELES, CA 90025
AT OUR ANNUAL MEETING, WE WILL ASK YOU TO:
1. ELECT TWO DIRECTORS FOR THREE-YEAR TERMS AS CLASS II DIRECTORS,
2. AMEND THE BYLAWS TO INCREASE THE MINIMUM NUMBER OF DIRECTORS OF THE
BOARD TO FIVE AND TO INCREASE THE MAXIMUM NUMBER TO NINE,
3. AMEND OUR 1994 STOCK COMPENSATION PLAN, AND
4. TRANSACT ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE MEETING.
THIS NOTICE AND THE ACCOMPANYING PROXY STATEMENT AND PROXY CARD ARE BEING
MAILED, BEGINNING JUNE 21, 1999 TO OWNERS OF SHARES OF THE COMMON STOCK OF THE
SPORTS CLUB COMPANY, INC. IN CONNECTION WITH THE SOLICITATION OF PROXIES BY THE
BOARD OF DIRECTORS FOR THE 1999 ANNUAL MEETING OF STOCKHOLDERS. THIS PROXY
PROCEDURE IS NECESSARY TO PERMIT ALL STOCKHOLDERS WHO ARE UNABLE TO ATTEND THE
MEETING IN PERSON TO VOTE.
Only stockholders owning our Common Stock on May 24, 1999 are entitled to
vote at the meeting. A complete list of these stockholders will be available at
our corporate offices beginning July 12, 1999. There were 17,768,970 shares of
our Common Stock outstanding on May 24, 1999.
The Proxy Statement contains important information for you to consider when
deciding how to vote on the matters brought before the meeting. PLEASE READ IT
CAREFULLY AND TAKE THIS OPPORTUNITY TO VOTE. You can vote your shares at the
Annual Meeting only if you are present or represented by proxy. Whether or not
you plan on attending the meeting you are encouraged to vote by proxy to ensure
that your shares will be represented. If you receive more than one proxy card
because your shares are registered in different names or addresses, each proxy
card should be completed and returned.
By Order of the Board of Directors
/s/ LOIS BARBERIO
-----------------------
Lois Barberio
Secretary
Los Angeles, California
June 21, 1999
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
Questions and Answers About the Annual Meeting and Voting... 1
Proposals Recommended By the Board.......................... 4
Proposal 1. -- Election of Two Directors............... 4
Proposal 2. -- Approve Amendment To Bylaws To Increase
the Minimum Number of Directors To Five
and To Increase the Maximum Number of
Directors To Nine....................... 4
Proposal 3. -- Approve Amendment to 1994 Stock
Compensation Plan..................................... 4
Biographies of Directors and Executive Officers............. 6
Information Regarding Our Board of Directors................ 8
Number of Directors and Terms.......................... 8
Committees............................................. 8
Attendance at Board and Committee Meetings............. 9
How We Compensate Directors............................ 9
Executive Compensation...................................... 9
How We Compensate Executive Officers................... 9
Option Grants, Exercises and Year-End Values........... 10
Unexercised Stock Options and Fiscal Year-End Option
Values................................................ 10
Employment Agreements with Officers.................... 10
Committee Report on Executive Compensation.................. 12
Stock Ownership............................................. 14
Section 16 Compliance....................................... 15
Description of Transactions with Our Directors, Officers and
Principal Stockholders.................................... 15
How Our Stock Has Performed Over the Past Several Years..... 18
Other Information........................................... 19
Appendix A -- Amended and Restated 1994 Stock Compensation
Plan...................................................... A-1
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
Q: WHY DID YOU SEND ME THIS PROXY STATEMENT?
A: We sent you this Proxy Statement and the enclosed proxy card because our
Board of Directors is soliciting your proxy to vote at the 1999 Annual Meeting
of Stockholders. This Proxy Statement summarizes the information you need to
know to vote intelligently at the Annual Meeting. However, you do not need to
attend the Annual Meeting to vote your shares. Instead, you may simply complete,
sign and return the enclosed proxy card.
We will begin sending this Proxy Statement, the attached Notice of Annual
Meeting and the enclosed proxy card on June 21, 1999 to all stockholders
entitled to vote. Stockholders who owned Sports Club Company Common Stock at the
close of business on May 24, 1999 are entitled to vote. On this record date,
there were 17,768,970 shares of Sports Club Company Common Stock outstanding.
Sports Club Company Common Stock is our only class of voting stock. We are also
sending along with this Proxy Statement, The Sports Club Company, Inc. 1998
Annual Report, which includes our financial statements.
A list of stockholders eligible to vote will be available at the offices of The
Sports Club Company, Inc., 11100 Santa Monica Blvd., Suite 300, Los Angeles,
California, beginning July 12, 1999. Stockholders may examine this list during
normal business hours for any purpose related to the Annual Meeting.
Q: WHAT AM I VOTING ON?
A: Three proposals. Item numbers refer to item numbers on your proxy card.
- Item 1. Election of two directors for three-year terms;
- Item 2. Amend the Bylaws to provide that we will have from five to nine
directors and to allow the Board of Directors to determine the size of
the Board of Directors from time to time;
- Item 3. Amend our 1994 Stock Compensation Plan.
Q: HOW MANY VOTES DO I HAVE?
A: Each share of Sports Club Company Common Stock that you own entitles you to
one vote. The proxy card indicates the number of shares of Sports Club Company
Common Stock that you own.
Q: HOW DO I VOTE BY PROXY?
A: Whether you plan to attend the Annual Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Annual Meeting and vote.
If you properly fill in your proxy card and send it to us in time to vote, your
"proxy" (one of the individuals named as proxies on your proxy card) will vote
your shares as you have directed. Unless otherwise directed in the proxy card,
your proxy will vote your shares as recommended by the Board as follows:
- "FOR" the election of both nominees for director,
- "FOR" amending the Bylaws to provide that we will have from five to nine
directors and to allow the Board of Directors to determine the size of
the Board of Directors from time to time,
- "FOR" amending our 1994 Stock Compensation Plan.
If any other matter is presented, your proxy will vote in accordance with his
best judgement. At the time this Proxy Statement went to press, we knew of no
matters which needed to be acted on at the Annual Meeting other than those
discussed in this Proxy Statement.
Q: WHAT IF I VOTE AND THEN CHANGE MY MIND?
A: You can revoke your proxy by writing to us, by sending in another proxy with
a later date, or by attending the meeting and casting your vote in person. Your
last vote will be the vote that is counted.
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: It indicates that your shares are held in more than one account, such as two
brokerage accounts registered in different names. You should vote each of the
proxy cards to ensure that all of your shares are voted. We encourage you to
register all of your brokerage accounts in the same name and address
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<PAGE> 6
for better stockholder service. You may do this by contacting our transfer
agent, American Stock Transfer & Trust Company, at 40 Wall Street, 46th Floor,
New York, New York 10005, (718) 921-8200.
Q: WILL MY SHARES BE VOTED IF I DO NOT SIGN AND RETURN MY PROXY CARD?
A: If your shares are held in street name, your brokerage firm, under certain
circumstances, may vote your shares.
Brokerage firms have authority under American Stock Exchange rules to vote
customers' unvoted shares on certain "routine" matters, including election of
directors.
If you do not vote your proxy, your brokerage firm may either:
- vote your shares on routine matters, or
- leave your shares unvoted.
We encourage you to provide instructions to your brokerage firm by voting your
proxy. This ensures your shares will be voted at the meeting.
When a brokerage firm votes its customers' unvoted shares on routine matters,
these shares are counted for purposes of establishing a quorum to conduct
business at the meeting. A brokerage firm cannot vote customers' shares on
non-routine matters.
Accordingly, these shares are considered not present with respect to non-routine
matters, rather than voting against the matter.
You may have granted to your stockbroker discretionary voting authority over
your account.
Your stockbroker may be able to vote your shares in accordance with the terms of
the agreement you have with your stockbroker.
Q: HOW DO I VOTE IN PERSON?
A: If you plan to attend the Annual Meeting and vote in person, we will give you
a ballot when you arrive. However, if your shares are held in the name of your
broker, bank or other nominee, you must bring an account statement or letter
from the nominee indicating that you were the beneficial owner of the shares on
May 24, 1999, the record date for voting.
Q: WHO WILL COUNT THE VOTE?
A: The Sports Club Company's transfer agent, American Stock Transfer & Trust
Company, will tally the vote, which will be certified by an Inspector of
Election.
Q: IS MY VOTE CONFIDENTIAL?
A: The Sports Club Company has a policy of vote confidentiality. Proxies,
ballots and voting tabulations are available for examination only by the
Inspector of Election and tabulators. Your vote cannot be disclosed to the Board
or management of the Company except as may be required by law and in other
limited circumstances.
Q: HOW MANY VOTES DO YOU NEED TO HOLD THE MEETING?
A: Shares are counted as present at the meeting if the stockholder either:
- is present and votes in person at the meeting, or
- has properly submitted a proxy card.
A majority of the Company's outstanding shares as of the record date must
be present at the meeting in order to hold the meeting and conduct business.
This is called a quorum.
Q: HOW MANY VOTES MUST THE NOMINEES HAVE TO BE ELECTED?
A: We use the phrase "Yes vote" to mean a vote for a director. Directors will be
elected by a plurality of votes, meaning that the directors with the greatest
number of "Yes votes" in the election for directors will be elected.
Q: HOW MANY VOTES MUST THE AMENDMENT TO THE BYLAWS TO INCREASE THE NUMBER OF
DIRECTORS HAVE TO PASS?
A: The amendment must receive a Yes vote of a majority of the shares entitled to
be voted at the meeting to pass.
Q: HOW MANY VOTES MUST THE AMENDMENT TO THE 1994 STOCK COMPENSATION PLAN HAVE TO
PASS?
A: The amendment must receive a Yes vote of a majority of the shares present at
the meeting to pass.
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Q: WHO DO I CONTACT IF I HAVE A QUESTION?
A: Any questions should be directed to Investor Relations, The Sports Club
Company, Inc., 11100 Santa Monica Blvd., Suite 300, Los Angeles, California
90025, Telephone: (310) 479-5200, Fax: (310) 479-8879.
Q: HOW ARE PROXIES SOLICITED?
A: Proxies may be solicited by mail, telephone, or other means by officers,
directors and other employees of the Company. No additional compensation will be
paid to these individuals in connection with proxy solicitations. The Company
pays for distributing and soliciting proxies and reimburses banks, brokers and
other custodians their reasonable fees and expenses for forwarding proxies
materials to stockholders.
3
<PAGE> 8
PROPOSALS RECOMMENDED BY THE BOARD
PROPOSAL 1: ELECTION OF TWO DIRECTORS
Our Board of Directors is divided into three classes as nearly equal in
number as possible. One class is elected at each annual meeting to serve for a
three-year term. The number of directors constituting the whole Board is
currently seven with two directors standing for re-election at this Annual
Meeting. At the Annual Meeting, the two candidates receiving the highest number
of votes in the election of Class II directors will be elected as Class II
directors. The Board of Directors' nominees for re-election this year are
Nanette Pattee Francini and Dennison T. Veru. Each has consented to serve for a
three-year term. See page 6 for biographies of both nominees. The other five
directors will continue to serve the terms described in their biographies.
We have no reason to believe that either of the nominees will be unable to
act as director. However, if any director is unable to stand for re-election,
the Board may either reduce the size of the Board or designate a substitute. If
a substitute nominee is named, the proxies may be voted for the election of the
substitute.
If any director resigns, dies or is otherwise unable to serve out their
term, or the Board increases the number of directors, the Board may appoint a
new director to serve until the expiration of the former director's term.
DIRECTORS WILL BE ELECTED BY A PLURALITY OF VOTES, MEANING THAT THE TWO
NOMINEES WITH THE GREATEST NUMBER OF "FOR" VOTES WILL BE ELECTED AS CLASS II
DIRECTORS. THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF BOTH
NOMINEES.
PROPOSAL 2: APPROVE AMENDMENT TO BYLAWS TO INCREASE THE MINIMUM NUMBER OF
DIRECTORS TO FIVE AND TO INCREASE THE MAXIMUM NUMBER OF DIRECTORS TO NINE.
Our Bylaws presently provide that the authorized number of directors shall
not be less than four nor more than seven. Within such limits, the exact number
of directors is fixed by the Board. Our Board of Directors has approved an
amendment to the Bylaws that will provide for a range of between five and nine
directors. The Board approved this change to the Bylaws in order to give the
Board, which presently has seven members, the ability to change the size of the
Board of Directors to allow the Company to elect to the Board candidates whose
skills, expertise and participation on the Board will be in the best interest of
the Company. There is no plan to add additional members to the Board at the
present time.
A change in the authorized number of directors may have a number of effects
on the Company and its stockholders, depending on various future circumstances.
A larger Board may make it more difficult for the Company to attract and retain
qualified directors; however, the Board has the power to reduce the size of the
Board.
APPROVAL OF THE AMENDMENT REQUIRES THE AFFIRMATIVE VOTE OF A MAJORITY OF
THE OUTSTANDING SHARES OF COMMON STOCK ENTITLED TO VOTE THEREON. THE BOARD OF
DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE ADOPTION OF THE
FOLLOWING RESOLUTION AMENDING OUR BYLAWS:
"RESOLVED, that Section 2 of Article III of the Bylaws of The Sports
Club Company, Inc. shall be amended to read in its entirety as
follows:
Number and Qualifications. The number of directors shall be not less
than 5 nor more than nine (the exact number of which shall be the
number from time to time fixed by resolution of the Board of
Directors) until changed by a duly adopted amendment to the Articles
of Incorporation or by a Bylaw amending this Section 2 approved by the
affirmative vote of a majority of the outstanding shares entitled to
vote."
PROPOSAL 3: APPROVE AMENDMENT TO 1994 STOCK COMPENSATION PLAN
We are asking for your approval of an amendment to the Company's 1994 Stock
Compensation Plan. The Compensation Plan currently provides for the automatic
award of 1,000 shares of our Common Stock to each non-employee director on
November 15th of each year. On February 2, 1999, the Board, subject to your
approval at the Annual Meeting, increased the annual award to 2,000 shares of
our Common Stock.
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<PAGE> 9
We have summarized below certain key provisions of the Company's
Compensation Plan. Because it is a summary, it may not contain all of the
information that is important to you. Before you decide how to vote, you should
review the full text of the Compensation Plan, which we have included as
Appendix A.
DESCRIPTION OF 1994 STOCK COMPENSATION PLAN
PURPOSES: The purposes of the plan are to promote long-term growth
and financial success by attracting, motivating and
retaining non-employee directors of outstanding ability,
and to foster a greater identity of interest between our
directors and our stockholders.
ELIGIBILITY: Only directors who are not employees of the Company or
any of its subsidiaries may participate in the plan.
Four of our directors are currently eligible to
participate in the plan: Messrs. Collins, Licklider,
Turner and Veru.
STOCK GRANT: With your approval of the proposed amendment, 2,000
shares of our Common Stock will be granted to each
non-employee director in office on November 15th of each
year.
SHARES AVAILABLE: A total of 50,000 shares of Common Stock were available
for issuance under the plan. As of the date of this
Proxy Statement, a total of 34,000 shares remain
available for awards under the plan.
We will adjust the shares that may be granted to the
non-employee directors if there are changes in our
capitalization.
Upon a change of control (as defined in the plan), a
merger, or a similar transaction, the plan will
terminate.
ADMINISTRATION: Currently the full Board administers the plan. The Board
has authority to adopt rules and regulations that it
considers necessary or appropriate to interpret and
carry out the purposes of the plan. The Board may
delegate administration of the plan to one or more
persons.
AMENDMENT: The Board has the authority to amend the plan once every
six months. However, the Board may not, without your
approval:
- Materially increase the benefits accruing to
participants under the plan,
- Materially increase the total number of shares
available for issuance, or
- Materially modify the requirements for participation
in the plan.
TERMINATION: The Board has the authority to terminate the plan at any
time.
TERM: No stock will be granted pursuant to the plan on or
after December 31, 2014.
FEDERAL INCOME TAX
INFORMATION: The award of stock under the plan has an immediate
federal income tax effect: the director will recognize
taxable income for the fair market value on the date of
grant in the year in which the award is made. We will
receive a tax deduction in the same amount.
THE AMENDMENT MUST RECEIVE A YES VOTE OF THE MAJORITY OF THE SHARES PRESENT
AT THE MEETING TO PASS. THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE AMENDMENT
TO THE 1994 STOCK COMPENSATION PLAN.
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<PAGE> 10
BIOGRAPHIES OF DIRECTORS AND EXECUTIVE OFFICERS
CLASS II DIRECTORS
NANETTE PATTEE FRANCINI
Age 50
Director since 1994
Term expires 1999 Ms. Pattee Francini began developing sports and
fitness clubs in 1977 and has served as our
Executive Vice President and has been
principally responsible for overseeing all
marketing activities since our inception in
1994. Ms. Pattee Francini has been in the
sports and fitness industry for more than 20
years and has developed or participated in the
development of more than 20 sports and fitness
clubs, including all the Clubs developed by The
Sports Club Company. Ms. Pattee Fancini holds a
Bachelor of Arts Degree from the University of
Arizona.
DENNISON T. VERU
Age 38
Director since 1996
Term expires 1999
Mr. Veru has been President of Awad Asset
Management, a money management division of
Raymond James Financial since November 1992.
From November 1990 to November 1992, Mr. Veru
served as Executive Vice President, Investments
of Smith Barney, Inc., specializing in small
and medium capitalization stocks. Mr. Veru also
serves as a director of Lois USA, Inc., a
publicly traded company. He is a graduate of
Franklin and Marshall College.
CLASS III DIRECTORS
REX A. LICKLIDER
Age 56
Director since 1994
Term expires 2000
Mr. Licklider has been a consultant to us for
strategic and financial planning and Vice
Chairman of the Board since our inception. He
founded Com Systems, Inc. a publicly traded
long-distance telecommunications company, and
at various times between 1975 and April 1992
served as its Chairman, President and Chief
Executive Officer. Mr. Licklider is a founder
and director of Pentium Investments, Inc. and a
director of Deckers Outdoor Corporation. He
also serves on the Board of Directors of The
Children's Bureau of Southern California, Los
Angeles Youth Programs, Inc. and Marymount High
School in Los Angeles, California. Mr.
Licklider holds a Bacholer of Arts Degree in
Business Administration from the University of
Arizona and a Masters in Business
Administration from the University of
California at Los Angeles.
D. MICHAEL TALLA
Age 52
Director since 1994
Term expires 2000
Mr. Talla began developing sports and fitness
clubs in 1977 and has served as our Chief
Executive Officer and Chairman of the Board
since our inception in 1994. He has been in the
sports and fitness industry for more than 20
years and has developed or participated in the
development of more than 20 sports and fitness
clubs in the United States, including all the
Clubs developed by The Sports Club Company. Mr.
Talla holds a Bachelor of Arts Degree in
Business Administration from the University of
Arizona. Mr. Talla has determined to resign as
Chief Executive Officer, effective at the
Annual Meeting, but will continue to be
involved with us on a full-time basis as
Chairman of the Board of Directors.
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<PAGE> 11
CLASS I DIRECTORS
BRIAN J. COLLINS
Age 39
Director since 1997
Term expires 2001
Mr. Collins has served since December 1996 as
Vice President and Chief Financial Officer of
Millennium Partners Management LLC, an
affiliate of Millennium Entertainment Partners
L.P., which is a real estate developer of mixed
use urban entertainment projects. In June 1997,
he became a principal of Millennium Partners
Management LLC and in June 1999 was named Chief
Operating Officer. Mr. Collins continues to
serve as Chief Financial Officer of Millennium
Partners Management LLC. From March 1993 to
November 1996, Mr. Collins was Senior Vice
President at Carol Management Corp., an owner
and operator of real estate and hotel
properties. Mr. Collins holds a Bachelor of
Arts Degree from Colgate University and a
Masters of Science from New York Graduate
School of Business. For so long as Millennium
maintains at least a 12% interest in our equity
securities, we and certain of our stockholders
have agreed with Millennium to cause a nominee
of Millennium to be appointed or elected to our
Board of Directors. Mr. Collins is currently
serving as Millennium's nominee pursuant to
this agreement. See "Description of
Transactions with Our Directors, Officers and
Principal Stockholders."
JOHN M. GIBBONS
Age 50
Director since 1995
Term expires 2001
Mr. Gibbons was hired to serve as our Chief
Financial Officer in May 1994 and became
Executive Vice President in February 1995 and
President and Chief Operating Officer in July
1995. Effective at the Annual Meeting, Mr.
Gibbons will become our President and Chief
Executive Officer. From September 1993 until
May 1994, Mr. Gibbons was a self-employed
financial and business consultant whose clients
included the Company. From February 1990 until
September 1993, Mr. Gibbons was employed as a
Vice President by Com Systems, Inc., a publicly
traded long-distance telecommunications company
located in Westlake Village, California,
serving as General Manager and Senior Vice
President from December 1992 to September 1993,
and as Chief Financial Officer from August 1991
through December 1992. He holds a Bachelor of
Business Administration from Notre Dame and a
Masters of Business Administration from the
University of Southern California. Mr. Gibbons
is a Certified Public Accountant.
ANDREW L. TURNER
Age 52
Director since 1994
Term expires 2001
Mr. Turner has been Chairman of the Board of
Directors and Chief Executive Officer of Sun
Healthcare Group, Inc., a publicly traded
long-term health care services provider, since
its formation in 1989. From 1986 to 1989, Mr.
Turner served as Chief Operating Officer of
Horizon Health Care Corporation, a publicly
traded health care services provider. Mr.
Turner is also a director of Watson
Pharmaceuticals, Inc. a publicly traded
pharmaceutical manufacturing company.
OTHER EXECUTIVE OFFICERS
TIMOTHY O'BRIEN
Age 47
Chief Financial Officer
Mr. O'Brien has been our Chief Financial
Officer since February 1995 and since June has
also served as Assistant Secretary. From July
1993 until February 1995, he was employed as
Vice President/Controller of WCT
Communications, Inc., a publicly traded
long-distance telecommunications company. From
May 1989 until
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<PAGE> 12
July 1993, Mr. O'Brien was Controller for Com
Systems, Inc., a publicly traded long-distance
telecommunications company located in Westlake
Village, California. Mr. O'Brien has a Bachelor
of Business Administration degree from the
University of Wisconsin - Madison and is a
Certified Public Accountant.
PHILIP J. SWAIN
Age 42
Vice President of Operations
Mr. Swain has served as Vice President of
Operations since our inception in 1994. Mr.
Swain has been in the sports and fitness
industry for more than 20 years and has
developed or participated in the development of
more than 15 sports and fitness clubs in the
United States, including many of our current
Clubs.
MARK S. SPINO
Age 44
Vice President of Development
Mr. Spino has served as our Vice President of
Development since our inception. Mr. Spino has
been in the sports and fitness industry for
more than 15 years and has developed or
participated in the development of more than 15
sports and fitness clubs in the United States,
including many of our current Clubs. Mr. Spino
holds a Bachelor of Arts and a Master of Arts
degree in physical education from the
University of Southern California.
INFORMATION REGARDING OUR BOARD OF DIRECTORS
NUMBER OF DIRECTORS AND TERMS
The Sports Club Company currently has seven directors. Two directors are
nominees for re-election this year. The remaining five will continue to serve
the terms described in their biographies included in pages 6 - 8 under
"Biographies of Directors and Executive Officers." In addition, at the Annual
Meeting you will be asked to approve an amendment to the Bylaws which will allow
the Board of Directors to increase the size of the Board of Directors to nine;
however, there is no plan to add additional members to the Board at the present
time.
The Board is divided into three classes as nearly equal in number as
possible. The classes serve staggered three-year terms.
COMMITTEES
The Board has two permanent committees: the Audit Committee and the
Compensation Committee. The Board does not have a nominating committee or a
committee performing similar functions.
The Audit Committee
- Reviews audit and control functions
- Reviews accounting principals, policies and practices
- Confers with independent accountants and management personnel regarding
the scope of our audit examination
- Reviews reports of our independent accountants and our management's
response thereto
- Recommends selection of independent accountants to the Board
Messrs. Collins, Turner and Veru currently serve as members of the
Committee. Mr. Veru serves as Chairman of the Committee. The Committee did not
meet during 1998 and has met once during 1999.
The Compensation Committee
- Reviews and recommends salaries and bonuses for executive officers
- Administers our 1994 Stock Incentive Plan with authority to grant options
and other equity awards
Messrs. Collins, Turner and Veru currently serve as members of the
Committee. Mr. Turner serves as Chairman of the Committee. The Committee met
once during 1998 and has met once in 1999.
8
<PAGE> 13
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
The Board of Directors held 7 meetings in 1998. Except for Ms. Francini,
during 1998 each director attended 75% or more of all meetings of the Board and
all meetings of committees of which such director was a member. Ms. Francini
attended 57% of such meetings.
HOW WE COMPENSATE DIRECTORS
Directors' fees, paid only to directors who are not employees of the
Company, are as follows:
- Annual retainer fee of $12,000
- $1,000 for each Board and committee meeting attended
- Expenses of attending Board and committee meetings
- Automatic annual award of 1,000 shares of our Common Stock granted under
the 1994 Stock Compensation Plan each November 15th. At the Annual
Meeting, you will be asked to approve an amendment to the 1994 Stock
Compensation Plan increasing the annual grant to each director to 2,000
shares.
EXECUTIVE COMPENSATION
HOW WE COMPENSATE EXECUTIVE OFFICERS
The table below shows, for the last three fiscal years, the amount of
compensation earned by the Chief Executive Officer and the next five most highly
compensated executive officers (the "Named Executive Officers"). The current
salaries of such executive officers are described below under "Employment
Agreements."
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION SHARES ALL OTHER
---------------------------------- UNDERLYING COMPENSATION
NAME & POSITION YEAR SALARY($)(A) BONUS($) OPTIONS(#) ($)(B)
--------------- ---- ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
D. Michael Talla................ 1998 $243,000(c) $45,000 30,000 $3,168
Chief Executive Officer 1997 239,250(c) -- -- 3,135
And Chairman of the Board 1996 218,000(c) -- -- --
Nanette Pattee Francini......... 1998 154,800 35,000 30,000 825
Executive Vice President 1997 145,100 10,000 15,000 --
And Director 1996 124,175 -- 15,000 --
John M. Gibbons................. 1998 264,108(d) 42,000 30,000 2,534
President, Chief Operating 1997 245,883(d) 25,000 -- 2,637
Officer and Director 1996 232,800(d) 25,000 225,000 2,256
Mark S. Spino................... 1998 145,000 35,000 30,000 2,775
Vice President of 1997 134,125 10,000 15,000 --
Development 1996 116,795 -- 15,000 --
Philip J. Swain................. 1998 155,000 35,000 30,000 2,063
Vice President of 1997 146,031 15,000 15,000 908
Operations 1996 131,375 -- 25,000 --
Timothy M. O'Brien.............. 1998 146,300 35,000 30,000 3,168
Chief Financial Officer 1997 137,667 10,000 15,000 2,807
And Assistant Secretary 1996 122,175 5,000 20,000 1,791
</TABLE>
- ---------------
(a) Includes automobile allowance.
(b) Represents value of our Common Stock contributed for the benefit of the
Named Executive Officer, under our 401-K Profit Sharing Plan, based upon the
December 31, 1998 closing market price on the American Stock Exchange of
$3 15/16 per share.
(c) Mr. Talla also receives, on an annual basis, 49.9% of the first $300,000 of
The Sports Club/LA's net cash flow. This amount is not included in Mr.
Talla's compensation. See "Description of Transactions with Our Directors,
Officers and Principal Stockholders."
(d) Includes an allowance for living expenses paid to Mr. Gibbons under the
terms of his employment agreement.
9
<PAGE> 14
OPTION GRANTS, EXERCISES AND YEAR-END VALUES
The following table describes option grants to the Named Executive Officers
during the last fiscal year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SHARES GRANTED APPRECIATION FOR
UNDERLYING TO EXERCISE OPTION TERM(B)
OPTIONS EMPLOYEES PRICE EXPIRATION ---------------------
NAME GRANTED(#)(A) FOR 1998 ($/SH) DATE 5%($) 10%($)
---- ------------- ---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
D. Michael Talla........... 30,000 8.77% $8.25 4/27/2003 $155,651 $394,451
Nanette Pattee Francini.... 30,000 8.77 8.00 4/14/2008 150,935 382,498
John M. Gibbons............ 30,000 8.77 8.00 4/14/2008 150,935 382,498
Mark S. Spino.............. 30,000 8.77 8.00 4/14/2008 150,935 382,498
Phillip J. Swain........... 30,000 8.77 8.00 4/14/2008 150,935 382,498
Timothy M. O'Brien......... 30,000 8.77 8.00 4/14/2008 150,935 382,498
</TABLE>
- ---------------
(a) All grants are incentive stock options granted under the terms of our 1994
Stock Incentive Plan, at an exercise price equal to or greater than 100% of
the fair market value of our Common Stock on the date of grant. Except for
the options granted to Mr. Talla, which expire five years from the date of
grant, these options expire ten years from the date of grant, and all of
these options become exercisable in 33 1/3% increments on the first three
anniversaries of the date of grant.
(b) The dollar amounts listed below are the result of calculations at the 5% and
10% annual rates of stock appreciation prescribed by the SEC and are not
intended to forecast possible future appreciation, if any, of our Common
Stock. If our Common Stock does not appreciate, the Named Executive Officers
will receive no benefit from the options.
UNEXERCISED STOCK OPTIONS AND FISCAL YEAR-END OPTION VALUES
None of the Named Executive Officers exercised stock options during the
last fiscal year. The following table provides information with respect to
unexercised stock options outstanding as of December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF IN-THE-MONEY
UNEXERCISED OPTIONS AT FISCAL UNEXERCISED OPTIONS AT FISCAL
YEAR-END(A) YEAR-END(B)
------------------------------ ------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) (#) ($) ($)
---- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
D. Michael Talla........................... 0 30,000 $ 0 $ 0
Nanette Pattee Francini.................... 15,000 45,000 12,500 6,250
John M. Gibbons............................ 225,000 30,000 210,937 0
Mark S. Spino.............................. 15,000 45,000 12,500 6,250
Philip J. Swain............................ 21,667 48,333 20,834 10,416
Timothy M. O'Brien......................... 43,334 46,666 16,459 8,228
</TABLE>
- ---------------
(a) All options were granted under our 1994 Stock Incentive Plan.
(b) The in-the-money options had exercise prices of less than the $3 15/16
closing price of our Common Stock on the American Stock Exchange on December
31, 1998. The calculations of value assume exercise of the options on
December 31, 1998.
EMPLOYMENT AGREEMENTS WITH OFFICERS
We have entered into employment agreements with D. Michael Talla and
Nanette Pattee Francini, each of which expire on December 31, 2000. The
agreements provide for annual compensation of $200,000 payable to Mr. Talla, and
$115,000 payable to Ms. Pattee Francini, subject to upward adjustment at the
discretion of the Board of Directors. In 1997, the Compensation Committee of the
Board of Directors increased Mr. Talla's annual salary to $225,000 and in 1998
Ms. Pattee Francini's annual salary was increased to $155,000.
10
<PAGE> 15
The employment agreements with Mr. Talla and Ms. Pattee Francini entitle
each executive to annual performance bonuses in the discretion of the Board of
Directors. The employment agreements also include severance provisions which
entitle each executive officer to severance pay if his or her employment is
terminated by us without cause; if the executive dies or is disabled; or if the
executive terminates the agreement as a result of our material breach of our
obligations thereunder (up to six months' pay for Ms. Pattee Francini and up to
twelve months' pay for Mr. Talla). We may terminate either agreement for "cause"
in which case no severance payments would be owed to the terminated executive.
"Cause" will be deemed to exist if the executive participates in conduct
materially harmful to us, is adjudged guilty of a felony, demonstrates gross
inattention to his/her duties, breaches any fiduciary duty to us or violates any
material term of the agreement. In addition, the employment agreements provide
Mr. Talla and Ms. Pattee Francini with additional severance benefits upon
termination of employment following the occurrence of any one of the following
events (each, a "Change in Control") without the approval of a majority of the
Board of Directors: (i) our consolidation or merger with any other corporation
or other entity; (ii) the sale or other transfer of all or substantially all of
our assets; (iii) the approval by our stockholders of a plan of liquidation or
dissolution; (iv) any person becomes the beneficial owner directly or indirectly
of 25% or more of our outstanding Common Stock; or (v) a change occurs in the
composition of a majority of our Board of Directors (unless approved by
two-thirds of our Board of Directors). If at any time within two years after the
occurrence of any one of the foregoing events Mr. Talla's or Ms. Pattee
Francini's employment is terminated (other than for cause, or due to incapacity
or death), or Mr. Talla or Ms. Pattee Francini elects to terminate his or her
employment for "good reason", he or she is entitled to receive severance
compensation equal to the lesser of: (i) the maximum amount which does not
constitute a "parachute payment" as defined in Section 28OG of the Internal
Revenue Code of 1986, as amended; or (ii) an amount equal to three times the
aggregate of (A) his or her base annual salary then in effect, (B) the car
allowance, Club memberships and insurance benefits paid for the employee during
the one-year period immediately prior to termination, and (C) bonuses accrued
but unpaid through the date of termination of employment. Under the agreements,
"good reason" includes the relocation of the executive officer's place of
employment, reduction of compensation or benefits, the assignment of any duties
inconsistent with the executive's position or any other action which diminishes
the executive's position, authority or duties, which determination shall be made
in good faith by the executive. If the employment of Mr. Talla or Ms. Pattee
Francini were terminated within two years following a Change in Control as a
result of the occurrence of any of the foregoing events (assuming that neither
would be entitled to any performance bonus), the aggregate approximate amounts
payable to Mr. Talla and Ms. Pattee Francini would be $757,046 and $486,173,
respectively.
Effective June 1, 1998, we entered into an employment agreement with Mr.
Gibbons which will remain in effect until terminated as described below. The
agreement provides for an annual base salary of $250,000, subject to annual
review and upward adjustment at the discretion of the Board of Directors, and
entitles Mr. Gibbons to participate in any management bonus program the Board of
Directors may implement from time to time. Additionally, Mr. Gibbons receives
$40,000 for living expenses each year, and a car allowance. The Board, in its
discretion, may also award him a bonus of up to twenty percent (20%) of his
annual gross base salary. Pursuant to the agreement, effective April 15, 1998,
the Compensation Committee of the Board of Directors granted Mr. Gibbons an
incentive stock option to purchase 30,000 shares of our Common Stock at an
exercise price of $8.00 per share, vesting in three equal installments on April
15 of 1999, 2000 and 2001, or earlier upon a change of control (as defined in
the agreement).
We may terminate the agreement without cause, if Mr. Gibbons dies or
becomes disabled and may also terminate it with "cause," if Mr. Gibbons
participates in conduct materially harmful to us, is adjudged guilty of a
felony, demonstrates gross inattention to his duties, breaches any fiduciary
duty to us or violates any material term of the agreement. Mr. Gibbons may also
terminate the agreement without cause at any time. If Mr. Gibbons is terminated
by us other than for "cause," he will be entitled to receive one year of
severance pay at his base salary in effect on the date of termination.
11
<PAGE> 16
We do not have written employment agreements with Messrs. Spino, Swain and
O'Brien, who currently receive annual base salaries of $150,000, $160,000 and
$150,000, respectively.
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is composed entirely of non-employee members of
our Board of Directors. Currently Messrs. Collins, Turner and Veru serve on the
Committee. The Committee reviews and approves each of the elements of our
executive compensation program and assesses both the competitiveness and
effectiveness of the program. In addition, the Committee administers the 1994
Stock Incentive Plan.
COMPENSATION PHILOSOPHY
Our overall executive compensation philosophy is intended to achieve the
following three goals:
- To reward the achievement of our strategic goals and the creation of
stockholder value,
- To maintain a close relationship between compensation and stockholder
value, and
- To secure, develop, motivate and retain a high quality management team.
This philosophy is used not only in determining executive compensation, but
is also evident in our overall salary structure.
The Committee is aware of the limitations imposed by Section 162(m) of the
Internal Revenue Code of 1986, as amended, on the deductibility of compensation
paid to certain senior executives to the extent it exceeds $1 million per
executive. We currently intend to recommend compensation amounts and plans which
will result in all compensation payments being fully deductible pursuant to
Section 162(m) of the Internal Revenue Code.
COMPONENTS OF EXECUTIVE COMPENSATION
Base Salaries
Base salary levels for all executive officers are reviewed annually. As
part of this process, we review the compensation packages offered by other
companies. We also give consideration to the experience, responsibilities,
management and leadership abilities of our executive officers and their actual
performance on behalf of the Company, as well as compensation policies
prevailing generally within the industry and within the Peer Group described
under "How Our Stock Has Performed Over the Past Several Years."
Incentive Compensation
The Committee also supplements base compensation through discretionary
performance-based bonuses. In February 1996, the Committee adopted a program
under which bonuses are to be calculated as a percentage of base salary based
upon increased operating income. For a bonus to be awarded operating income must
increase at least 7% over operating income in the prior year. The Committee has
chosen to continue this bonus plan in each of the years 1997 and 1998.
In 1998, operating income increased 35%. Based on this significant
improvement, in March 1999, the Committee recommended and the Board approved the
following bonuses:
<TABLE>
<S> <C>
D. Michael Talla............................................ $60,000
John M. Gibbons............................................. $55,000
Nanette Pattee Francini..................................... $45,000
Timothy O'Brien............................................. $45,000
Philip J. Swain............................................. $45,000
Mark Spino.................................................. $45,000
</TABLE>
12
<PAGE> 17
The Committee retains discretionary authority to determine the amount of
any bonus within the program and may also award other bonuses based on
individual performance.
Stock Options
The Committee believes that long-term incentive compensation in the form of
stock options will motivate officers and key employees to improve the long-term
performance of the Common Stock and thus directly increase stockholder value.
Stock options may also be used to attract new executives. The 1994 Stock
Incentive Plan provides a means by which executive officers and other key
employees can build an investment in the Company which will align such
employees' economic interests with the interests of the stockholders. Such
options are generally granted at the prevailing market price of the Common Stock
and will only have value if the market price increases. Generally, stock options
vest over a period of time from date of grant, and the optionee must be
associated with the Company at the time of vesting in order to exercise the
option. In addition to providing performance incentives to employees, stock
options provide us with a form of non-cash compensation which allows us to
provide benefits to employees without making cash expenditures. Accordingly, the
Committee views the grant of options as an effective component of the over-all
executive compensation program.
In determining an option grant the Committee also takes into account the
outstanding options held by each individual executive officer and the projected
value of the options based on historical and assumed appreciation rates for the
Common Stock.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Committee is responsible for recommending the compensation of the Chief
Executive Officer and bases such recommendation upon the same factors as those
employed by the Committee for other executive officers. In determining Mr.
Talla's salary the Committee focuses on the achievement of earnings and growth
goals.
In 1997 Mr. Talla's base salary was increased to $225,000. In April 1998,
Mr. Talla received a bonus of $45,000 and was awarded options for the purchase
of 30,000 shares of Common Stock at a price of $8.25 per share, which amount
equaled 110% of the fair market value of the Common Stock on the date of grant.
Earlier this year Mr. Talla received a performance bonus of $65,000. The
Committee may in the future establish additional specific quantitative and/or
qualitative goals, the accomplishment of which will be considered in fixing Mr.
Talla's compensation. In addition, the Committee will take into account amounts
received by Mr. Talla in respect of his interest in The Sports Club/LA's net
cash flow as described in "Description of Transactions with our Directors,
Officers and Principal Stockholders."
Compensation Committee
Brian J. Collins
Andrew L. Turner
Dennison T. Veru
13
<PAGE> 18
STOCK OWNERSHIP
The following table shows the shares of our Common Stock beneficially owned
as of April 30, 1999 by our directors, executive officers and stockholders who
owned more than 5% of the 18,053,470 shares of our Common Stock then
outstanding.
<TABLE>
<CAPTION>
TOTAL AND PERCENT OF
SHARES OPTIONS SHARES HELD STOCK OUTSTANDING
NAME AND ADDRESS OWNED EXERCISABLE UNDER ---------------------
OF BENEFICIAL OWNER(A) DIRECTLY(B) WITHIN 60 DAYS(C) 401-K PLAN NUMBER PERCENT
---------------------- ----------- ----------------- ----------- --------- -------
<S> <C> <C> <C> <C> <C>
D. Michael Talla................ 4,424,198 10,000 1,144 5,199,119(d) 28.80%(d)
Nanette Pattee Francini......... 256,107 35,000 210 5,199,119(d) 28.80%(d)
Mark S. Spino................... 227,969 35,000 705 5,199,119(d) 28.80%(d)
Philip J. Swain................. 163,164 45,000 622 5,199,119(d) 28.80%(d)
John M. Gibbons................. 75,500 235,000 1,712 312,212 1.73%
Timothy O'Brien................. 3,000 63,334 865 67,199 *
The Licklider Living Trust Dated
May 2, 1986................... 1,305,662 -- -- 1,305,662 7.23%
Andrew L. Turner................ 75,000 -- -- 75,000 *
Dennison T. Veru................ 23,000 -- -- 23,000 *
Brian J. Collins................ 33,001 -- -- 33,001 *
All Directors and Executive
Officers as a Group (10
persons)...................... 6,586,601 423,334 5,258 7,015,193 38.86%
Millennium(e)................... 4,846,713 -- -- 4,846,713 26.85%
Baron Capital Group, Inc.(f).... 1,650,000 -- -- 1,650,000 9.14%
</TABLE>
- ---------------
* Less than 1%
(a) The address of all directors and executive officers is c/o The Sports Club
Company, Inc. at 11100 Santa Monica Blvd., Suite 300, Los Angeles,
California 90025.
(b) Includes shares for which the named person is considered the owner because:
1. the named person has sole voting and investment power,
2. the spouse has voting and investment power, or
3. the shares are held by other members of the immediate family.
(c) Includes shares that can be acquired through stock option exercises through
June 30, 1999.
(d) The named persons are parties to a voting agreement relating to our Common
Stock that requires each party to vote his or her shares in the manner
determined by holders of a majority of the shares held by all parties. The
agreement is effective until October 20, 2004 or until terminated by persons
holding 66 2/3% of the shares subject to the agreement. The parties to the
voting agreement in effect each control the voting of all shares held by the
parties to the agreement and under SEC rules each is deemed to be the
beneficial
14
<PAGE> 19
owner of all shares subject to the agreement. The total number of shares of
our Common Stock held by the parties without giving effect to beneficial
ownership resulting from the voting agreement is:
<TABLE>
<CAPTION>
SHARES HELD TOTAL SHARES HELD
NAMED PERSON DIRECTLY (SEE ABOVE TABLE)
------------ ----------- ------------------
<S> <C> <C>
D. Michael Talla:
Individually.................................. 4,274,961
Spouse........................................ 30,953
Trusts for two minor children................. 129,428
---------
Total................................. 4,435,342
Nanette Pattee Francini......................... 291,317
Mark S. Spino................................... 263,674
Philip J. Swain................................. 208,786
---------
All Parties to Voting Agreement....... 5,199,119
=========
</TABLE>
(e) The Millennium shares are held by the following affiliates:
1. Millennium Partners LLC owns 2,253,863 shares
2. Millennium Development Partners L.P. owns 970,400 shares
3. MDP Ventures I LLC owns 80,600 shares
4. MDP Ventures II LLC owns 916,850 shares
5. Millennium Entertainment Partners L.P. owns 625,000 shares
The address of all such entities is c/o Millennium Partners Management LLC,
1995 Broadway, New York, New York, 10023.
(f) Based on information contained in a report on Schedule 13G filed by Baron
Capital Group, Inc. (and affiliates) with the SEC on March 4, 1999. Baron
Capital Group, Inc. is a registered investment advisor located at 767 Fifth
Avenue, New York, NY 10153.
SECTION 16 COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers, and greater-than-10% stockholders to file reports
with the Securities and Exchange Commission and the American Stock Exchange on
changes in their beneficial ownership of our Common Stock and to provide the
Company with copies of the reports. Based on our review of these reports and
certifications furnished to us, we believe that all such filings required to be
made during 1998 were made, except that, as a result of administrative
oversight, a report relating to a single transaction by Andrew L. Turner was
filed late.
DESCRIPTION OF TRANSACTIONS WITH OUR DIRECTORS,
OFFICERS AND PRINCIPAL STOCKHOLDERS
From time to time we have entered into transactions with our officers,
directors and stockholders. We believe that each of the following transactions
has been on terms no less favorable to us than could have been obtained from
unaffiliated third parties. All transactions between us and any of our directors
or officers are subject to the approval of the disinterested directors. Set
forth below is a list of all such transactions occurring within the last two
years.
Messrs. Talla and Licklider. We have a 50.1% interest in the partnership
that owns The Sports Club/ LA and Mr. Talla beneficially owns the remaining
49.9%. The partnership agreement provides that, on an annual basis, the partners
will share in the first $300,000 of the Club's net cash flow in proportion to
their percentage interests. The next $35.0 million of net cash flow will be
distributed to us. All distributions of net cash flow thereafter, if any, will
be made to the partners in proportion to their percentage interests. Under
15
<PAGE> 20
certain circumstances, we have an option to purchase Mr. Talla's interest in the
partnership for an amount equal to four times the amount of his most recent
annual distribution from the partnership.
Effective August 1996, Mr. Licklider entered into a consulting agreement
with us pursuant to which Mr. Licklider received $10,000 per month, plus
reimbursement for reasonable and necessary expenses. Effective with the
commencement of the consulting agreement, Mr. Licklider resigned from the audit
and compensation committees of the Board of Directors. Under the terms of the
agreement, Mr. Licklider provided a minimum of 60 hours of service per month
outside the normal scope of his duties as a director and advised us with respect
to strategic and financial matters. By mutual consent, the agreement was not
renewed upon its expiration on July 31, 1998.
In April 1997, RM Sports Club, Inc., a company owned by Messrs. Talla and
Licklider, entered into an agreement to purchase the Vertical Club in New York
and in connection therewith made a $1.0 million non-refundable deposit. In April
1998, RM Sports Club, Inc. transferred its rights under the purchase agreement
to us for a purchase price equal to $1.0 million.
In January 1998, Messrs. Talla and Licklider purchased a 7,000 square foot
parcel of land adjacent to property owned and used by The Sports Club/LA. In
February 1999, we acquired the property from them for $637,422, such price being
equal to the purchase price paid by Messrs. Talla and Licklider, minus rental
income received by them, plus an interest credit on their investment at an
annual rate of 6.56%. The acquired property is currently leased to a
non-affiliated third party.
We are currently negotiating a transaction whereby we would sell the
property we own in Thousand Oaks, California and leaseback the facility from the
buyer. Under the terms of the proposed sale we would receive $10.0 million at
the close and an additional $2.0 million upon fulfillment of certain conditions
by us. Under the terms of the proposed transaction, base monthly rent would be
$110,000, subject to increases every five years tied to the Consumer Price
Index. The Thousand Oaks property consists of the Spectrum Club - Thousand Oaks,
unimproved office space and a parking area. It is anticipated that Mr. Licklider
will beneficially own approximately a 10% interest in the buyer and trusts for
the benefit of Mr. Talla's minor children will beneficially own approximately a
12% interest in the buyer of the property.
Millennium. Millennium is a partner in the Reebok-Sports Club/NY
partnership as well as the landlord of the building in which Reebok Sports
Club/NY is located. The partnership pays rent to Millennium in the amount of
$2.0 million per year, and the partnership agreement provides for a first
priority annual distribution to Millennium of $3.0 million.
In June 1997, we issued to Millennium 2,105,263 shares of our Common Stock
in exchange for $10.0 million, consisting of $5.0 million in cash and certain
interests of Millennium in the Reebok-Sports Club/NY partnership, including a
9.9% interest in the partnership and a $2.5 million promissory note issued by
the partnership. We also granted to Millennium certain registration and
preemptive rights regarding its shares. In addition, for so long as Millennium
maintains at least a 12% interest in our equity securities, we and certain of
our stockholders have agreed to cause a nominee of Millennium to be appointed or
elected to the Board of Directors. Pursuant to this agreement Brian J. Collins,
an officer of Millennium, is currently serving as a member of our Board of
Directors.
In December 1997, we sold 625,000 shares of Common Stock to Millennium for
$5.0 million, which we used to fund the cash portion of the acquisition of four
Spectrum Clubs. In addition, Millennium acquired properties underlying two of
the Clubs for $10.0 million and until April 29, 1999, leased these properties to
us under a financing lease agreement. The lease provided for an annual rent of
$1.0 million. On April 29, 1999 we purchased the leased property for $10.4
million, which was equal to $10.0 million plus all costs incurred by Millennium
in connection with the acquisition of such property, plus a 12% compound return
on its total investment. Concurrently with the acquisition of one of these
properties, we sold the property to an unaffiliated third party. The Club
operated on this property was closed in March, 1999.
In June 1998, we acquired land from an unaffiliated third party in Houston,
Texas, for approximately $3.1 million, on which we intend to build a Sports
Club. Millennium agreed that, if we could not obtain satisfactory financing for
this development, Millennium would acquire the land and negotiate with us to
16
<PAGE> 21
develop a Sports Club on the site. We were able to acquire the land without
assistance from Millennium, and this Agreement has expired.
We have entered into leases with Millennium relating to Sports Clubs to be
developed in San Francisco and Washington D.C. and we are negotiating the terms
of a lease for a Sports Club in Boston. The leases for the San Francisco and
Washington D.C. developments provide for base rental payments of $3.0 million
per year, for a term of 20 years, and for three 14-year renewal options. In
addition, once we have received an amount equal to a management fee equal to 6%
of all revenues, an amount equal to our investment in the Club, an 11% annual
return on our investment in the Club and an additional distribution sufficient
to reduce our average base rental payment for each Club to $2.75 million per
year, Millennium is entitled to receive 20% of all additional cash flows from
each Club as additional rent. The lease for the Boston development is expected
to contain similar terms, except that the base rental payment is expected to be
$2.75 million per year. We expect each of the Clubs to be approximately 100,000
square feet.
17
<PAGE> 22
HOW OUR STOCK HAS PERFORMED OVER THE PAST SEVERAL YEARS
The chart below sets forth line graphs comparing the performance of our
stock against the American Stock Exchange ("AMEX") market index and a peer group
of eight companies.
The peer group is composed of:
- Callaway Golf Company
- Carnival Corp
- Ben & Jerry's Homemade, Inc.
- Bally Total Fitness Holding Corporation
- Cedar Fair LP
- National Golf Properties, Inc.
- U.S. Physical Therapy, Inc.
- Family Golf Centers, Inc.
We believe the peer group is an accurate representation of entities engaged
in the sports and fitness business.
The graph shows a comparison of cumulative total returns for our Common
Stock, all AMEX listed companies and the peer group, each of which assumes an
initial value of $100 on October 13, 1994, the date of our initial public
offering. These indexes are included for comparative purposes only and do not
necessarily reflect management's opinion that such indexes are an appropriate
measure of the relative performance of the stock involved. The graph is not
intended to forecast or be indicative of possible future performance of our
Common Stock.
COMPARISON OF 50 MONTH CUMULATIVE TOTAL RETURN*
AMONG THE SPORTS CLUB COMPANY, INC.,
THE AMEX MARKET VALUE INDEX AND A PEER GROUP
<TABLE>
<CAPTION>
THE SPORTS CLUB COMPANY,
INC. PEER GROUP AMEX MARKET VALUE
------------------------ ---------- -----------------
<S> <C> <C> <C>
10/13/94 100 100 100
12/94 75 94 95
3/95 71 99 101
6/95 57 101 109
9/95 58 105 119
12/95 35 115 119
3/96 36 131 125
6/96 30 141 126
9/96 30 150 125
12/96 32 153 127
3/97 51 164 127
6/97 60 188 139
9/97 95 207 157
12/97 103 237 154
3/98 103 290 168
6/98 83 316 163
9/98 69 249 141
12/98 44 361 157
</TABLE>
* $100 INVESTED ON 10/13/94 IN STOCK OR ON 9/30/94
IN INDEX -- INCLUDING REINVESTMENT OF DIVIDENDS.
The lines represent index levels derived from closing stock prices on the
last trading day of the month indicated.
18
<PAGE> 23
OTHER INFORMATION
This section describes other information that you should read before you
vote.
SUBMISSION OF STOCKHOLDER PROPOSALS
If you want to submit proposals for possible inclusion in the Company's
proxy materials for the 2000 Annual Meeting of Stockholders, you must do so on
or before February 21, 2000. Proposals must be received by the Secretary of the
Company at its principal office (11100 Santa Monica Boulevard, Suite 300, Los
Angeles, California 90025). It is suggested that any such proposal be submitted
by certified mail, return receipt requested.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Our Board has selected the firm of KPMG Peat Marwick LLP as the Company's
independent public accountants for the 1999 fiscal year. During 1998 KPMG Peat
Marwick LLP provided audited services which included examination of the
Company's annual consolidated financial statements. Representatives of KPMG Peat
Marwick LLP are expected to attend the meeting in order to respond to
stockholder questions. They will also have an opportunity to make a statement to
the stockholders.
FINANCIAL STATEMENTS
This Proxy Statement does not contain financial statements. However,
financial statements for the fiscal year ended December 31, 1998 are included in
the 1998 Annual Report, enclosed with this Proxy Statement. The annual report is
not to be regarded as proxy soliciting material or as a communication by which
any solicitation is made.
By Order of the Board of Directors,
/s/ LOIS BARBERIO
---------------------------
Lois Barberio
Corporate Secretary
Los Angeles, California
June 21, 1999
19
<PAGE> 24
APPENDIX A
THE SPORTS CLUB COMPANY, INC.
AMENDED AND RESTATED
1994 STOCK COMPENSATION PLAN
ARTICLE 1
GENERAL PURPOSE OF PLAN
The name of this plan is The Sports Club Company, Inc. 1994 Stock
Compensation Plan (the "Plan"). The purpose of the Plan is to enable The Sports
Club Company, Inc. (the "Company") to obtain and retain the services of the
types of non-employee Directors who will contribute to the Company's long range
success and to provide for incentives that are linked directly to increases in
share value which will inure to the benefit of all stockholders of the Company.
ARTICLE 2
DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
"Administrator" shall have the meaning as set forth in Article 3.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor thereto.
"Committee" means a committee of at least two Disinterested Persons
appointed by the Board to administer the Plan.
"Company" means The Sports Club Company, Inc., a corporation organized
under the laws of the State of Delaware (or any successor corporation).
"Director" means a member of the Board.
"Eligible Person" means any Director of the Company that is not an
employee of the Company or any subsidiary of the Company.
"Grant Date" means November 15 of each year of the Plan.
"Grantee" means an Eligible Person who is granted stock pursuant to
the Plan.
"Plan" means The Sports Club Company, Inc. 1994 Stock Compensation
Plan, as the same may be amended or supplemented from time to time.
"Stock" means the Common Stock, par value $0.01 per share, of the
Company.
ARTICLE 3
ADMINISTRATION
3.1 The Administrator.
(a) Administrator. The Plan shall be administered by either (i) the
Board; or (ii) such person or persons appointed by the Board (the person or
group that administers the Plan is referred to as the "Administrator").
(b) Powers in General. The Administrator shall have the power and the
authority to grant stock to Eligible Persons, pursuant to the terms of the
Plan.
A-1
<PAGE> 25
(c) Specific Powers. In particular, the Administrator shall have the
authority: (i) to construe and interpret the Plan and apply its provisions;
(ii) to promulgate, amend and rescind rules and regulations relating to the
administration of the Plan; (iii) to authorize any person to execute, on
behalf of the Company, any instrument required to carry out the purposes of
the Plan; and (iv) to make any and all other determinations which it
determines to be necessary or advisable for administration of the Plan.
ARTICLE 4
STOCK SUBJECT TO PLAN
4.1 Subject to adjustment as provided in Article 8, the total number of
shares of Stock reserved and available for issuance under the Plan shall be
50,000 shares.
ARTICLE 5
ELIGIBILITY
5.1 Each Director of the Company who is an Eligible Person, shall be
eligible to be granted Stock hereunder subject to limitations set forth in this
Plan.
ARTICLE 6
STOCK GRANT
6.1 2,000 shares of Stock shall be granted to each Eligible Person on each
Grant Date.
ARTICLE 7
AMENDMENT AND TERMINATION
7.1 The Board may amend, alter or discontinue the Plan, but not more than
once every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder, and no amendment, alteration or discontinuation shall be made which
without the approval of shareholders would:
(a) materially increase the benefits accruing to Eligible Persons
under the Plan;
(b) materially increase the total number of shares of Stock reserved
for the purposes of the Plan; or
(c) materially modify the requirements for eligibility under the Plan.
ARTICLE 8
CHANGES IN CAPITALIZATION; SPLITS; LIQUIDATIONS, MERGERS AND REORGANIZATIONS
8.1 Stock Splits. The aggregate shares of Stock that may be granted to
Eligible Persons under the Plan may be proportionately adjusted by the
Administrator for any increase or decrease in the number of issued shares of
Stock of the Company resulting from a stock split, a reverse stock split, a
subdivision or consolidation of shares or other similar capital adjustment, the
payment of a stock dividend or any other increase or decrease in such shares
effected without receipt of consideration by the Company. Any such determination
by the Administrator shall be conclusive.
8.2 Reorganization. Upon the dissolution or liquidation of the Company or
upon any reorganization, merger, consolidation pursuant to which the Company
does not survive (except for reincorporation of the Company in another state) or
sale of all or substantially all of the assets of the Company or upon a change
in composition of the Board (not approved by a majority of the Board in office
at the time of such change) that results in a change of "control" of the Company
(for purposes of this Section 8.2, "control" is defined in Rule 405 of the
Securities and Exchange Act of 1933, as amended), the Plan shall terminate. The
grant of Stock pursuant to the Plan shall not affect in any way the abilities of
the Company to change or adjust its capital structure or to merge, consolidate,
dissolve, liquidate or to sell or transfer all or any part of its business or
assets.
A-2
<PAGE> 26
ARTICLE 9
GENERAL PROVISIONS
9.1 General Restrictions.
(a) Issuance of Stock and Compliance with Securities Act. The Company
may postpone the issuance and delivery of Stock to Eligible Persons until
(i) the admission of such shares of Stock to listing on any stock exchange
on which Stock of the Company of the same class is then listed, and (ii)
the completion of such registration or other qualification of such Stock
under any state or federal law, rule or regulation as the Company shall
determine to be necessary or advisable. Any Eligible Person shall make such
representations and furnish such information as may, in the opinion of
counsel for the Company, be appropriate to permit the Company to issue
Stock in compliance with the provisions of the Securities Act of 1933, as
amended, and any applicable state law. All Stock issued and delivered
pursuant to the Plan may be subject to such restrictions, including without
limitation a requirement of obtaining an opinion of counsel upon any sale,
transfer, assignment or other disposition, as the Administrator may deem
advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock
is then listed and any applicable federal or state securities laws.
(b) Legends. All certificates for shares of Stock delivered under the
Plan shall be subject to such stop transfer orders and other restrictions
as the Administrator may deem advisable under the rules, regulations and
other requirements of the Securities and Exchange Commission, any stock
exchange upon which the Stock is then listed and any applicable federal or
state securities laws, and the Administrator may cause a legend or legends
to be put on any such certificates to make appropriate reference to such
restrictions.
9.2 Other Compensation Arrangements. Nothing contained in this Plan shall
prevent the Board from adopting other or additional compensation arrangements,
subject to shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in specific
cases.
9.3 Indemnification. In additional to such other rights of indemnification
as they may have, and to the extent allowed by applicable law, the Administrator
shall be indemnified by the Company against the reasonable expenses, including
attorney's fees, actually incurred in connection with any action, suit or
proceeding or in connection with any appeal therein, to which they or any one of
them may be party by reason of any action taken or failure to act under or in
connection with the Plan, and against all amounts paid by them in settlement
thereof (provided that the settlement has been approved by the Company, which
approval shall not be unreasonable withheld) or paid by them in satisfaction of
a judgment in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that such
Administrator did not act in good faith and in a manner which such person
reasonably believed to be in the best interests of the Company, and in the case
of a criminal proceeding, had no reason to believe that the conduct complained
of was unlawful; provided, however, that within 60 days after institution of any
such action, suit or proceeding, such Administrator shall, in writing, offer the
Company the opportunity at its own expense to handle and defend such action,
suit or proceeding.
ARTICLE 10
EFFECTIVE DATE OF PLAN
10.1 The Plan shall become effective on the date on which the Plan is
adopted by the Board and approved by the shareholders.
ARTICLE 11
TERM OF PLAN
11.1 No Stock shall be granted pursuant to the Plan on or after December
31, 2014.
A-3
<PAGE> 27
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
THE SPORTS CLUB COMPANY, INC.
JULY 21, 1999
[Arrow Down] Please Detach and Mail in the Envelop Provided [Arrow Down]
A [X] Please mark your
votes as in this
example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING:
1. Election of 2 Class II Directors FOR WITHHOLD
AUTHORITY
[ ] [ ]
NOMINEES: Class II: Nanette Pattee Francini and Dennison T. Veru
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL,
WRITE THAT NOMINEE'S NAME ON THE LINE PROVIDED.)
--------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approve amendment to Company's Bylaws. [ ] [ ] [ ]
3. Approve amendment to Company's 1994 [ ] [ ] [ ]
Stock Incentive Plan.
The undersigned hereby acknowledges receipt of the Proxy Statement dated
June 21, 1999 and hereby revokes any proxy or proxies heretofore given to vote
shares at said meeting or any adjournment thereof.
PLEASE DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED SELF-ADDRESSED,
POSTAGE PAID ENVELOPE.
SIGNATURE DATE
------------------------------------------- --------------------
DATE
------------------------------------------- --------------------
SIGNATURE IF HELD JOINTLY
Note: Both should sign if shares are held in joint tenancy; if signing as
attorney, executor, administrator, trustee or guardian, give full title; if a
corporation, sign full corporate name by President or authorized officer, if a
partnership, sign partnership name by authorized person.
<PAGE> 28
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
THE SPORTS CLUB COMPANY, INC.
I/We hereby appoint D. Michael Talla, John M. Gibbons and Timothy O'Brien,
or any one of them acting alone in the absence of the others, as proxyholders,
each with the power to appoint his substitute, and hereby authorize them to
represent and to vote, as designated on the reverse side, all the shares of
Common Stock of The Sports Club Company, Inc. held of record by me/us on May
24, 1999, at the Annual Meeting of Stockholders to be held on July 21, 1999, or
any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED ON
THE REVERSE SIDE. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR EACH OF
THE NOMINEES AND EACH OF THE PROPOSALS LISTED ON THE REVERSE SIDE. THIS PROXY
WILL BE VOTED IN THE DISCRETION OF THE PROXYHOLDERS UPON SUCH OTHER BUSINESS AS
MAY PROPERLY COME BEFORE THE ANNUAL MEETING OF STOCKHOLDERS OR ANY ADJOURNMENT
THEREOF.
(PLEASE VOTE AND SIGN ON THE OTHER SIDE)
