UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

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Life Time Fitness, Inc. (Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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LIFE TIME FITNESS, INC.

 

 

Life Time Fitness, Inc.
2902 Corporate Place
Chanhassen, Minnesota 55317
(952) 947-0000

March 9, 2010

 

Dear Shareholder:

 

You are cordially invited to attend the annual meeting of shareholders to be held at the Life Time Fitness, Inc. Corporate Office, 2902 Corporate Place, Chanhassen, Minnesota 55317, commencing at 1:00 p.m., central time, on Thursday, April 22, 2010.

 

The Secretary’s notice of annual meeting and the proxy statement that follow describe the matters to come before the meeting. During the meeting, we also will review the activities of the past year and items of general interest about our company.

 

We hope that you will be able to attend the meeting in person and we look forward to seeing you. Please vote your shares, as instructed in your proxy card or the Notice of Internet Availability of Proxy Materials as promptly as possible. If you received a Notice of Internet Availability, you may vote your shares over the Internet or request a paper proxy card, which will include instructions to vote by telephone, as well as a reply envelope to submit your vote by mail. Please vote as quickly as possible, even if you plan to attend the annual meeting. You may revoke the proxy and vote in person at that time if you so desire.

 

Sincerely,

 

Bahram Akradi
Chairman of the Board of Directors, President and
Chief Executive Officer

 

VOTING METHODS

 

If your shares are registered directly in your name: If you are a shareholder of record, you may vote your shares through the Internet, by telephone or by mail as described below. Please help us save time and postage costs by voting through the Internet or by telephone. Each method is generally available 24 hours a day and will ensure that your vote is confirmed and posted immediately. To vote:

 

 

a. Go to the Web site at http://www.eproxy.com/ltm, 24 hours a day, seven days a week, until 12:00 p.m. (CT) on April 21, 2010.

 

b. Please have your Notice of Internet Availability of Proxy Materials or, if you have requested one, your proxy card, and the last four digits of your Social Security Number or Tax Identification Number available to verify your identify and create an electronic ballot.

 

c. Follow the simple instructions provided.

 

 

a. Request a proxy card by following the instructions in your Notice of Internet Availability of Proxy Materials.

 

b. On a touch-tone telephone, call toll-free 1-800-560-1965, 24 hours a day, seven days a week, until 12:00 p.m. (CT) on April 21, 2010.

 

c. Please have your proxy card and the last four digits of your Social Security Number or Tax Identification Number available to verify your identity.

 

d. Follow the simple instructions provided.

 

 

a. Request a proxy card by following the instructions in your Notice of Internet Availability of Proxy Materials.

 

b. Mark, sign and date your proxy card.

 

c. Return it in the postage-paid envelope that will be provided.

 

If your shares are held in a brokerage, bank or similar account: You will receive voting instructions from the organization holding your account and you must follow those instructions to vote your shares. You will receive a Notice of Internet Availability of Proxy Materials that will tell you how to access our proxy materials and vote your shares via the Internet. It also will tell you how to request a paper or e-mail copy of our proxy material.

 

Important Notice Regarding the Availability of Proxy Materials for the
Annual Meeting of Shareholders to be Held April 22, 2010.

 

The following materials are available for view on the Internet:

 

Proxy Statement for the 2010 Annual Meeting of Shareholders

 

Annual Report on Form 10-K for the year ended December 31, 2009

 

2009 Annual Report to Shareholders

 

To view the Proxy Statement, Annual Report on Form 10-K and 2009 Annual Report to Shareholders, visit http://materials.proxyvote.com/53217R.

 

Your vote is important. Thank you for voting.

LIFE TIME FITNESS, INC.

 

 

Notice of Annual Meeting of Shareholders
To Be Held on April 22, 2010

 

 

The annual meeting of shareholders of Life Time Fitness, Inc. will be held at the Life Time Fitness, Inc. Corporate Office, 2902 Corporate Place, Chanhassen, Minnesota 55317, commencing at 1:00 p.m., central time, on Thursday, April 22, 2010 for the following purposes:

 

1. To elect a board of directors of eight directors, to serve until the next annual meeting of shareholders or until their successors have been duly elected and qualified;

 

2. To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010; and

 

3. To transact other business that may properly be brought before the meeting.

 

Our board of directors has fixed February 26, 2010 as the record date for the meeting, and only shareholders of record at the close of business on that date are entitled to receive notice of and vote at the meeting.

 

Your proxy is important to ensure a quorum at the meeting. Even if you own only a few shares, and whether or not you expect to be present, you are urgently requested to vote by Internet in accordance with the voting instructions set forth on your Notice of Internet Availability. If you received a Notice of Internet Availability, you may also request a paper proxy card, which will include instructions to vote by telephone, as well as a reply envelope to submit your vote by mail. The proxy may be revoked by you at any time prior to being exercised, and voting your proxy by telephone or through the Internet or returning your proxy will not affect your right to vote in person if you attend the meeting and revoke the proxy.

 

By Order of the Board of Directors,

 

Eric J. Buss
Secretary

 

Chanhassen, Minnesota

March 9, 2010

 

PROXY STATEMENT

 

 

GENERAL INFORMATION

 

Your proxy is being solicited by our board of directors for use in connection with the annual meeting of shareholders to be held on Thursday, April 22, 2010 at the Life Time Fitness, Inc. Corporate Office, 2902 Corporate Place, Chanhassen, Minnesota 55317, commencing at 1:00 p.m., central time, and at any adjournments thereof. Our telephone number is (952) 947-0000. The mailing of the Notice of Internet Availability of Proxy Materials to shareholders will commence on or about March 9, 2010.

 

Notice of Internet Availability of Proxy Materials

 

Under rules of the Securities and Exchange Commission, we are furnishing proxy materials to certain of our shareholders on the Internet, rather than mailing printed copies to our shareholders. If you received a Notice of Internet Availability of Proxy Materials by mail, you will not receive a printed copy of the proxy materials unless you request one as instructed in that notice. Instead, the Notice of Internet Availability of Proxy Materials will instruct you as to how you may access and review the proxy materials, and vote your shares, on the Internet. If you received a Notice of Internet Availability of Proxy Materials by mail and would like to receive a printed copy of our proxy materials, please follow the instructions included in the Notice of Internet Availability of Proxy Materials.

 

Record Date

 

Only shareholders of record at the close of business on February 26, 2010 will be entitled to vote at the annual meeting or adjournment. At the close of business on the record date, we had 41,411,934 shares of our common stock outstanding, each entitled to one vote.

 

Voting of Proxies

 

Proxies voted by telephone, Internet or mail in accordance with the voting instructions set forth in your proxy card or Notice of Internet Availability of Proxy Materials, and not revoked, will be voted in the manner specified. A shareholder executing a proxy retains the right to revoke it at any time before it is exercised by providing notice in writing to one of our officers of termination of the proxy’s authority or a properly signed and duly returned proxy bearing a later date.

 

Shareholder Proposals

 

As stated in last year’s proxy statement dated March 9, 2009, shareholder proposals to be presented at this year’s annual meeting of shareholders were due at our principal executive office by November 9, 2009. No such proposals were received. We must receive shareholder proposals intended to be presented at the annual meeting of shareholders in the year 2011 that are requested to be included in the proxy statement for that meeting at our principal executive office no later than November 9, 2010. We must receive any other shareholder proposals intended to be presented at the annual meeting of shareholders in the year 2011 at our principal executive office no later than January 18, 2011.

 

Quorum

 

The presence at the meeting, in person or by proxy, of the holders of a majority of the shares of common stock outstanding on the record date will constitute a quorum for the transaction of business at the meeting. Abstentions and broker non-votes will be counted as present for purposes of determining the existence of a quorum.

Vote Required

 

Election of Directors.  The affirmative vote of a plurality of the shares of common stock present in person or by proxy at the meeting and entitled to vote is required for the election to the board of directors of each of the nominees for director. Shareholders do not have the right to cumulate their votes in the election of directors.

 

Other Proposals.  The affirmative vote of the holders of the greater of (1) a majority of the shares of common stock present in person or by proxy at the meeting and entitled to vote and (2) a majority of the minimum number of shares entitled to vote that would constitute a quorum for the transaction of business at the meeting is required for approval of each other proposal presented in this proxy statement. A shareholder who abstains with respect to a proposal will have the effect of casting a negative vote on that proposal. Generally, a shareholder who does not vote in person or by proxy on a proposal (including a broker non-vote) is not deemed to be present in person or by proxy for the purpose of determining whether a proposal has been approved.

 

Shares Held in Street Name

 

The election of directors is a proposal on which your broker does not have discretionary authority to vote. Thus, if your shares are held in street name and you do not provide instructions as to how your shares are to be voted on the election of directors, your broker or other nominee will not be able to vote your shares on that matter. Accordingly, we urge you to direct your broker or nominee to vote your shares by following the instructions provided on the voting instruction card that you receive from your broker.

 

Adjournment of Meeting

 

If a quorum is not present to transact business at the meeting or if we do not receive sufficient votes in favor of the proposals by the date of the meeting, the persons named as proxies may propose one or more adjournments of the meeting to permit solicitation of proxies. Any adjournment would require the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting.

 

Expenses of Soliciting Proxies

 

We will pay the cost of soliciting proxies for the annual meeting. In addition to solicitation by the use of mail, certain of our directors, officers and regular employees may solicit proxies by telephone or personal interview. We may request brokerage firms and custodians, nominees and other record holders to forward soliciting materials to the beneficial owners of our stock and will reimburse them for their reasonable out-of-pocket expenses in forwarding these materials.

 

PROPOSAL NO. 1 — ELECTION OF DIRECTORS

 

Composition of our Board of Directors

 

Our bylaws provide that our business will be managed by or under the direction of a board of directors. The number of directors constituting our board of directors is determined from time to time by our board of directors and currently consists of eight members. Each director will be elected at the annual meeting to hold office until the next annual shareholders meeting or the director’s resignation or removal. Our governance and nominating committee has nominated the eight persons named below for election as directors. Proxies solicited by our board of directors will, unless otherwise directed, be voted to elect the eight nominees named below to constitute the entire board of directors.

 

Directors and Director Nominees

 

All of the nominees named below are current directors of our company. Each nominee has indicated a willingness to serve as a director for the ensuing year, but in case any nominee is not a candidate at the

meeting for any reason, the proxies named in the enclosed proxy form may vote for a substitute nominee selected by the governance and nominating committee.

 

The following table sets forth certain information regarding each director nominee:

 

 

Set forth below are the biographies of each director nominee, as well as a discussion of the specific experience, qualifications, attributes and skills that led to the conclusion that the nominee should serve as a director:

 

Bahram Akradi founded our company in 1992 and has been a director since our inception. Mr. Akradi was elected chief executive officer and chairman of the board of directors in May 1996. In December 2009, Mr. Akradi was appointed president of our company; a position he also held from 1992 through December 2007. Mr. Akradi has over 25 years of experience in healthy way of life initiatives. From 1984 to 1989, he led U.S. Swim & Fitness Corporation as its co-founder and executive vice president. Mr. Akradi was a founder of the health and fitness Industry Leadership Council.

 

Through his leadership roles in our industry, Mr. Akradi has gained extensive experience in the development and operation of health and fitness companies. As our founder, he has significant knowledge of all facets of our company, including the day-to-day operations of our in-center programs and offerings and the construction and design of our centers. Mr. Akradi’s long history with our company, combined with his leadership skills and operating experience, makes him particularly well suited to be our chairman.

 

Giles H. Bateman was elected a director of our company in March 2006. Mr. Bateman was one of four co-founders of Price Club in 1976 and served as chief financial officer and vice chairman there until 1991. Mr. Bateman served as non-executive chairman of CompUSA Inc., a publicly traded retailer of computer hardware, software, accessories and related products, from 1993 until he retired in 2000. Mr. Bateman serves as a director, and the chair of the audit committee of WD-40 Company. Within the last five years, Mr. Bateman also served on the board of directors of United PanAm Finance Corporation and Price Legacy, Inc.

 

Mr. Bateman has more than 20 years of public company operating experience, including as founder, chief financial officer and vice chairman of big-box retailer, Price Club, and has served on numerous public company boards. In addition to his leadership experience with a big-box retailer, he also has background and expertise in finance through his tenure as chief financial officer at Price Club as well as his service on numerous audit committees in the past. This experience allows him to provide guidance and counsel in his roles as one of our audit committee members and chairman of our finance committee.

 

Jack W. Eugster was elected a director of our company in October 2009. Mr. Eugster served as the chairman, president and chief executive officer of Musicland Stores Corporation, a retail music and home video company, for 21 years before his retirement in 2001. Prior to Musicland, Mr. Eugster held executive leadership positions with The Gap, Inc. and Target Corporation. He currently serves on the board of directors of three public companies, including Donaldson Company, Inc., Graco Inc., and Black Hills Corporation, as well as several privately held organizations and community entities. Within the last five years, Mr. Eugster also served on the board of directors of ShopKo Stores, Inc. and Golf Galaxy, Inc.

Mr. Eugster has a history of demonstrated leadership with major retail organizations. His significant experience in leadership positions, including chief executive officer, of retail companies is particularly valuable for us as he can provide strategic input on center development and in-center offerings and programs. Mr. Eugster also brings extensive governance experience to our board and company as he has served as a director of numerous publicly held companies, many of which are big-box retailers.

 

Guy C. Jackson was elected a director of our company in March 2004. In June 2003, Mr. Jackson retired from the accounting firm of Ernst & Young LLP after 35 years with the firm and one of its predecessors, Arthur Young & Company. During his career, Mr. Jackson served as the audit partner on numerous public companies in Ernst & Young’s New York and Minneapolis offices. He also serves as a director, and the chair of the audit committee, of the following public companies: Cyberonics, Inc., Digi International Inc., EpiCept Corporation and Urologix, Inc.

 

Mr. Jackson brings more than 35 years of finance, audit and accounting experience to our board. Along with his years of experience with the auditing firm of Ernst & Young, LLP, serving many different companies and industries, Mr. Jackson is also a director, and chair of the audit committee, for four other publicly held companies. Mr. Jackson’s significant experience in the finance area allows him to provide analysis and input to our finance, accounting and internal audit functions. This experience, and his service on other boards and audit committees, qualifies Mr. Jackson to serve as chairman of our audit committee.

 

John K. Lloyd was elected a director of our company in October 2009. Mr. Lloyd is the president of Meridian Health, a New Jersey-based integrated health system which encompasses five hospitals and an extensive network of non-hospital healthcare services. He assumed this position in 1997. Prior to Meridian Health, Mr. Lloyd held executive leadership positions with Jersey Shore University Medical Center, Modern Health Affiliates, Inc., and Episcopal Hospital. He currently serves on the board of directors of QualCare Preferred Providers and QualCare Alliance Networks, Inc., as well as several other privately held organizations and community entities. Within the last five years, Mr. Lloyd also served on the board of directors of Commerce Bancorp, Inc.

 

As the president of Meridian Health, Mr. Lloyd has significant experience in the strategic development and operation of a network of health and wellness businesses within one corporate system. This experience allows Mr. Lloyd to provide valuable insight and guidance on organizational structure and employee programs within the health and wellness sector, as well as our technological systems and information safeguarding processes and procedures. Mr. Lloyd also brings additional public company governance experience to our board from his prior service as a director of Commerce Bancorp, Inc.

 

Martha (Marti) A. Morfitt was elected as a director of our company in August 2008. Ms. Morfitt is the chief executive officer of Airborne, Inc., a privately held manufacturer of dietary supplements. She assumed this position in October 2009 Ms. Morfitt is the former president and chief executive officer of CNS, Inc., a manufacturer and marketer of consumer healthcare products, including the Breathe Right^® nasal strip and FiberChoice^® daily fiber supplements. She held this position from 2001 through March 2007. From 1998 to 2001, she was chief operating officer of CNS, Inc. Ms. Morfitt left her position at CNS, Inc. effective March 2007 as a result of the acquisition of CNS, Inc. by GlaxoSmithKline plc in December 2006. Prior to 1998, Ms. Morfitt held an executive position at the Pillsbury Company. Ms. Morfitt is also a director of Graco Inc., lululemon athletica inc.and Solta Medical, Inc. Within the last five years, Ms. Morfitt also served on the board of directors of CNS, Inc. and Intrawest Corporation.

 

As the president and chief executive officer of CNS, Inc., Ms. Morfitt gained significant experience leading a publicly traded consumer products company. In addition to her leadership experience at CNS, Inc., Ms. Morfitt also serves as a director of three other publicly held companies. We believe Ms. Morfitt is well suited as a director of our company, as her consumer marketing and business strategy expertise allows Ms. Morfitt to provide insight on strategic plans relating to our business.

 

John B. Richards was elected a director of our company in October 2006. Mr. Richards is currently a managing partner of the New England Consulting Group, a firm specializing in creative marketing and growth strategies for a wide range of branded consumer businesses. Mr. Richards also serves as an interim consulting

executive to various retail companies. Previously, he served as the president and chief executive officer of Elizabeth Arden Red Door Spa Holdings from October 2001 until May 2006. Elizabeth Arden Red Door Spa Holdings is a developer and operator of prestige day and resort spas that operate under the Red Door Spas — Elizabeth Arden and Mario Tricoci brand names. Mr. Richards has also held senior leadership and management positions at Four Seasons Hotels Inc., Starbucks Coffee Company, Royal Viking Line, McKinsey & Company and The Procter & Gamble Company. Within the last five years, Mr. Richards also served on the board of directors of Elizabeth Arden Red Door Spa Holdings.

 

In his senior leadership roles at companies in the hospitality industry, Mr. Richards gained significant marketing and operating experience. Also, his expertise in marketing health and beauty services, gained through his role as chief executive officer at Elizabeth Arden Red Door Spa Holdings, is particularly valuable as we continue to provide health and wellness services in a resort-like environment.

 

Joseph S. Vassalluzzo was elected a director of our company in October 2006 and our lead director in October 2008. Mr. Vassalluzzo has been an independent advisor to retail organizations, with a primary emphasis on real estate, since August 2005. From 1989 until August 2005, Mr. Vassalluzzo held executive and senior leadership positions with Staples, Inc., an office products retailer. Previously, Mr. Vassalluzzo held management, sales, operations and real estate positions with Mobile Corp., Amerada Hess Corp. and American Stores Company. Mr. Vassalluzzo is the non-executive chairman of the Board of Trustees of Federal Realty Investment Trust, a publicly held real estate investment trust. He also is a director of iParty Corporation, a publicly held chain of party supply superstores. Within the last five years, Mr. Vassalluzzo also served on the board of directors of Commerce Bancorp, Inc.

 

Mr. Vassalluzzo has a history of demonstrated leadership in real estate acquisition and expansion in his roles at Staples, Inc. His real estate and expansion experience is particularly valuable as we continue to research and develop sites for new centers. His executive and senior leadership positions at numerous retailers make him well suited to be our Lead Director.

 

None of the above nominees is related to each other or to any of our executive officers.

 

Board of Directors Meetings and Attendance

 

Our board of directors held six meetings during fiscal year 2009. During fiscal year 2009, each director attended at least 75% of the aggregate number of the meetings of our board of directors and of the board committees on which she/he serves.

 

Director Independence and Board Structure

 

Our board of directors reviews at least annually the independence of each director. During these reviews, our board of directors considers transactions and relationships between each director (and his/her immediate family and affiliates) and our company and its management to determine whether any such transactions or relationships are inconsistent with a determination that the director was independent. In February 2010, our board of directors conducted its annual review of director independence and determined that no transactions or relationships existed that would disqualify any of our directors under New York Stock Exchange rules or require disclosure under Securities and Exchange Commission rules, with the exception of Mr. Akradi, who is also our president and chief executive officer. Based on a review of information provided by the directors and other information we reviewed, our board of directors concluded that none of our non-employee directors have any relationship with our company other than as a director or shareholder of our company. Our board specifically considered that Mr. Eugster is a director and 15% equity owner of a company that provides security and video surveillance related services to our company and Ms. Morfitt is a director of, and has a less than 1% equity interest in, lululemon athletic inc., a company from which we purchased certain apparel. We paid less than $200,000 to each of those companies in fiscal 2009, which is significantly less than the NYSE threshold for such transactional relationships. In addition, our board determined that the relationships were not material to any of the entities and that neither Ms. Morfitt nor Mr. Eugster had a personal interest in the transactions. Based upon that finding, our board of directors determined that Messrs. Bateman, Eugster, Jackson, Lloyd, Richards and Vassalluzzo, and Ms. Morfitt are “independent.”

At this time, the Board believes it is appropriate and efficient for Mr. Akradi, our chief executive officer, to also serve as chairman of the board, based on Mr. Akradi’s extensive knowledge about our company and the healthy way of life marketplace. The independent members of our board have named Mr. Vassalluzzo our independent lead director. Mr. Vassalluzzo, as lead director, chairs the executive sessions of the non-management members of our board of directors, acts as a liaison with Mr. Akradi, in consultation with the independent directors and assists in developing the agendas for each board of directors meeting. During 2009, our board of directors held an executive session of the non-management members of our board of directors after five of the six meetings.

 

Committees of Our Board of Directors

 

Our board of directors has an audit committee, a compensation committee, a governance and nominating committee and a finance committee. The charters for our audit committee, compensation committee, governance and nominating committee and finance committee are available on the Corporate Governance section of the Investor Relations page on our Web site at lifetimefitness.com.

 

Our board of directors’ committee composition is as follows:

 

 

Audit Committee.

 

Our audit committee consists of Messrs. Jackson (Chair), Bateman and Eugster and Ms. Morfitt. The functions of the audit committee include oversight of the integrity of our consolidated financial statements, our internal controls, our compliance with legal and regulatory requirements and the performance, qualifications and independence of our independent auditors. Our audit committee is directly responsible (subject to shareholder ratification) for the appointment of any independent auditor engaged for the purpose of preparing or issuing an audit report or related work. Our audit committee is also responsible for the retention, compensation, evaluation, termination and oversight of our independent auditors. The purpose and responsibilities of our audit committee are set forth in the Audit Committee Charter approved by our board of directors and most recently amended on December 11, 2009. Our audit committee held six meetings in fiscal year 2009.

 

Our board of directors has determined that all members of our audit committee are “independent,” as defined in Section 10A of the Securities Exchange Act of 1934 and pursuant to the rules of the New York Stock Exchange, and that each member of our audit committee also qualifies as an “audit committee financial expert,” as defined by applicable regulations of the SEC. Our board of directors has also determined that Mr. Jackson’s service on the audit committees of four other public companies does not impair his ability to effectively serve on our audit committee.

 

Compensation Committee.

 

Our compensation committee consists of Messrs. Vassalluzzo (Chair), Bateman and Lloyd and Ms. Morfitt. The functions of the compensation committee include reviewing and approving the goals and objectives relevant to compensation of our Chief Executive Officer, evaluating the Chief Executive Officer’s performance in light of those goals and objectives and determining and approving the Chief Executive Officer’s

compensation level based on this evaluation. Our compensation committee also approves and makes recommendations to our board with respect to compensation of other executive officers, incentive-compensation plans and equity-based plans. The purpose and responsibilities of our compensation committee are set forth in the Compensation Committee Charter approved by our board of directors and most recently amended on December 11, 2009. Our compensation committee held five meetings in fiscal year 2009.

 

Governance and Nominating Committee.

 

Our governance and nominating committee consists of Messrs. Richards (Chair), Jackson and Lloyd. The functions of the governance and nominating committee include identifying individuals qualified to become members of our board; overseeing our corporate governance principles; and making recommendations to the board with respect to changes in director compensation, if any. Our governance and nominating committee also performs the evaluation of the Chief Executive Officer and reviews his process for the evaluation of the members of the senior management team. The purpose and responsibilities of our governance and nominating committee are set forth in the Governance and Nominating Committee Charter approved by our board of directors and most recently amended on December 11, 2009. Our governance and nominating committee held four meetings in fiscal year 2009.

 

Finance Committee.

 

Our finance committee consists of Messrs. Bateman (Chair), Eugster, Richards and Vassalluzzo. The functions of the finance committee include reviewing and providing guidance to our board of directors and our company’s management about all major financial policies of our company, including capital structure, investor relations, capital planning and modeling of our company’s long-term plans, annual budgets, treasury management, and insurance and risk management, unless otherwise reviewed by our board of directors or audit committee. In addition, the finance committee reviews and approves proposed investments in excess of $5 million, including all sites for center development, ventures, mergers, acquisitions and divestitures, as well as any borrowings and indebtedness of our company or guarantees of indebtedness by our company in excess of $5 million. The purpose and responsibilities of our finance committee are set forth in the Finance Committee Charter approved by our board of directors and most recently amended on December 11, 2009. Our finance committee held five meetings in fiscal year 2009.

 

Corporate Governance Guidelines

 

In December 2004, our board of directors adopted Corporate Governance Guidelines. These guidelines were most recently amended and approved by the board on December 11, 2009. The guidelines are available on the Corporate Governance section of the Investor Relations page on our Web site at lifetimefitness.com.

 

Board’s Role in Risk Oversight

 

Our board of directors, in exercising its overall responsibility to direct our business and affairs, has established various processes and procedures with respect to risk oversight and management. As an annual core agenda item of the full board, management presents to the board a comprehensive and detailed risk assessment after completing an enterprise risk review and analysis. Pursuant to the risk assessment, we have categorized the most relevant risks as follows: capital, catastrophic, compensation-related, competitive, internal control and financial reporting, physical assets, regulatory, and talent. As part of this annual risk assessment, the board determines whether any of our overall risk management processes or control procedures requires modification or enhancement.

 

Competitive risk and talent risk, which relate to us properly defining and achieving our high-level goals and mission and retaining talent throughout that process, are regularly monitored and managed by the full board through the board’s regular and consistent review of our operating performance and strategic plan. For example, at each of the board’s regularly scheduled meetings throughout the year, management provides the board presentations on our various business units as well as our performance as a whole. Agenda items are included for significant developments as appropriate, for example, an overview of the competitive landscape,

important market developments and management succession, to name a few. Pursuant to the board’s established monitoring procedures, board approval is required for our annual plan which is reported on by management at each board meeting.

 

Capital risk, which relates to us properly managing our liquidity and plans for expansion, is regularly monitored and managed by our finance committee through its regular and consistent review of our capital structure and expansion plans. For example, at each of the finance committee’s regularly scheduled meetings throughout the year, management provides presentations on our capital structure as a whole, individual financing considerations and plans for expansion. Pursuant to its charter, our finance committee is charged with reviewing and approving our various financing and expansion plans. For certain financings or acquisitions, full board approval is required.

 

Internal control and financial reporting risk, which relates to the reliability of our financial reporting and compliance, are primarily overseen by our audit committee. Pursuant to its charter and core agendas, our audit committee receives input directly from management as well as our independent registered public accounting firm, Deloitte & Touche, LLP, regarding our financial reporting process, internal controls and public filings. The Committee also receives regular updates from our legal and internal audit departments on various legal or compliance items.

 

Compensation-related risk, which relates to the compensation plans of our executive and other team members incentivizing behavior that may not be in our best long-term interests, is regularly monitored and managed by our compensation committee through its regular and consistent review of our compensation plans. For example, at each of the compensation committee’s regularly scheduled meetings throughout the year, management provides to the compensation committee a presentation on the year-to-date performance of the compensation plans for our executives. Pursuant to its charter, our compensation committee is charged with reviewing and approving the compensation plans for our executives as well as any and all equity grants to our team members.

 

Code of Business Conduct and Ethics

 

We have adopted the Life Time Fitness, Inc. Code of Business Conduct and Ethics, which applies to all of our employees, directors, agents, consultants and other representatives. The Code of Business Conduct and Ethics includes particular provisions applicable to our senior financial management, which includes our chief executive officer, chief financial officer, controller and other employees performing similar functions. A copy of our Code of Business Conduct and Ethics is available on the Corporate Governance section of the Investor Relations page on our Web site at lifetimefitness.com. We intend to post on our Web site any amendment to, or waiver from, a provision of our Code of Business Conduct and Ethics that applies to any director or officer, including our principal executive officer, principal financial officer, principal accounting officer, controller and other persons performing similar functions, promptly following the date of such amendment or waiver.

 

Corporate Governance Documents Available on Our Web site

 

Copies of our key corporate governance documents are available on the Investor Relations page of our Web site at lifetimefitness.com. The charters for our audit committee, compensation committee, governance and nominating committee and finance committee, as well as copies of our Corporate Governance Guidelines and our Code of Business Conduct and Ethics, are available on our Web site. In addition, any shareholder that wishes to obtain a hard copy of any of these corporate governance documents may do so without charge by writing to Investor Relations, Life Time Fitness, Inc., 2902 Corporate Place, Chanhassen, MN 55317.

 

Director Qualifications

 

Candidates for director nominees are reviewed in the context of the current composition of our board of directors, our operating requirements and the long-term interests of our shareholders. The governance and nominating committee will consider, at a minimum, the following factors in recommending to our board of

directors potential new members, or the continued service of existing members, in addition to other factors it deems appropriate based on the current needs and desires of our board of directors:

 

 

Although we do not have a policy with regard to the consideration of diversity in identifying director nominees, as described above, diversity of background and experience is one of the factors the governance and nominating committee considers in recommending potential new members to our board of directors.

 

Director Nomination Process

 

Our governance and nominating committee selects nominees for directors pursuant to the following process:

 

 

Our governance and nominating committee will reassess the qualifications of a director, including the director’s past contributions to our board of directors and the director’s attendance and contributions at board of directors and board committee meetings, prior to recommending a director for reelection to another term.

 

In October 2009, our board of directors, upon recommendation of our governance and nominating committee, elected Messrs. Eugster and Lloyd to serve on our board of directors after the above-described process was completed. Messrs. Eugster and Lloyd were identified as candidates by separate non-employee directors of our company.

Shareholders who wish to recommend individuals for consideration by our governance and nominating committee to become nominees for election to our board of directors may do so by submitting a written recommendation to our governance and nominating committee, c/o General Counsel, 2902 Corporate Place, Chanhassen, MN 55317. Submissions must include a written recommendation and the reason for the recommendation, biographical information concerning the recommended individual, including age, a description of the recommended individual’s past five years of employment history and any past and current board memberships. The submission must be accompanied by a written consent of the individual to stand for election if nominated by our governance and nominating committee and to serve if elected by our board of directors or our shareholders, as applicable. Alternatively, shareholders may directly nominate a person for election to our board of directors by complying with the procedures set forth in our bylaws, any applicable rules and regulations of the Securities and Exchange Commission and any applicable laws.

 

Compensation Committee Interlocks and Insider Participation

 

During 2009, Messrs. Bateman, Lloyd, Richards and Vassalluzzo and Ms. Morfitt, served as the members of our compensation committee. No executive officer serves, or in the past has served, as a member of the board of directors or compensation committee of any entity that has any of its executive officers serving as a member of our board of directors or compensation committee.

 

Attendance at Annual Meeting

 

Our board of directors encourages each of its members to attend all annual meetings of shareholders that occur during a member’s service on our board of directors. Two members of our board of directors attended our 2009 annual meeting of shareholders.

 

Communication with our Board of Directors

 

All interested parties, including our shareholders, may contact our board of directors by mail addressed to the attention of our board of directors, our lead director, all independent directors or a specific director identified by name or title c/o General Counsel, Life Time Fitness, Inc., 2902 Corporate Place, Chanhassen, MN 55317. Our General Counsel will review all communications and then forward them to the appropriate director or directors on a periodic basis. The board of directors has instructed our General Counsel to review such correspondence and, with discretion, not to forward items that he deems to be of a commercial or frivolous nature or otherwise inappropriate for the board’s consideration.

 

Our board of directors recommends that the shareholders vote for the election of each of the eight nominees listed above to constitute our board of directors.

 

PROPOSAL NO. 2 —
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The firm of Deloitte & Touche LLP and its affiliates (“Deloitte & Touche”) has been our independent registered public accounting firm since 2002. Our audit committee has selected Deloitte & Touche to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2010, subject to ratification by our shareholders. While it is not required to do so, our audit committee is submitting the selection of that firm for ratification in order to ascertain the view of our shareholders. If the selection is not ratified, our audit committee will reconsider its selection. Proxies solicited by our board of directors will, unless otherwise directed, be voted to ratify the appointment of Deloitte & Touche as our independent registered public accounting firm for the fiscal year ending December 31, 2010.

 

A representative of Deloitte & Touche will be present at the meeting and will be afforded an opportunity to make a statement if the representative so desires and will be available to respond to appropriate questions during the meeting.

Fees

 

The following table presents the aggregate fees for professional services provided by Deloitte & Touche in fiscal year 2009 and 2008:

 

 

Audit Fees.

 

The audit fees set forth above consist of fees for audit services in connection with Deloitte & Touche’s review of our interim consolidated financial statements for the first three quarters of each fiscal year. The audit fees also include fees for the audit of our annual consolidated financial statements and our internal control over financial reporting.

 

Audit-Related Fees.

 

The audit-related fees set forth above consist of fees for the audits of our employee benefit plan as well as fees related to accounting consultations and certain agreed-upon procedures.

 

Tax Fees.

 

The tax fees set forth above consist of fees for the preparation of original and amended tax returns, tax planning and analysis services and assistance with tax audits. Of the fees set forth above, Deloitte & Touche billed $243,416 and $184,500 for tax preparation and compliance services and $0 and $99,994 for other tax-related items during 2009 and 2008, respectively.

 

Approval of Independent Registered Public Accounting Firm Services and Fees

 

The Audit Committee Charter requires that our audit committee approve the retention of our independent registered public accounting firm for any non-audit service and consider whether the provision of these non-audit services by our independent registered public accounting firm is compatible with maintaining our independent registered public accounting firm’s independence, prior to engagement for these services. Our audit committee also actively monitors the relationship between fees for audit and audit-related services and fees for other non-audit services. All of the services listed under the heading Tax Fees were pre-approved by our audit committee. Our audit committee has delegated to the chair the authority to pre-approve additional services by our independent registered public accounting firm of up to $50,000, in the aggregate, without prior approval of the audit committee.

 

Our board of directors recommends that the shareholders vote for the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010.

 

AUDIT COMMITTEE REPORT

 

The role of our audit committee, which is composed of four independent non-employee directors, includes oversight of the integrity of our company’s consolidated financial statements, our internal controls, our company’s compliance with legal and regulatory requirements and the performance, qualifications and independence of our independent auditors. In performing our oversight function, we rely upon advice and information received in our discussions with management and the independent registered public accounting firm.

 

We have (a) reviewed and discussed our company’s audited consolidated financial statements for the fiscal year ended December 31, 2009 with management; (b) discussed with Deloitte & Touche, our company’s independent registered public accounting firm, the matters required to be discussed by applicable auditing standards, regarding communication with audit committees; and (c) received the written disclosures and the letter from Deloitte & Touche required by applicable requirements of the Public Company Accounting Oversight Board regarding Deloitte & Touche’s communications with the audit committee concerning their independence, and discussed with Deloitte & Touche their independence.

 

Based on the review and discussions with management and our company’s independent registered public accounting firm referred to above, we recommended to our company’s board of directors that our audited consolidated financial statements be included in our company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 for filing with the Securities and Exchange Commission.

 

Audit Committee:

 

Guy C. Jackson, Chair

Giles H. Bateman

Jack W. Eugster

Martha A. Morfitt

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Overview

 

We operate distinctive and large, multi-use sports and athletic, professional fitness, family recreation and spa centers in a resort-like environment. We participate in the large and growing U.S. health and wellness industry, which we define to include health and fitness centers, fitness equipment, athletics, physical therapy, wellness education, nutritional products, athletic apparel, spa services and other wellness-related activities. For compensation purposes, we currently compare our company against the hotel, restaurant and leisure global industry as well as the larger consumer services global industry.

 

Our compensation committee, which is composed of four independent, non-employee directors, discharges our board of directors’ responsibilities with respect to all forms of compensation of our company’s executive officers and oversight of our company’s compensation plans. The purpose of this discussion and analysis is to summarize the philosophical principles, compensation decision-making process, specific program elements and other factors we considered in making decisions about executive compensation during fiscal year 2009.

 

Our compensation committee has the authority to retain outside counsel, experts and other advisors as it determines appropriate to assist it in the performance of its functions.

 

Compensation Philosophy

 

We believe that the quality, ability and commitment of our executive officers are significant factors contributing to the proper leadership of our company and driving shareholder value for our company. Our executive compensation goals are to:

 

 

Compensation Determination Process

 

Our company uses a variety of compensation elements to achieve our compensation philosophy, including primarily base salary, annual bonuses and long-term incentive equity awards. Our compensation committee does not use a specific formula to set compensation elements under each component, but instead attempts to achieve the appropriate balance between short-term cash compensation and long-term equity compensation and to reflect the level of responsibility of the executive officer. The factors our compensation committee considers when determining each compensation element and when considering a material increase or decrease in a compensation element include, but are not limited to, the following:

 

 

 

Annually, our compensation committee reviews the executive compensation program in connection with our company’s merit review and compensation plan process, which typically concludes on or about March 1 for a fiscal year. In general, our compensation committee begins this review process by determining the total cash compensation to be paid to an executive based on a review of the executive pay level for comparable jobs at similar companies, as described below, and the financial performance of those companies relative to ours, in addition to considering the other factors listed above. After the total cash compensation has been determined, our compensation committee allocates a portion of that amount to performance-based compensation to reflect the committee’s belief that a certain portion of total compensation should be incentive compensation. The difference between the total cash compensation and potential annual bonus portion, or the performance-based cash portion, of total cash compensation is the executive’s base salary, which is also established by considering the other factors listed above. Our compensation committee then uses total cash compensation as a basis to establish long-term incentive equity awards, as well as the long-term incentive equity awards being granted by similar companies, while also considering the other factors listed above.

 

In connection with the compensation applicable to our 2007 fiscal year for executives, our compensation committee reviewed the base salary, annual bonuses and long-term incentive equity award elements and levels for our executives. Our compensation committee engaged the services of Pearl Meyer & Partners and instructed them to provide an update to the work that they had performed at the end of fiscal 2006, with respect to the competitive assessment of our total cash compensation and long-term incentive elements and a review our company’s long-term incentive compensation element. As part of this study, Pearl Meyer & Partners compared our base salary, annual bonuses and long-term incentive award elements primarily against two updated peer groups. The first peer group was composed of 13 publicly traded companies within the hotels, restaurant and leisure global industry classification that each had similar size, revenues and market capitalization as compared to our company. The companies selected to be a part of this peer group were Bally Total Fitness Holding Corporation, CEC Entertainment Inc., Cedar Fair, L.P., Chipotle Mexican Grill, Inc., Dine Equity, Inc., International Speedway Corporation, Panera Bread Company, Pinnacle Entertainment, Inc., Sonic Corporation, Speedway Motorsports, Inc., Texas Roadhouse, Inc., Town Sports International Holdings, Inc. and Vail Resorts, Inc. The second peer group was composed of 11 publicly traded companies from the consumer services global industry classification, each with similar size or market capitalization to revenue ratios as compared to our company. The companies selected to be a part of this peer group were Bally Total Fitness Holding Corporation, Cedar Fair, L.P., International Speedway Corporation, ITT Educational Services, Inc., Jackson Hewitt Tax Service, Inc., Panera Bread Company, Pinnacle Entertainment, Inc., Sotheby’s, Speedway Motorsports, Inc., Town Sports International Holdings, Inc. and Vail Resorts Inc. Our compensation committee considered this information, in addition to the factors described above, when determining the base salary, annual bonus and the long-term incentives payable to our executives in fiscal 2007.

 

In connection with the compensation applicable to our 2008 fiscal year for executives, our compensation committee reviewed the base salary, annual bonuses and long-term incentive equity award elements and levels for our executives. Mr. Akradi requested that his total compensation be paid in the form of restricted stock as an expression of his confidence in the value of our company. Mr. Akradi also recommended that the 2008 cash compensation packages for each of the other members of the executive team remain unchanged from the previous year, as a result of the decline of our stock price in late 2007 and early 2008. Our compensation committee engaged Pearl Meyer & Partners to assess the competitiveness of our executive compensation programs and to consider the merits of an all equity compensation program for Mr. Akradi in 2008. As part of this study, Pearl Meyer & Partners compared our base salary, annual bonuses and long-term incentive award elements primarily against the peer groups that they had previously created, with the exception that Bally Total

Fitness was removed from both peer groups. Pearl Meyer & Partners described several positive attributes of an all equity pay program for Mr. Akradi in 2008, including the message to the market, the deferral of expenses over the vesting period and the use of a performance-vesting feature for a portion of the award, and provided various scenarios for our compensation committee to consider. Our compensation committee considered this information in addition to the other factors described above when determining the compensation package to offer Mr. Akradi as well as the base salary, annual bonus and long-term incentive equity award levels to be paid to our executives other than Mr. Akradi for fiscal 2008.

 

In connection with the compensation applicable to our 2009 fiscal year, our compensation committee reviewed the base salary, annual bonuses and long-term incentive award elements and levels for our executives. In light of the challenging economic times, our company determined that it would not, for the most part, increase the compensation packages offered to our employees. In the spirit of maintaining internal pay consistency across all employees, Mr. Akradi informed our compensation committee that the members of the executive management team requested that their total compensation plans not be increased from 2008 levels. Our compensation committee engaged the services of Mercer to provide an analysis of the base salary, total cash compensation and long-term incentive awards of the highest paid executives of our peer group companies identified above for the purpose of providing an assessment to our compensation committee of a compensation package to offer Mr. Akradi. Mercer compared our base salary, annual bonuses and long-term incentive award elements primarily against the peer groups that had been created by Pearl Meyer & Partners in prior years, based on such prior year data. Our compensation committee determined that Mr. Akradi’s total direct compensation for 2009 should be at approximately the 50th percentile of the total direct compensation awarded to the highest paid executives in our peer groups. This relative level of total direct compensation represented a substantial reduction from prior years. Our compensation committee determined that this was appropriate given Mr. Akradi’s performance in 2008, as determined through an annual performance review of Mr. Akradi conducted by our board, and our company’s actual financial performance in 2008 as compared to our own expectations. Accordingly, our compensation committee offered Mr. Akradi a total direct compensation package of $3,500,000, which consisted of a $750,000 base salary, a $750,000 target annual bonus and a restricted stock grant of approximately $2,000,000, for our fiscal year 2009. The total cash compensation, consisting of base salary and target annual bonus, as well as the long-term incentive award, consisting of the restricted stock grant, each approximated the 50th percentile of cash compensation and long-term incentive compensation offered to the highest paid executives of our peer groups. Mr. Akradi’s cash compensation was approved in January 2009 since he had not been receiving cash compensation from us for over a year. The cash compensation plans for the rest of the executive team, along with the equity awards for the entire executive team, including Mr. Akradi, were approved in March 2009. Except as described below, the compensation plans for the members of our executive team other than Mr. Akradi remained unchanged from 2007 and 2008.

 

For fiscal 2010, our compensation committee has again engaged the services of Mercer to assess the competitiveness of our executive compensation programs. Our compensation committee expects to approve 2010 compensation plans for our executive team on or about March 12, 2010.

 

Management Participation.  Members of executive management participate in our compensation committee’s meetings at the committee’s request. Management’s role is to contribute input and analysis to the committee’s discussions. Management does not participate in the final determination or recommendation of the amount or form of executive compensation, except that our Chief Executive Officer does participate in the final recommendation, but not determination, of the amount and form of compensation to be paid to all other members of the executive management team. Our Executive Vice President and General Counsel, who oversees our compensation and human resources department, provides information to the compensation consultants engaged by the committee and assists in the design of our compensation programs.

 

Use of Consultants.  From time to time and as noted above, our compensation committee uses outside compensation consultants to assist it in analyzing our company’s compensation programs and determining appropriate levels of compensation and benefits. The decision to retain consultants and, if so, which consultants to retain, is made solely by our compensation committee.

Executive Compensation Elements

 

Our company’s executive compensation package ordinarily consists of base salaries, annual bonuses, long-term incentive awards, other compensation, a deferred compensation plan and severance, and change in control benefits.

 

Base Salary

 

 

 

Annual Bonuses

 

 

 

 

 

 

 

Long-Term Incentive Awards

 

 

 

 

 

 

In addition to the annual equity awards that are considered each March, our compensation committee determined that a one-time, long-term performance-based restricted stock award should be granted to certain management-level team members. Our compensation committee made this decision to address concerns over retention of our leaders for the foreseeable future and to provide an incentive for our company to achieve financial performance in future years at rates that are beyond our expectations for financial performance in those years. On June 11, 2009, our compensation committee approved the grant of an aggregate of 996,000 shares of long-term performance-based restricted stock to serve as an incentive to our executive officers and certain other employees, which consisted of a total of 53 employees, with performance-vesting targets that are based on EPS. Specifically, if a specified EPS target is achieved for fiscal 2011, 50% of the restricted shares will vest. If a higher EPS target is achieved for fiscal 2011, 100% of the restricted shares will

vest. If the grant has not fully vested after fiscal 2011, 50% of the shares will vest if a specified EPS target is achieved for fiscal 2012. If none of the shares vested after fiscal 2011, 100% of the shares will vest if a higher EPS target is achieved for fiscal 2012. In the event that we do not achieve the required EPS targets, the restricted stock will be forfeited. The June 2009 grants provide that the restricted shares will be forfeited if the employee’s employment is terminated for any reason prior to vesting. Unlike past restricted stock grants, these awards do not provide for accelerated vesting upon death or disability. However, the restricted shares will vest immediately if the employee’s employment is terminated for any reason other than cause following a change of control or if the restricted stock award is not assumed or replaced by the surviving or acquiring entity on economically equivalent terms, as determined by our compensation committee.

 

Other Compensation

 

We provide our executive officers with perquisites and benefits that we believe are reasonable, competitive and consistent with the company’s overall executive compensation program in order to attract and retain talented executives. Our executives are entitled to few benefits that are not otherwise available to all of our employees. The compensation committee periodically reviews the levels of perquisites and other personal benefits provided to executive officers.

 

Deferred Compensation

 

We offer the Executive Nonqualified Excess Plan of Life Time Fitness, a non-qualified deferred compensation plan, for the benefit of our highly compensated employees, which our plan defines as our employees whose projected compensation for the upcoming plan year would meet or exceed the IRS limit for determining highly compensated employees. This unfunded, non-qualified deferred compensation plan allows participants the ability to defer and grow income for retirement and significant expenses in addition to contributions made to our 401(k) plan.

 

Employment Agreements and Change in Control Provisions

 

In July and August 2004, we entered into employment agreements for certain of our executive officers and other members of senior management. We amended and restated these employment agreements in December 2008 in response to requirements under Section 409A of the Internal Revenue Code. We believe that our company has achieved growth through innovative, confidential and proprietary management and marketing methods and plans. Therefore, it was necessary to enter into employment agreements to assure protection of our goodwill and confidential and proprietary information, management and marketing plans.

 

In addition, we also wanted to assure that certain of our executive officers and other members of senior management would continue to serve us under circumstances in which there was possible threatened or actual change of control at our company. We believe it is imperative to diminish the inevitable distraction of certain of our executive officers and other members of senior management by virtue of the personal uncertainties and risks created by a potential severance of employment and to encourage their full attention and dedication to our company currently and in the event of any threatened or impending change of control, and to provide these persons with compensation and benefits arrangements upon a severance of employment which ensure that their compensation and benefits expectations will be satisfied and which are competitive with those of other companies. For these reasons, our company also included accelerated vesting of equity awards upon a change in control under our 2004 Plan and the LIFE TIME FITNESS, Inc. 1998 Stock Option Plan, referred to as our 1998 Plan.

 

We do not currently have an employment agreement with Mr. Akradi. Our compensation committee feels that because Mr. Akradi has such a significant financial interest in our company, it is highly unlikely that he would compete against us. Further, as the founder of our company and chief executive officer for fourteen years, Mr. Akradi has invested significant time and resources to the growth and development of our company, which provides for an even greater personal interest in our company’s overall success.

 

During 2009, we also entered into a Separation Agreement with Mr. Gerend in connection with his termination of employment in May 2009. Our compensation committee determined to provide certain

severance benefits to Mr. Gerend because we did not anticipate fulfilling Mr. Gerend’s reasonable future expectations related to his employment, and he perceived a reduction in his current duties and responsibilities. In connection with the Separation Agreement, Mr. Gerend also agreed to certain covenants and he signed a release of claims against us. The details of the Separation Agreement are described below.

 

Accounting and Tax Impacts of Executive Compensation

 

Section 162(m) of the Internal Revenue Code generally precludes a public corporation from taking a federal income tax deduction for compensation paid in excess of one million dollars per year to certain covered officers. Under this section, compensation that qualifies as performance-based is excludable in determining what compensation amount shall qualify for tax deductibility. Covered employees include each of our named executive officers.

 

Our compensation committee considers our ability to fully deduct compensation in accordance with the one million dollar limitations of Section 162(m) in structuring our compensation programs. However, our compensation committee retains the authority to authorize the payment of compensation that may not be deductible if it believes such payments would be in the best interests of the company and its shareholders. In 2009, Section 162(m) did not limit the deductibility of expenses that we recognized in connection with the compensation plans for all of our named executive officers.

 

At our 2008 annual meeting of shareholders, we submitted for approval, and our shareholders approved, our Life Time Fitness, Inc. Executive Cash Bonus Plan. Certain performance-based payments qualify for an exemption from the one million dollar limitation of Section 162(m) described above; however, in order to qualify, the material terms of the performance targets must be approved by our shareholders every five years. As a result of our shareholders’ approval of the plan, amounts paid under the objective performance targets will, under current tax law, qualify as performance-based compensation.

 

Compensation Committee Report

 

The compensation committee has discussed and reviewed the Compensation Discussion and Analysis with management. Based upon this review and discussion, the compensation committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

Compensation Committee:

 

Joseph S. Vassalluzzo, Chair

Giles H. Bateman

John K. Lloyd

Martha A. Morfitt

 

Summary Compensation Table

 

The following table shows, for our Chief Executive Officer, our Chief Financial Officer, our three other most highly compensated executive officers who were serving at fiscal year-end and one former executive officer who would have been among the three most highly compensated executive officers, but was no longer serving at fiscal year-end, together referred to as our named executive officers, information concerning compensation earned for services in all capacities during the fiscal years ended December 31, 2009, 2008 and 2007:

 

 

 

 

 

 

 

 

 

 

Grants of Plan-Based Awards in 2009

 

The following table sets forth certain information concerning plan-based awards granted to the named executive officers during the 2009 fiscal year. No options were re-priced or materially modified during the fiscal year.

 

 

 

 

 

Outstanding Equity Awards at 2009 Fiscal Year-End

 

The following table sets forth certain information concerning equity awards outstanding to the named executive officers at December 31, 2009.

 

 

 

 

 

2009 Option Exercises and Stock Vested

 

The following table sets forth certain information concerning options exercised and stock vested during fiscal 2009 for the named executive officers:

 

Nonqualified Deferred Compensation for 2009

 

The following table sets forth certain information concerning nonqualified deferred compensation contributed to the Executive Nonqualified Excess Plan of Life Time Fitness of amounts earned during fiscal 2009 for the named executive officers:

 

 

 

 

All highly compensated employees eligible to participate in the Executive Nonqualified Excess Plan of Life Time Fitness, including but not limited to our executives, may elect to defer up to 50% of their annual base salary and/or annual bonus earnings to be paid in any coming year. The investment choices available to

participants under the non-qualified deferred compensation plan are of the same type and risk categories as those offered under our company’s 401(k) plan and may be modified or changed by the participant or our company at any time. Distributions can be paid out as in-service payments or at retirement. Upon retirement, a participant’s account benefits can be paid out as a lump sum or in annual installments over a term of up to 10 years. We may make matching contributions and/or discretionary contributions to this plan. However, any matching contribution made by the company to participants under this plan is limited to the maximum matching contribution that such participant would have received under our 401(k) plan. If we did desire to make contributions to this plan, the contributions would vest to each participant according to their years of service with our company.

 

Equity Ownership Guidelines

 

We encourage our executives and directors to hold company shares, however, we do not have formal stock ownership guidelines.

 

In February 2007 we adopted a formal equity grant policy governing all awards granted under our stock incentive plans, including the grant of any shares of our common stock, restricted shares, restricted stock units, stock options, stock appreciation rights, deferred stock units, phantom stock and performance units. This policy was amended and restated in July 2008.

 

This policy maintains that no grants are to occur on a date when our insider trading window is closed. Annual grants, which must be approved by our compensation committee are to occur on or about the same time every year. Any new hire grants are to be approved by our compensation committee at their next meeting that occurs during an open trading window, which shall, as amended, be held on the first Monday following the close of each blackout period. However, any such meeting may be cancelled by our compensation committee if it deems there are not a significant number of grants to be approved. The policy requires that all grants of awards to any members of our board of directors must be approved by our board of directors and that all grants of awards to any current or new hire executive officers must be approved by our compensation committee.

 

This policy also maintains that upon the compensation committee’s request, they may receive and review a report from a compensation consultant hired by the compensation committee that includes relevant survey and benchmarking data prior to approving annual awards for executive officers as well as prior to approving awards to any new hire executive officers. In connection with approving grants of awards to any executive officer, the policy holds that our compensation committee is to review total compensation for such person for the most recent three year period, or such lesser time as the person has been employed by us. The review is to include a listing of all equity awards granted to such executive officer in the three year period and a listing of all outstanding equity awards issued to such executive officer. Our compensation committee may consider recommendations of any executive officer when approving awards, other than recommendations by an individual for his or her own award.

 

Employment Agreements and Change of Control Provisions

 

In December 2008, our compensation committee approved a revised form of employment agreement for certain of our executive officers. During December 2008, the revised employment agreements were executed by each of our executive officers. As previously discussed, Mr. Akradi does not currently have an employment agreement with us.

 

The employment agreements provide that if an executive’s employment is terminated by us other than for cause, death or disability, or the executive terminates his employment for good reason, other than within one year following a change of control, then we are to provide the executive with (i) payment in an amount equal to 11/2 times the executive’s Target Salary (defined as the sum of the executive’s annual base salary and annual target payout under our annual cash-based incentive plan) in effect as of the termination date (or, if executive resigns for good reason due to a 25% or greater reduction in executive’s Target Salary, the Target Salary in effect immediately prior to the reduction) payable in accordance with the schedule and limitations described below; (ii) up to $10,000 in aggregate reasonable outplacement costs associated with the executive’s search for new employment during the first 12 months following the termination date; and (iii) continuation of medical

plan coverage and life insurance coverage for a period of up to 18 months, not to exceed the COBRA continuation period, at the same level, in the same manner and at the same cost to the executive as in effect on the termination date of employment.

 

The payment of executive’s Target Salary in (i) above will be paid in equal installments in accordance with our regular payroll schedule commencing on the first regular payroll date after the date of executive’s termination of employment, provided that the amount equal to 1/2 of executive’s Target Salary that is otherwise payable in the first six months following the termination date shall not exceed the amount that would cause the payments to be considered a deferral of compensation under Section 409A.

 

The employment agreements define “good reason” as any of the following events, provided that the executive gives written notice to our company within 90 days of the first occurrence of the event and we fail to remedy the condition within 30 days thereafter:

 

 

The employment agreements generally define “cause” as our determination in good faith that an executive has:

 

 

Events relating to executive’s absenteeism, neglect or refusal to perform, or inability to perform, will constitute “cause” only if we provide the executive with written notice of the event and the executive fails to remedy the event within 21 business days.

Termination Other than for Cause, Death or Disability or Termination for Good Reason (Other than Within One Year Following a Change of Control)

 

The following table presents the estimated total amounts that would be paid out (including the cost to our company of benefits coverage provided) to the executive officer if his employment was terminated other than for cause, death or disability, or the executive terminated his employment for good reason, as of December 31, 2009, other than within one year following a change of control of our company. In addition to the amounts included below, certain terminations for good reason will result in acceleration of stock options, the circumstances of which are described below:

 

 

 

 

Termination Other than for Cause, Death or Disability or Termination for Good Reason Within One Year of a Change of Control

 

The employment agreements also provide that if the executive’s employment with us or a successor is terminated by us within one year of a change of control for any reason other than cause, death or disability, or by the executive within one year of a change of control for good reason, then the executive will receive the same benefits as set forth above, subject to the same schedule and limitations; and in addition, we will pay the executive an amount equal to 1/4 of the Target Salary, payable in equal installments in accordance with our regular payroll schedule over the 3-month period beginning after completion of the Target Salary payments described above.

 

In addition, our 2004 Plan and the agreements relating to stock option and restricted stock awards subject to that plan provide that all stock option awards will become immediately exercisable in full and all restricted stock awards will fully vest immediately upon a change of control of our company. However, in the event of a change of control, our compensation committee has the right to cancel any outstanding options under the 2004 Plan and to cause us to instead pay the optionee the excess of the fair market value of the option shares covered by the option over the exercise price of the option at the date that our compensation committee provides a buy-out notice.

 

Awards granted before April 24, 2008, under the 2004 Plan, define “change of control” as consisting of any of the following events:

 

 

 

The employment agreements, as well as awards granted after April 24, 2008 under the 2004 Plan, define “change of control” as consisting of any of the following events:

 

 

The following table presents (i) the estimated total amounts that would be paid out (including the cost of continued benefits coverage to our company) to each named executive officer if the officer’s employment were terminated by us or a successor for any reason other than cause, death or disability, or by the named executive officer for good reason, as of December 31, 2009, and within one year of a change of control; and (ii) the intrinsic value of the stock options whose exercisability would be accelerated, and of the restricted stock awards whose vesting would be accelerated, if a change of control occurred as of December 31, 2009:

 

 

 

 

 

Payment of severance benefits under our employment agreements, whether or not termination is in connection with a change of control, is conditioned upon the executive signing and not rescinding a global release of all claims against us, and remaining in compliance with his obligations under the employment agreement to (i) protect our confidential information, (ii) refrain from competing with us for 18 months (or 24 months in connection with a change of control) after his termination of employment, (iii) refrain from hiring any of our employees for 12 months after his termination of employment, and (iv) refrain from soliciting any of our customers or inducing any customer or supplier to stop doing business with us for 12 months after his termination of employment.

 

Acceleration of Vesting of Equity Awards

 

Under our 2004 Plan, if an executive’s employment is terminated due to death or disability, any outstanding stock option will immediately become exercisable in full for one year (or until the option expires, if that occurs sooner), and any restricted stock award will vest in proportion to the term of the award during which the executive was employed.

 

Beginning in 2006, each restricted stock agreement granted by us to our employees, including our executive officers, provides for the complete vesting of all restricted stock upon termination of employment due to death or disability. However, the restricted stock agreements issued in connection with the June 11, 2009, restricted stock grant do not provide for complete vesting of all restricted stock upon termination of employment due to death or disability. If an executive’s employment terminates for any reason other than death, disability or cause (defined in a manner similar to that in our employment agreements), his outstanding stock options will remain exercisable for a period of 90 days after termination to the extent they were exercisable immediately before termination, but any unvested shares of restricted stock will be forfeited. The following table presents the intrinsic value of the stock options granted under the 2004 Plan whose exercisability would be accelerated, and of the restricted stock awards whose vesting would be accelerated, if the named executive officer’s employment were terminated due to death or disability as of December 31, 2009:

 

 

 

 

Michael J. Gerend’s Separation Agreement

 

On May 1, 2009, we entered into a Separation Agreement with Mr. Gerend relating to Mr. Gerend’s departure from our company. The following table shows total amount payable for the benefit of Mr. Gerend in connection with his separation from our company:

 

 

 

 

In connection with the Separation Agreement, we extended the period for Mr. Gerend to exercise his vested stock options to two years following his termination of employment. We also waived the forfeiture of 27,778 shares of restricted stock that were granted to Mr. Gerend on March 13, 2009 and amended the forfeiture provisions of such shares, so that they will be forfeited if Mr. Gerend breaches any provision of the Separation Agreement. Those restricted shares also remained subject to forfeiture if we failed to achieve our EPS performance hurdle for fiscal 2009.

 

As a condition to receiving the benefits provided under his Separation Agreement, Mr. Gerend is required to comply with certain covenants including (i) protecting our confidential information, (ii) refraining from competing with us for 24 months after his termination of employment, (iii) refraining from hiring any of our employees for 24 months after his termination of employment, and (iv) refraining from soliciting any of our customers or inducing any customer or supplier to stop doing business with us for 24 months after his termination of employment. In addition, Mr. Gerend signed and did not rescind a global release of all claims against us. Mr. Gerend also agreed to cooperate with us and provide us with certain consulting services for no additional compensation.

 

Compensation of Directors

 

Non-employee directors are compensated for serving as directors with a grant of restricted stock, an annual stipend, and annual chairperson and lead director fees, if applicable, and are also reimbursed for out-of-pocket traveling expenses incurred in attending board and committee meetings.

Director Compensation Table

 

The following table shows, for each of our non-employee directors, information concerning annual and long-term compensation earned for services in all capacities during the fiscal year ended December 31, 2009.

 

 

 

 

All stock awards granted to non-employee directors have been in the form of restricted stock issued under our 2004 Plan. Directors may vote and receive dividends, if any, at the normal dividend rate on restricted shares that they hold. Restricted shares may not be transferred and are subject to possible forfeiture until they vest, which occurs when a director ceases to be a member of our board of directors for any reason other than death, total disability or retirement unless our board of directors determines otherwise. In the event of the death, total disability or retirement of a non-employee director prior to the granting of a restricted stock award in respect of the fiscal year in which such event occurred, the restricted stock award may, in the discretion of our board of directors, be granted in respect of such fiscal year to the retired or disabled non-employee director or his or her estate. In addition, in the case of a non-employee director’s death, total disability or retirement or the occurrence of a change of control under our 2004 Plan (see “Employment Agreements and Change in Control Provisions” section on page 31), all restricted shares outstanding to non-employee directors that have not previously vested or been forfeited will vest immediately.

 

The following table shows, for each of our non-employee directors, the aggregate number of stock awards outstanding as of December 31, 2009:

 

 

Stipend

 

On April 23, 2008, our board of directors approved changes in the compensation payable to our company’s non-employee directors to become effective on April 24, 2008, including an increase in the annual stipend amount to $60,000. The annual stipend amount is paid in cash quarterly after the end of each calendar quarter, in arrears.

For the fiscal year ended December 31, 2009, Messrs. Bateman, Jackson, Richards and Vassalluzzo and Ms. Morfitt were paid the $60,000 annual stipend for service on our board of directors. Messrs. Eugster and Lloyd each received a pro-rated payment of the annual stipend based on their dates of election to our board.

 

Chairperson Fees

 

On April 23, 2008, our board of directors approved changes in the compensation payable to our company’s non-employee directors to become effective on April 24, 2008, including increases in our committee chairperson fees to $15,000 for the chairperson of our audit and compensation committee, and $10,000 for the chairperson of our governance and nominating committee and finance committee. The annual committee chairperson fees are paid in cash quarterly after the end of each calendar quarter, in arrears.

 

Accordingly, for the fiscal year ended December 31, 2009, Mr. Jackson, as chairperson of the audit committee, and Mr. Vassalluzzo, as chairperson of the compensation committee, each received a payment of $3,750 for each calendar quarter. Mr. Richards, as chairperson of the governance and nominating committee, and Mr. Bateman, as chairperson of the finance committee, each received a payment of $2,500 for each calendar quarter.

 

Lead Director Fees

 

On February 25, 2009, our board of directors approved changes in the compensation payable to our company’s non-employee directors, including an increase in our lead director fee to $90,000. The lead director fee is paid in cash quarterly after the end of each calendar quarter, in arrears. Accordingly, for the fiscal year ended December 31, 2009, Mr. Vassalluzzo, as lead director of our board of directors, received a payment of $22,500 for each calendar quarter.

 

Restricted Stock

 

Non-employee directors who joined our board of directors on or after March 1, 2004 received an initial grant of restricted stock with a fair market value at grant date of $100,000 in connection with such a director becoming a member of our board of directors. The date of grant for such director is the date of such director’s election to our board of directors and the restrictions on the restricted stock lapse ratably on each annual anniversary of the date of grant over a three-year period. Pursuant to this provision, Messrs. Eugster and Lloyd were each granted 4,008 shares of restricted stock on October 27, 2009.

 

Effective January 1, 2007, our board of directors approved changes in the compensation payable to our company’s non-employee directors so that each non-employee director will receive an annual restricted stock grant with a fair market value at grant date of $75,000 on the date of our annual shareholder meeting, the restrictions on which lapse ratably on each annual anniversary of the date of grant over a three-year period. Pursuant to this provision, Messrs. Bateman, Jackson and Richards and Ms. Morfitt were each granted 4,576 shares of restricted stock on April 28, 2009.

 

On April 21, 2009, our board of directors approved an increase in the annual restricted stock grant awarded to our lead director to a fair market value at grant date of $100,000 on the date of our annual shareholder meeting, the restrictions on which lapse ratably on each annual anniversary of the date of grant over a three-year period. Pursuant to this provision, Mr. Vassalluzzo was granted 6,101 shares of restricted stock on April 28, 2009.

Other Compensation

 

On February 25, 2009, our board of directors approved a one-time cash payment of $30,000 to each non-employee director other than our lead director, and a one-time cash payment of $45,000 to our lead director. These one-time cash payments were made to each non-employee director and our lead director in consideration for the increased duties and responsibilities taken on by our non-employee directors and lead director in the four-month period leading up to the payments.

 

For the fiscal year ended December 31, 2009, all non-employee directors were reimbursed for the cost of purchasing a Life Time Fitness Onyx Family Membership.

 

We reimburse all non-employee directors for out-of-pocket traveling expenses incurred in attending board and committee meetings.

 

SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth information with respect to the beneficial ownership of our common stock as of February 26, 2010 by:

 

 

Beneficial ownership is determined in accordance with the Securities and Exchange Commission’s rules. In computing percentage ownership of each person, shares of common stock subject to options held by that person that are currently exercisable, or exercisable within 60 days of February 26, 2010, are deemed to be outstanding and beneficially owned by that person. These shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person.

 

Except as indicated in the notes to this table, each shareholder named in the table has sole voting and investment power with respect to the shares set forth opposite such shareholder’s name. Percentage of ownership is based on 41,411,934 shares of our common stock outstanding on February 26, 2010. The address for each executive officer and director is 2902 Corporate Place, Chanhassen, MN 55317.

 

 

 

 

 

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

 

Related Person Transaction Approval Policy

 

In February 2007, our board of directors adopted a formal related person transaction approval policy, which sets forth our company’s policies and procedures for the review, approval or ratification of any transaction required to be reported in our company’s filings with the Securities and Exchange Commission. This policy was most recently amended in December 2009. Our policy applies to any financial transaction, arrangement or relationship or any series of similar transactions, arrangements or relationships in which our company is a participant and in which a related person has a direct or indirect interest, but exempts the following:

 

 

 

The audit committee of our board of directors must approve any related person transaction subject to this policy before commencement of the related party transaction. The committee will analyze the following factors, in addition to any other factors the committee deems appropriate, in determining whether to approve a related party transaction:

 

 

The committee may, in its sole discretion, approve or deny any related person transaction. Approval of a related person transaction may be conditioned upon our company and the related person taking such precautionary actions, as the committees deems appropriate.

 

Related Person Transaction Summary

 

In May 2008, we hired a construction company to complete an excavation project on the remodel of one of our centers. Mr. Akradi, our Chairman of the Board and Chief Executive Officer, owns 100% of the interests in such construction company. The total cost of the project was $683,739, of which $335,500 was paid by us to the construction company in 2008, and $348,239 was paid in 2009. The transaction was not submitted to the audit committee of our board of directors for approval prior to commencement. When the audit committee was advised of the transaction, the audit committee reviewed the terms of the transaction and concluded that the transaction satisfied the factors described above. In particular, the audit committee determined that the terms were fair to us, the transaction was not material to us, Mr. Akradi was not directly involved in the negotiation and the construction company received the contract as a result of a competitive bidding process in which we received one other similar bid at a higher cost. Accordingly, we believe that the transaction was on terms no less favorable than we could have obtained from unaffiliated parties.

 

Prior to the adoption of our related person transaction approval policy, our company entered into the transaction described below. We believe that the transaction set forth below was on terms no less favorable than we could have obtained from unaffiliated parties.

 

In October 2003, we leased a center located within a shopping center that is owned by a general partnership in which Mr. Akradi has a 50% interest. We paid rent pursuant to this lease of $686,175 in 2009. The terms of the lease were negotiated by one of our independent directors on behalf of our company and were reviewed and approved by a majority of our independent and disinterested directors. To assist our board of directors in evaluating this transaction, a third-party expert was retained to review the terms of the lease. The third-party expert determined that the terms of the lease were at market rates.

 

Other than the transactions set forth above, our company had no other transactions during fiscal 2009 which required review, approval or ratification under our related person transaction approval policy or where the related person transaction approval policy’s policies and procedures were not followed.

 

EQUITY COMPENSATION PLAN INFORMATION

 

The following table provides information as of December 31, 2009 for compensation plans under which securities may be issued:

 

 

 

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the 1934 Act requires that our company’s directors and executive officers file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission. Directors and executive officers are required to furnish our company with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to our company and written representations from our company’s directors and executive officers, all Section 16(a) filing requirements were met for the fiscal year ended December 31, 2009.

 

ADDITIONAL INFORMATION

 

Our 2009 Annual Report and our Annual Report on Form 10-K for fiscal year 2009, including financial statements, are available on the Internet. Your Notice of Internet Availability of Proxy Materials contains instructions on how to access these materials.

 

As of the date of this proxy statement, management knows of no matters that will be presented for determination at the meeting other than those referred to herein. If any other matters properly come before the meeting calling for a vote of shareholders, it is intended that the persons named in the proxies solicited by our board of directors, in accordance with their best judgment, will vote the shares represented by these proxies.

 

Shareholders who wish to obtain an additional copy of our Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2009, may do so without charge by writing to Investor Relations, Life Time Fitness, Inc., 2902 Corporate Place, Chanhassen, MN 55317.

 

By Order of the Board of Directors,

 

Secretary

 

Dated: March 9, 2010

MAP AND DIRECTIONS