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Sports Club Co Inc – ‘DEFR14A’ on 7/2/98

As of: Thursday, 7/2/98 · Accession #: 950148-98-1630 · File #: 1-13290

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 7/02/98  Sports Club Co Inc                DEFR14A                1:129K                                   Bowne of Century City/FA

Revised Definitive Proxy Solicitation Material — Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: DEFR14A     Revised Definitive Proxy                              37    199K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Andrew L. Turner Certain Relationships Compensation Committee Director Employment Agreements Executive Compensation Nanette Pattee Francini Options Purchase Rights Stockholder Return Performance Presentation Stock Options
1	1st Page - Filing Submission
3	Nanette Pattee Francini
5	Director
7	Options
8	Purchase Rights
12	Executive Compensation
14	Employment Agreements
16	Stock Options
17	Compensation Committee
"	Andrew L. Turner
18	Stockholder Return Performance Presentation
20	Certain Relationships

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SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12

The Sports Club Company, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

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

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

---------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

---------------------------------------------------------------------
(5) Total fee paid:

---------------------------------------------------------------------

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

---------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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[LOGO]

THE SPORTS CLUB COMPANY, INC.
11100 SANTA MONICA BOULEVARD
SUITE 300
LOS ANGELES, CALIFORNIA 90025

July 2, 1998

Dear Stockholder:

You are cordially invited to attend the Company's 1998 Annual Meeting on
Friday July 31, 1998.

The meeting will begin promptly at 2:00 p.m., Pacific Standard Time, in the
Coliseum Room of The Sports Club/LA, located at 1835 Sepulveda Boulevard, Los
Angeles, California.

The official Notice of Meeting, proxy statement and form of proxy are
included with this letter. The matters listed in the Notice of Meeting are
described in detail in the proxy statement.

The vote of every stockholder is important and we hope you will use this
opportunity to take an active part in the affairs of the Company by voting on
the business to come before the Annual Meeting. In order to ensure maximum
stockholder representation, I urge each of you, whether or not you expect to
attend the meeting in person, to sign your proxy and return it promptly in the
enclosed envelope. Mailing your completed proxy will not prevent you from voting
in person at the meeting if you wish to do so.

Your Board of Directors and management look forward to greeting personally
those stockholders who are able to attend.

Sincerely,

/s/ DAVID MICHAEL TALLA

David Michael Talla
Chairman and
Chief Executive Officer

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[LOGO]

THE SPORTS CLUB COMPANY, INC.
11100 SANTA MONICA BOULEVARD
SUITE 300
LOS ANGELES, CALIFORNIA 90025

------------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FRIDAY, JULY 31, 1998

TO THE STOCKHOLDERS OF THE SPORTS CLUB COMPANY, INC.:

Notice is hereby given that the annual Meeting of Stockholders of The
Sports Club Company, Inc. (the "Company") will be held in the Coliseum Room of
The Sports Club/LA, located at 1835 Sepulveda Boulevard, Los Angeles,
California, on July 31, 1998, at 2:00 p.m., Pacific Standard Time, for the
following purposes:

1. To elect three directors of the Company to serve as Class I directors
until the Annual Meeting of Stockholders to be held in 2001.

2. To approve an amendment to the Company's 1994 Stock Incentive Plan to
(a) increase the number of shares reserved for issuance thereunder from
1,000,000 to 1,800,000 and (b) modify certain other provisions.

3. To transact such other business as may properly come before the meeting
or any postponements or adjournments thereof.

Only stockholders of record at the close of business on June 24, 1998, will
be entitled to notice of and to vote at the Annual Meeting and any postponements
or adjournments thereof. A list of stockholders entitled to vote at the Annual
Meeting will be available at the meeting site for ten (10) days prior to the
Annual Meeting.

YOUR VOTE IS IMPORTANT. TO ENSURE THAT YOUR STOCK IS REPRESENTED, WE URGE
YOU TO VOTE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED,
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING. IF YOU RECEIVE
MORE THAN ONE PROXY CARD BECAUSE YOUR SHARES ARE REGISTERED IN DIFFERENT NAMES
OR ADDRESSES, EACH PROXY CARD SHOULD BE COMPLETED AND RETURNED. IF YOU ATTEND
THE ANNUAL MEETING, YOU MAY, IF YOU PREFER, VOTE YOUR SHARES IN PERSON.

By Order of the Board of Directors

/s/ NANETTE PATTEE FRANCINI

Nanette Pattee Francini
Secretary
Los Angeles, California
July 2, 1998

DEFR14A 4th Page of 37 TOC 1st Previous Next ↓Bottom Just 4th

THE SPORTS CLUB COMPANY, INC.

11100 SANTA MONICA BOULEVARD
SUITE 300
LOS ANGELES, CALIFORNIA 90025

ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 31, 1998

------------------------

PROXY STATEMENT
------------------------

This Proxy Statement is being mailed on or about July 2, 1998, in
connection with the solicitation of proxies by the Board of Directors of The
Sports Club Company, Inc., a Delaware corporation (the "Company"). The proxies
are for use at the Annual Meeting of Stockholders to be held at 2:00 p.m.,
Pacific Standard Time, on July 31, 1998, in the Coliseum Room of The Sports
Club/LA, located at 1835 Sepulveda Boulevard, Los Angeles, California, and any
postponements or adjournments thereof (the "Annual Meeting") for the purposes
set forth in the accompanying Notice of Annual Meeting. The record date for the
Annual Meeting is the close of business on June 24, 1998 (the "Record Date").
Only holders of record of the Company's Common Stock, par value $0.01 per share
(the "Common Stock") on the Record Date are entitled to notice of and to vote at
the Annual Meeting. The annual report for the year ended December 31, 1997, is
being mailed to stockholders with this Proxy Statement.

A proxy card is enclosed. Whether or not you plan to attend the Annual
Meeting in person, please date, sign and return the enclosed proxy card as
promptly as possible, in the postage prepaid envelope provided, to ensure that
your shares will be voted at the Annual Meeting. Any stockholder who returns a
proxy has the power to revoke it at any time prior to its effective use by
filing an instrument revoking it, or a duly executed proxy bearing a later date,
with the Secretary of the Company, or by attending the Annual Meeting and voting
in person. Unless otherwise instructed, any such proxy, if not revoked, will be
voted at the Annual Meeting "FOR" the nominees for election as directors as set
forth in this Proxy Statement, "FOR" the amendment of the Company's 1994 Stock
Incentive Plan, and as recommended by the Board of Directors, in its discretion,
with regard to all other matters which may properly come before the Annual
Meeting. The Company does not currently know of any such other matters.

At the Record Date, there were outstanding 20,889,956 shares of the
Company's Common Stock, the only class of stock of the Company outstanding as of
the Record Date, and there were 391,600 shares of Common Stock held in treasury.
The presence, either in person or represented by proxy, of persons entitled to
vote a majority of the Company's outstanding Common Stock is necessary to
constitute a quorum for the transaction of business at the Annual Meeting.

Each share of Common Stock issued and outstanding on the Record Date is
entitled to one vote on any matter presented for consideration and action by the
stockholders at the Annual Meeting. Directors will be elected by a plurality of
the votes of the shares of the Company's Common Stock present in person or
represented by proxy and entitled to vote on the election of directors.
Abstentions will be treated as the equivalent of a negative vote for the purpose
of determining whether a proposal has been adopted and will have no effect for
the purpose of determining whether a director has been elected. Broker non-votes
will not be counted as cast. Abstentions and broker non-votes will be included
in the determination of the number of shares present at the Annual Meeting.

The cost of preparing, assembling, printing and mailing this Proxy
Statement and the accompanying form of proxy, and the cost of soliciting proxies
relating to the Annual Meeting, will be borne by the Company. The Company
intends to request banks and brokers to solicit their customers who beneficially
own Common Stock listed of record in names of nominees, and will reimburse such
banks and brokers for their reasonable out-of-pocket expenses for such
solicitations. The solicitation of proxies by mail may be supplemented by

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telephone, telegram and personal solicitation by officers, directors and other
employees of the Company, but no additional compensation will be paid to such
individuals.

PROPOSAL NO. 1 -- ELECTION OF DIRECTORS

Pursuant to the Bylaws of the Company, the Board of Directors shall consist
of not less than four or more than seven members. The specific number of Board
members within this range is determined by the Board of Directors and is
currently set at seven. The Board is divided into three classes, which serve
staggered three-year terms. The number of board members in each class is as
follows: three Class I directors, two Class II directors, and two Class III
directors. The terms of the Class I directors expire this year and their
successors are to be elected at the Annual Meeting for a three-year term
expiring in 2001. The terms of the Class II and Class III directors expire in
1999 and 2000, respectively.

The Board of Directors is proposing Brian J. Collins, Andrew L. Turner and
John M. Gibbons, who now serve as Class I directors, for election as Class I
directors at the Annual Meeting.

To the Company's knowledge, each nominee is and will be available to serve,
but if any of them should decline or be unable to act as a director, the proxy
holders will vote for the election of such other person or persons as the Board
of Directors recommends.

The nominees have supplied the following background information to the
Company:

[Enlarge/Download Table]

DIRECTOR
NAME AGE EXPERIENCE AND DIRECTORSHIPS SINCE
---- --- ---------------------------- --------

Brian J. Collins............ 38 Currently serves as a director of the Company and is a 1997
Principal, Vice President (since 1997) and Chief
Financial Officer (since 1996) of Millennium Partners
Management LLC and its predecessor company, affiliates
of Millennium Entertainment Partners, L.P., a real
estate developer of mixed use urban entertainment
projects. From March 1993 to November 1996, Mr. Collins
was Senior Vice President at Carol Management
Corporation.
Andrew L. Turner............ 51 Currently serves as a director of the Company and has 1994
been Chairman of the Board, President and Chief
Executive Officer of Sun Healthcare Group, Inc., a
publicly traded long-term health care services
provider, since its formation in 1989.
John M. Gibbons............. 49 Currently serves as a director, President and Chief 1995
Operating Officer of the Company. From September 1993
until May 1994, Mr. Gibbons was a self-employed
financial and business consultant.

BOARD COMMITTEES

The Board has a standing Audit Committee (the "Audit Committee") that
reviews the audit and control functions of the Company, the Company's accounting
principals, policies and practices and financial reporting, the scope of the
audit conducted by the Company's auditors and the independent auditor's opinion
and letter of comment to management and management's response thereto. The Audit
Committee met once during 1997 and that meeting was attended by Messrs. Turner
and Veru. The Audit Committee is currently comprised of Messrs. Turner, Veru and
Collins, with Mr. Collins being appointed to the Committee in April 1998.

The Board has a Compensation Committee (the "Compensation Committee") that
is authorized to review and make recommendations to the Board with respect to
the salaries and bonuses of the Company's executive officers, and to administer
the Company's 1994 Stock Incentive Plan. During 1997 the Compensation Committee
met once and that meeting was attended by Messrs. Turner and Veru. The
Compensation Committee is currently comprised of Messrs. Turner, Veru and
Collins, with Mr. Collins being appointed to the Committee in April 1998.

The Board does not have a nominating committee, or a committee performing
similar functions.

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DIRECTOR ATTENDANCE

In 1997, the Company held five meetings. During 1997, all of the Directors
attended at least 75% of the aggregate of the meetings of the Board and the
committees of which they were members, except for Mr. Licklider who was only
able to attend three of the five meetings held.

DIRECTOR COMPENSATION

Non-employee directors of the Company are entitled to receive an annual fee
of $10,000 and a fee of $500 for each meeting attended. Non-employee directors
who are members of the Audit Committee or Compensation Committee are entitled to
receive $500 for each meeting they attend. In addition, non-employee directors
receive 1,000 shares of the Company's Common Stock each year pursuant to the
Company's 1994 Stock Compensation Plan. Messrs. Licklider, Collins, Turner and
Veru currently serve on the Board as non-employee directors. The Company
provides Mr. Licklider with health insurance under its group insurance plan. All
directors receive reimbursement of reasonable out-of-pocket expenses incurred in
connection with meetings of the Board. Amounts paid to directors were $36,000
during 1995, $37,026 during 1996, and $48,834 during 1997. Under the 1994 Stock
Compensation Plan an aggregate of 12,000 shares of Common Stock were issued to
non-employee directors through December 31, 1997.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF
MESSRS. COLLINS, TURNER AND GIBBONS AS DIRECTORS, WHICH IS DESIGNATED
AS PROPOSAL 1 ON THE ENCLOSED PROXY CARD.

PROPOSAL 2. AMENDMENT AND RESTATEMENT OF THE
1994 STOCK INCENTIVE PLAN

At the 1998 Annual Meeting, the stockholders of the Company will be asked
to consider and vote upon a proposal to approve the amendment and restatement
(the "Amendment") of the Company's 1994 Stock Incentive Plan (as proposed to be
amended and restated, the "Plan"). The Amendment would increase the number of
shares authorized for issuance under the Plan from 1,000,000 shares to 1,800,000
shares. Additionally, certain technical amendments have been made to the Plan to
confirm with changes to Rule 16b-3 promulgated by the Securities and Exchange
Commission.

The Board of Directors and Stockholders of the Company originally adopted
and approved the Plan in 1994. As of May 31, 1998, 7,335 shares had been issued
upon exercise of options granted under the Plan, 965,165 shares were subject to
outstanding options, and there were 27,500 shares remaining available for grant
under the Plan. The Board of Directors approved the Amendment on June 3, 1998,
subject to stockholder approval. The Board of Directors believes that the Plan
is an important component of the Company's employee compensation program and
that approval of the Amendment is in the best interest of the Company and its
stockholders. The Board of Directors recommends that the stockholders vote for
approval of the Amended Plan.

The following summary description of the principal features of the Plan is
qualified by reference to the full text of the Plan, attached hereto as Appendix
A.

AWARDS

The Plan provides for awards to Eligible Persons (as defined below) of
options ("Options"), rights to purchase shares of Common Stock ("Purchase
Rights") and Stock Appreciation Rights ("SARs"). Options, Purchase Rights and
SARs are collectively referred to as "Rights."

ADMINISTRATION

The Plan is administered by the Board of Directors of the Company or, in
the Board's discretion, by a committee appointed by the Board which must consist
of at least two directors of the Company (the "Administrator"). The
Administrator has sole discretion and authority, consistent with the provisions
of the Plan, to select the Eligible Persons to whom Rights will be granted under
the Plan, the number of shares which will be covered by each Right and the form
and terms of agreements to be used to represent the Rights.

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PURPOSE

The purpose of the Plan is to promote the interests of the Company and its
stockholders by increasing the proprietary and vested interests of employees,
consultants, officers and directors of the Company ("Eligible Persons"). As of
the date of this Proxy Statement, approximately thirty-four persons were
Eligible Persons under the Plan.

TERM OF PLAN

The Plan will terminate on December 31, 2001, unless the Plan is extended
or terminated at an earlier date, consistent with the provisions of the Plan, or
is terminated by exhaustion of the shares of Common Stock available for issuance
thereunder.

SHARES SUBJECT TO PLAN

The maximum number of shares of the Company's common stock (the "Common
Stock") authorized for issuance under the Plan is 1,800,000 shares, subject to
adjustment in the event of a stock exchange, reorganization, recapitalization,
stock split, stock dividend or other capital change or adjustment. As of May 31,
1998, options to purchase an aggregate of 965,165 shares, with an aggregate
market value of $6,876,800, were outstanding under the Plan.

OPTIONS

Options granted under the Plan may be either "incentive stock options"
(ISOs) under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or "non-statutory options" (NSOs). The Administrator is empowered to
determine the type of Options to be granted under the Plan and the exercise
price of the Options, but the exercise price of ISOs must be equal to or greater
than the fair market value of a share of Common Stock on the date the Option is
granted (110% with respect to optionees who own at least 10% of the outstanding
Common Stock) and NSOs must have an exercise price equal to at least 85% of the
fair market value of a share of Common Stock on the date the Option is granted.
ISOs may only be granted to employees and directors of the Company, or of any
subsidiary or parent corporation. The aggregate fair market value (determined as
of the grant date) for which an employee may be granted ISO's that first become
exercisable during any calendar year may not exceed $100,000. Options granted
under the Plan may, in the discretion of the Administrator, become exercisable
in installments, however, upon any merger, acquisition or other reorganization
in which the Company is not the surviving corporation, or upon a change in
control of the Company, all Options will be fully exercisable. All Options which
have not previously been exercised or terminated will expire on the tenth
anniversary of the date of grant.

Options terminate on the ninetieth day following the termination of the
employment or position of the optionee with the Company. If the optionee dies,
becomes disabled or retires during the term of the Option, the Option may be
exercised following such date by the optionee or by the optionee's estate or by
a person who acquired the right to exercise the Option by reason of the death or
disability of the optionee for a period of one year. However, a person who
retires from the Company may exercise an ISO only during the three-month period
following the date of retirement or termination of employment. An Option will be
exercisable following termination of employment or services only to the extent
it was exercisable on the date of such termination, but no Option may be
exercised after the expiration of its term.

Unless otherwise consented to by the Administrator, Options granted under
the Plan are not transferable other than by will or by the laws of descent and
distribution, and Options may be exercised, during the lifetime of the optionee,
only by the optionee or by the optionee's guardian or legal representative.

Payment of the exercise price may be made in cash, or, at the discretion of
the Administrator, in shares of Common Stock already owned by the optionee
valued at their fair market value on the date of exercise, or by way of a
promissory note from the optionee. The Plan also provides that as a condition of
delivery of shares purchased under the Plan, the Company may require the
optionee to deposit with the Company an amount sufficient to satisfy any
withholding tax requirements relating to the delivery of the shares. Under
certain

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conditions, including the consent of the Administrator, the optionee may elect
to satisfy his or her withholding obligations with a portion of the shares
otherwise deliverable by the Company.

PURCHASE RIGHTS

Rights to purchase shares of Common Stock to be offered for direct sale
under the Plan must be at a purchase price equal to not less than 85% of the
fair market value of the shares on the day preceding the date of grant. Purchase
Rights are generally exercisable for period of thirty days following the date of
grant. Shares purchased upon exercise of a Purchase Right may be paid for, in
the discretion of the Administrator, by cash or cash equivalent, by delivery of
a promissory note, or by transfer to the Company of shares of the Company's
Common Stock which have been held by the Purchase Right holder for a period of
at least six calendar months preceding the date of surrender and which have a
fair market value equal to the purchase price at the time of the transfer. The
agreements relating to Purchase Rights may contain such other provisions as the
Administrator may from time to time determine to be appropriate, including
"vesting" provisions granting the Company the right to repurchase the shares
subject to a Purchase Right at the initial exercise price upon the termination
of the employment or position of the holder of such shares prior to the vesting
date or dates provided in the agreement. Generally, the provisions applicable to
Options regarding transfer and exercise upon termination, death, disability or
retirement will also apply to Purchase Rights. To date, no Purchase Rights have
been granted pursuant to the Plan.

STOCK APPRECIATION RIGHTS

SARs allow their holders to benefit from the appreciation in the value of
the shares of Common Stock subject to the SARs, without the necessity of the
investment of any funds by the holders. Under the Plan, the Administrator may
grant SARs in combination with Options or on a stand-alone basis. SARs granted
with respect to an Option (the "Related SAR Option") will grant to the holder
the right to elect to receive on exercise of the SAR, either in cash or in whole
shares of Common Stock, an amount equal to the difference between the fair
market value of the shares subject to the Related SAR Option and the exercise
price per share of the Related SAR Option. SARs granted without reference to a
Related SAR Option will grant to the holder the right to elect to receive,
either in cash or in whole shares of Common Stock, an amount equal to the
difference between the fair market value of the shares subject to the SAR on the
date the SAR is exercised and on the close of business on the date of grant of
the SAR.

SARs granted in tandem with a Related SAR Option are exercisable only to
the extent and under the same terms and conditions as the Related SAR Option. If
a SAR is exercised, the Related SAR Option will be modified to cancel the number
of shares with respect to which the SAR was exercised. Upon the exercise or
termination of the Related SAR Option, the SAR granted in connection with the
Related SAR Option will terminate to the extent of the number of shares as to
which the Related SAR Option was exercised or terminated. SARs granted other
than in tandem with a Related SAR Option will contain exercise terms
substantially similar to those contained in Options.

All SARs are exercisable for (i) Common Stock (a "Stock Election"); (ii) an
amount payable in cash or cash equivalents; or (iii) any combination of the
foregoing (any exercise which includes a cash element is referred to herein as a
"Cash Election"). Notwithstanding the foregoing, the Administrator may, in its
discretion, place a limit on the amount payable upon exercise of a SAR agreement
granting the SAR.

Generally, the provisions applicable to Options regarding transfer and
exercise upon termination, death, disability or retirement will also apply to
SARs. To date, no SARs have been granted pursuant to the Plan.

AMENDMENT AND TERMINATION

Subject to legal and regulatory requirements that may be in effect from
time to time, the Board of Directors may, at any time, amend or terminate the
Plan without approval of the Company's stockholders, provided that no such
amendment or termination may impair any Rights previously granted to a
Participant under the Plan without such Participant's consent.

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FEDERAL TAX CONSEQUENCES

The federal income tax consequences to the Company and to any person
granted an Option under the Plan under the applicable provisions of the Code and
the regulations thereunder are substantially as follows:

NSOs

No income will be recognized by an optionee upon the grant of an NSO. On
the exercise of an NSO, the optionee will generally have ordinary income in an
amount equal to the excess of the fair market value of the shares acquired over
the exercise price. The income recognized by an optionee who is also an employee
of the Company will be subject to tax withholding. Upon a later sale of such
shares, the optionee will have capital gain or loss in an amount equal to the
difference between the amount realized on such sale and the tax basis of the
shares sold.

The Company will be entitled to a tax deduction in the same amount as the
ordinary income recognized by the optionee with respect to shares acquired upon
exercise of an NSO.

ISOs

No income will be recognized by an optionee upon the grant of an ISO. Also,
the optionee will recognize no income at the time of exercise (although the
optionee will have income for alternative minimum income tax purposes at that
time as if the option were an NSO) and no deduction will be allowed to the
Company for federal income tax purposes in connection with the grant or exercise
of the option. If the acquired shares are sold or exchanged after the later of
(a) one year from the date of exercise of the options and (b) two years from the
date of grant of the option, the difference between the amount realized by the
optionee on that sale or exchange and the option price will be taxed to the
optionee as a capital gain or loss. If the shares are disposed of before such
holding period requirements are satisfied, then the optionee will have ordinary
income in the year of disposition equal to the difference between the exercise
price and the lower of the fair market value of the stock at the date of the
Option exercise or the sale of the stock and the optionee will have capital gain
or loss in an amount equal to the difference between (i) the amount realized by
the optionee upon that disposition of the shares and (ii) the option price paid
by the optionee increased by the amount of ordinary income, if any, so
recognized by the optionee. The Company will be entitled to a deduction in the
same amount as the ordinary income recognized by the optionee if the optionee
fails to satisfy the ISO holding period requirements.

The foregoing is only a summary of the effects of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
Options under the Plan, such summary does not purport to be complete and
references should be made to the applicable provisions of the Code.

Section 162(m) of the Internal Revenue Code

Section 162(m) of the Code, enacted as part of the Omnibus Budget
Reconciliation Act of 1993, provides that a publicly held corporation cannot
deduct compensation of a covered employee (the CEO and the four other most
highly compensated employees for the taxable year whose compensation is required
to be reported to stockholders under the Securities Exchange Act of 1934, as
amended) to the extent the compensation exceeds $1 million per tax year. There
is a statutory exception to this limitation for compensation based on the
attainment of performance goals. Income derived from stock options will qualify
for this exception and thus be treated as performance-based compensation if
granted in accordance with the requirements set forth in Section 162(m). The
Plan complies with those requirements. However, because the Plan is being
amended to increase the number of shares of Common Stock reserved for issuance
under the Plan, the Company is again required to obtain stockholder approval for
the amended plan in order for the options to continue to qualify as
performance-based compensation under Section 162(m).

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Benefits

As of May 31, 1998, options for 965,165 shares of the Common Stock of the
Company were outstanding. Mr. Talla, Chief Executive Officer and a director,
holds options for 30,000 shares; Mr. Gibbons, President, Chief Operating Officer
and a director, holds options for 255,000 shares (as discussed under "Executive
Compensation" Mr. Gibbons was granted two prior options, each for 225,000
shares, which were cancelled); Ms. Pattee Francini, Executive Vice President,
Secretary and a director, holds options for 60,000 shares; Mr. Spino, Vice
President of Development, holds options for 60,000 shares; Mr. Swain, Vice
President of Operations, holds options for 70,000 shares; Mr. O'Brien, Chief
Financial Officer and Assistant Secretary, holds options for 90,000 shares; all
executive officers as a group hold options for 565,000 shares; twenty six key
employees who are not executive officers hold options for an aggregate of
373,165 shares; and two independent consultants as a group hold options for
27,000 shares.

The Company cannot currently determine the number of shares subject to
Options that may be granted in the future. The actual benefits, if any, to the
holders of Options issued under the Plan are not determinable prior to exercise
because the value, if any, of Options is represented by the difference between
the market price of a share of the Company's Common Stock on the date of
exercise and the exercise price of the Option.

REQUIRED VOTE

The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote on Proposal 2 at the meeting
will be required to approve the proposal.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The names of the directors and executive officers of the Company, as well
as their respective ages as of May 31, 1998, and positions with the Company, are
as follows:

[Download Table]

NAME AGE POSITION
---- --- --------

D. Michael Talla........... 51 Chairman of the Board and Chief Executive Officer
Rex A. Licklider........... 55 Vice Chairman of the Board
John M. Gibbons............ 49 President, Chief Operating Officer and Director
Nanette Pattee Francini.... 49 Executive Vice President, Secretary and Director
Mark S. Spino.............. 43 Vice President of Development
Philip J. Swain............ 40 Vice President of Operations
Timothy M. O'Brien......... 46 Chief Financial Officer and Assistant Secretary
Brian J. Collins........... 38 Director
Andrew L. Turner........... 51 Director
Dennison T. Veru........... 37 Director

D. MICHAEL TALLA co-founded the Company in 1977, has served as Chief
Executive Officer since that time and has served as Chairman of the Board of
Directors since February 1994. Mr. Talla has been in the sports and fitness
industry for more than 20 years and has developed or participated in the
development of more than 20 Clubs in the United States, including all Clubs
developed by the Company. Mr. Talla holds a Bachelor of Arts Degree in Business
Administration from the University of Arizona.

REX A. LICKLIDER joined the Company as an unpaid consultant in 1991, has
served as a director of the Company since February 1994 and was named Vice
Chairman of the Board in May 1994. Effective August 1, 1996, Mr. Licklider
entered into a consulting agreement with the Company pursuant to which he
advises the Company with respect to strategic and financial matters. Prior to
his involvement with the Company, Mr. Licklider founded Com Systems, Inc., a
publicly traded long-distance telecommunications company and served in various
capacities as Chairman, President and Chief Executive Officer from 1975 until
April 1992.

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Mr. Licklider is a founder and director of Pentium Investments, Inc. and a
director of Deckers Outdoor Corporation. He also serves on the Board of
Directors of The Children's Bureau of Southern California, Los Angeles Youth
Programs, Inc. and Marymount High School in Los Angeles, CA. Mr. Licklider holds
a Bachelor of Arts Degree in Business Administration from the University of
Arizona and a Masters in Business Administration from the University of
California at Los Angeles.

JOHN M. GIBBONS was hired by the Company to serve as Chief Financial
Officer in May 1994 and became Executive Vice President in February 1995 and
President and Chief Operating Officer on July 1, 1995. Mr. Gibbons was elected
to the Board of Directors effective August 14, 1995. From September 1993 until
May 1994, Mr. Gibbons was a self-employed financial and business consultant
whose clients included the Company. From February 1990 until September 1993, Mr.
Gibbons was employed as a Vice President by Com Systems, Inc., a publicly traded
long-distance telecommunications company located in Westlake Village,
California, serving as General Manager and Senior Vice President from December
1992 to September 1993, and as Chief Financial Officer from August 1991 through
December 1992. Mr. Gibbons has a Bachelors of Business Administration from Notre
Dame and a Masters of Business Administration from the University of Southern
California, and is a Certified Public Accountant.

NANETTE PATTEE FRANCINI co-founded the Company in 1977 and has been
principally responsible for overseeing all marketing activities since 1978. Ms.
Pattee Francini has served as a director since February 1994 and was appointed
Executive Vice President and Secretary in May 1994. Ms. Pattee Francini has been
in the sports and fitness industry for more than 20 years and has developed or
participated in the development of more than 20 Clubs, including all Clubs
developed by the Company. Ms. Pattee Francini holds a Bachelor of Arts Degree
from the University of Arizona.

MARK S. SPINO has served the Company as Director of Development since 1980
and was appointed Vice President in 1984. Mr. Spino has been in the sports and
fitness industry for more than 15 years and has developed or participated in the
development of more than 15 Clubs in the United States, including many of the
Clubs developed by the Company. From July 1979 to June 1980, Mr. Spino was
Assistant Manager, and later Manager, of the Mid-Valley Athletic Club in Reseda,
California. Mr. Spino holds Bachelor of Arts and Master of Arts Degrees in
Physical Education from the University of Southern California.

PHILIP J. SWAIN has been employed by the Company since 1982 and has served
as Vice President of Operations since 1988. Mr. Swain served as Regional General
Manager from 1986 until 1988. Mr. Swain has been in the sports and fitness
industry for more than 20 years and has developed or participated in the
development of more than 15 Clubs in the United States, including many of the
Clubs developed by the Company. From December 1979 to November 1982, Mr. Swain
was the Director of Marketing and Membership at the Mid-Valley Athletic Club in
Reseda, California. From February 1975 to December 1979, Mr. Swain was employed
by Health & Tennis Corporation of America, managing different facilities in
Detroit and Los Angeles.

TIMOTHY M. O'BRIEN has been employed as Chief Financial Officer by the
Company since February 1995. In June 1995, he was appointed Assistant Secretary.
From July 1993 until February 1995, Mr. O'Brien was employed as Vice
President/Controller of WCT Communications, Inc., a publicly traded
long-distance telecommunications company located in Santa Barbara, California.
From May 1989 until July 1993, Mr. O'Brien was Controller for Com Systems, Inc.,
a publicly traded long-distance telecommunications company located in Westlake
Village, California. Mr. O'Brien has a Bachelor of Business Administration
degree from the University of Wisconsin-Madison and is a Certified Public
Accountant.

BRIAN J. COLLINS has been Vice President and Chief Financial Officer of
Millennium Partners Management LLC and its predecessor company, affiliates of
Millennium Entertainment Partners L.P., a real estate developer of mixed use
urban entertainment projects, since December 1996. Since June 1, 1997, he has
been a principal of Millennium Partners Management LLC. From March 1993 to
November 1996, Mr. Collins was Senior Vice President at Carol Management Corp.,
an owner and operator of real estate and hotel properties, and from June 1992 to
February 1993, he was President of BJC Realty Inc., a real estate consulting
firm. Mr. Collins holds a Bachelor of Arts Degree from Colgate University and a
Masters of Science from New York University Graduate School of Business.
8

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ANDREW L. TURNER has been a director of the Company since September 1994
and has been Chairman of the Board of Directors, President and Chief Executive
Officer of Sun Healthcare Group, Inc., a publicly traded long-term health care
services provider since its formation in 1989. Mr. Turner was also founder and
previously served as Chief Operating Officer of Horizon Healthcare Corporation,
a publicly traded health care services provider, from 1986 to 1989. Prior to
1986, Mr. Turner served as a Senior Vice President of Operations of The
Hillhaven Corporation. Mr. Turner is also a director of Watson Pharmeceuticals,
Inc., a publicly traded pharmaceutical manufacturing company.

DENNISON T. VERU has been President of Awad & Associates, a money
management division of Raymond James Financial, since November 1992. From
February 1990 to November 1992, he served as Executive Vice President,
Investments, of Smith Barney, Inc., specializing in small and medium
capitalization stocks. Prior to that, Mr. Veru was Vice President of Broad
Street Investment Management and an Assistant Vice President at Drexel Burnham
Lambert. Mr. Veru serves as a director for Lois USA, Inc. a publicly held
company. Mr. Veru is a graduate of Franklin and Marshall College.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth the compensation paid by the Company to the
Chief Executive Officer and to the five other most highly compensated executive
officers for the years ended December 31, 1995, 1996 and 1997, for services
rendered. Current salaries of the Company's executives are described below under
"Employment Agreements."

SUMMARY COMPENSATION TABLE

[Enlarge/Download Table]

LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS OPTIONS COMPENSATION
--------------------------- ---- --------- ------- ------------ ------------

D. Michael Talla.................... 1997 $239,250(2) -- -- $3,135(3)
Chairman of the Board and 1996 218,000(2) -- -- --
Chief Executive Officer 1995 205,250(2) -- -- --

Nanette Pattee Francini............. 1997 145,100 $10,000 15,000 --
Executive Vice President, 1996 124,175 -- 15,000 --
Secretary and Director 1995 122,200 -- -- --

John M. Gibbons..................... 1997 245,883(4) 25,000 -- 2,637(3)
President, Chief Operating 1996 232,800(4) 25,000 225,000(5) 2,256(3)
Officer and Director 1995 218,933(4) -- 450,000(5) --

Mark S. Spino....................... 1997 134,125 10,000 15,000
Vice President 1996 116,795 -- 15,000 --
of Development 1995 111,855 -- -- --

Philip J. Swain..................... 1997 146,031 15,000 15,000 908(3)
Vice President 1996 131,375 -- 25,000 --
of Operations 1995 127,000 -- -- --

Timothy M. O'Brien.................. 1997 137,667 10,000 15,000 2,807(3)
Chief Financial Officer 1996 122,175 5,000 20,000 1,791(3)
and Assistant Secretary 1995 100,087 -- 25,000 --

---------------
(1) Includes automobile allowance.

(2) Mr. Talla also receives, on an annual basis, 49.9% of the first $300,000 of
The Sports Club/LA's net cash flow. This amount is not included in Mr.
Talla's compensation. See "Certain Relationships."

(3) Represents contribution of the Company's Common Stock pursuant to the
Company's 401-K Profit Sharing Plan, valued based upon the market price for
the Common Stock as of the date of contribution.

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(4) Includes an allowance for living expenses paid to Mr. Gibbons under the
terms of his employment agreement.

(5) Options to purchase 225,000 shares at the exercise price of $9.00 per share
issued on February 27, 1995, were canceled in connection with the issuance
on July 5, 1995 of options to purchase 225,000 shares at the exercise price
of $5.00 per share. Effective April 24, 1996, the Compensation Committee of
the Board of Directors lowered the exercise price to $3.00 per share.
Pursuant to the rules of the Securities and Exchange Commission, the
cancellation and regrant of the option, and the repricing of the option, are
each deemed to constitute a separate award.

OPTION GRANTS, EXERCISES AND YEAR-END VALUES

The following table provides information concerning stock options granted
by the Company to the Named Executive Officers during the year ended December
31, 1997.

OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1997

[Enlarge/Download Table]

PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(2)
OPTIONS IN FISCAL OR BASE EXPIRATION -----------------------
NAME GRANTED(1) YEAR PRICE DATE 5% 10%
---- ---------- ---------- -------- ---------- ---------- ----------

Nanette Pattee Francini............ 15,000 9.68% $4.375 3/20/2007 $106,896 $170,214
Mark S. Spino...................... 15,000 9.68% 4.375 3/20/2007 106,896 170,214
Philip J. Swain.................... 15,000 9.68% 4.375 3/20/2007 106,896 170,214
Timothy M. O'Brien................. 15,000 9.68% 4.375 3/20/2007 106,896 170,214

---------------
(1) All of such options are governed by the Company's 1994 Stock Incentive Plan.

(2) The dollar amounts under these columns are the result of calculations at the
5% and 10% annual rates of stock appreciation prescribed by the Securities
and Exchange Commission and are not intended to forecast possible future
appreciation, if any, of the Company's stock price. No gain to the optionee
is possible without an increase in the price of the Company's stock
following the date of grant which benefits all stockholders generally.

The following table provides information with respect to unexercised stock
options as of December 31, 1997. None of the Named Executive Officers exercised
stock options during the last fiscal year.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

[Enlarge/Download Table]

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN THE
OPTIONS AT FY-END MONEY OPTIONS AT FY-END
NAME EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(2)
---- ---------------------------- ----------------------------

John M. Gibbons............................... 225,000/0 $1,406,250/$0
Nanette Pattee Francini....................... 5,000/25,000 $32,813/$138,750
Mark S. Spino................................. 5,000/25,000 $32,813/$138,750
Philip J. Swain............................... 8,334/31,666 $54,692/$182,496
Timothy M. O'Brien............................ 23,334/36,666 $110,316/$193,747

---------------
(1) All such options are governed by the Company's 1994 Stock Incentive Plan.

(2) An in-the-money option is an option which has an exercise price for the
Common Stock which is lower than the fair market value of the Common Stock
on a specified date. The fair market value of the Common Stock on December
31, 1997, was $9.25, which was the closing price per share on the American
Stock Exchange on such date.

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The following table provides information with respect to stock options
which have been repriced for any executive officer since the Company's initial
public offering, in October 1994.

TEN-YEAR OPTION/SAR REPRICING

[Enlarge/Download Table]

LENGTH OF
NUMBER OF ORIGINAL
SECURITIES OPTION TERM
UNDERLYING MARKET PRICE OF EXERCISE PRICE REMAINING AT
OPTIONS STOCK AT TIME AT TIME OF NEW DATE OF
REPRICED OR OF REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
---- ------- ----------- --------------- -------------- -------- ------------

John M. Gibbons............ 7/5/95 225,000(1) $5.00 $9.00 $5.00 9.67 years
President and Chief
Operating Officer
John M. Gibbons............ 4/24/96 225,000(1) $3.00 $5.00 $3.00 8.13 years
President and Chief
Operating Officer

---------------
(1) Options to purchase 225,000 shares at an exercise price of $9.00 issued on
February 27, 1995, were canceled in connection with the issuance on July 5,
1995, of options to purchase 225,000 shares at the exercise price of $5.00
per share. Effective April 24, 1996, the exercise price was lowered to $3.00
per share. (See "Employment Agreements").

EMPLOYMENT AGREEMENTS

Effective August 10, 1994, the Company entered into Employment Agreements
with D. Michael Talla, as Chief Executive Officer, and Nanette Pattee Francini,
as Executive Vice President, each of which expire on December 31, 2000. Certain
terms of Mr. Talla's employment agreement were amended by the Board of Directors
as of February 27, 1995. The Agreements provide for annual compensation of
$200,000 payable to Mr. Talla, and $115,000 payable to Ms. Pattee Francini,
subject to upward adjustment at the discretion of the Board of Directors. In
1997, the Compensation Committee of the Board of Directors increased Mr. Talla's
and Ms. Pattee Francini's annual salaries to $225,000 and $147,000,
respectively. The Company may terminate either Employment Agreement without
penalty for cause.

The employment agreements with Mr. Talla and Ms. Pattee Francini entitle
each employee to annual performance bonuses in the discretion of the Board of
Directors, to be paid within 120 days for Mr. Talla and 150 days for Ms. Pattee
Francini following the end of each fiscal year. The employment agreements also
include severance provisions which entitle each executive officer to severance
pay if his or her employment is terminated by the Company without cause; if the
employee dies or is disabled; or if the employee terminates the agreement as a
result of a material breach by the Company of its obligations thereunder (up to
six months' pay for Ms. Pattee Francini and up to twelve months' pay for Mr.
Talla). In addition, the employment agreements provide Mr. Talla and Ms. Pattee
Francini with additional severance benefits upon termination of employment
following the approval by the stockholders of the Company of a plan of
liquidation or dissolution of the Company or following the occurrence of any one
of the following events without the approval of a majority of the Board of
Directors: (i) the consolidation or merger of the Company with any other
corporation or other entity; (ii) the sale or other transfer of all or
substantially all of the assets of the Company; (iii) any person becomes the
beneficial owner directly or indirectly of 25% or more of the Company's
outstanding Common Stock; or (iv) a change occurs in the composition of a
majority of the Board of Directors of the Company (unless approved by two-thirds
of the Board of Directors of the Company). If at any time within two years after
the occurrence of any one of the foregoing events Mr. Talla's or Ms. Pattee
Francini's employment is terminated (other than for incapacity or death), or Mr.
Talla or Ms. Pattee Francini elects to terminate his or her employment for "good
reason" (as that term is defined in the agreements), he or she is entitled to
receive severance compensation equal to the lesser of: (i) the maximum amount
which does not constitute a "parachute payment" as defined in Section 280G of
the Internal Revenue Code of 1986, as amended; or (ii) an amount equal to three
times the aggregate of (A) his or her base annual salary then in effect, (B) the
car allowance, Club memberships and dues, and insurance benefits paid for the
employee

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during the one-year period immediately prior to termination, and (C) bonuses
accrued but unpaid through the date of termination of employment. Under the
agreements, "good reason" includes the assignment of any duties inconsistent
with the employee's position or any other action which diminishes the employee's
position, authority or duties, which determination shall be made in good faith
by the employee. If the employment of Mr. Talla or Ms. Pattee Francini were
terminated within such period as a result of the occurrence of any of the
foregoing events (assuming that neither would be entitled to any performance
bonus), the aggregate approximate amounts payable to Mr. Talla and Ms. Pattee
Francini would be $754,000 and $477,000, respectively.

Effective as of July 1, 1995, the Company entered into an employment
agreement with John M. Gibbons, which expires June 30, 1998. The employment
agreement provides for annual base compensation of $200,000, subject to annual
review and upward adjustment at the discretion of the Board of Directors. On May
27, 1997, the Compensation Committee of the Board of Directors increased Mr.
Gibbons annual base salary to $210,000. On June 1, 1998, the Compensation
Committee increased Mr. Gibbons annual base salary to $250,000. In addition to
his base salary, Mr. Gibbons is entitled to participate in any management bonus
program the Board of Directors may implement from time to time. The employment
agreement also includes a severance provision which entitles Mr. Gibbons to
receive payments equal to his base compensation until the earlier of 12 months
following the date of his termination date or the expiration of the term of the
agreement, if his employment is terminated prior to the expiration date other
than for cause or by Mr. Gibbons himself. Mr. Gibbons is also paid $44,500 for
living expenses each year payable in equal semi-monthly installments. Pursuant
to the terms of the employment agreement, the Compensation Committee of the
Board of Directors, effective July 1, 1995, granted Mr. Gibbons an option to
purchase 225,000 shares of the Company's Common Stock at an exercise price of
$5.00 per share ("Option Shares"). One-third of the Option Shares became
immediately vested upon the grant with the remaining two-thirds vesting in 24
equal monthly installments commencing October 21, 1995. Concurrent with the
grant of these options to purchase shares of Common Stock, options for the
purchase of 225,000 shares of Common Stock which were granted to Mr. Gibbons on
February 27, 1995 at a price of $9.00 per share were canceled.

Effective April 24, 1996, the Compensation Committee of the Board of
Directors amended the employment agreement with Mr. Gibbons to lower the
exercise price of the Option Shares to $3.00 per share, the fair market price of
a share of the Company's Common Stock, as evidenced by the closing price on the
American Stock Exchange on April 24, 1996. In exchange, Mr. Gibbons agreed to
waive 50% of the $100,000 bonus that was to be paid to him in 1996 pursuant to
the terms of his employment agreement. In addition, payment of 50% of the
remaining bonus was deferred until the third quarter of 1997.

The Company does not have written employment agreements with Messrs. Spino,
Swain, and O'Brien who currently receive annual base salaries of $130,000,
$140,000, and $134,200 respectively.

REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

Introduction

The Company's Compensation Committee (the "Committee") is comprised of
non-employee members of the Company's Board of Directors. Currently, Messrs.
Turner, Veru and Collins serve on the Committee. The Committee reviews and
approves each of the elements of the executive compensation program of the
Company and assesses both the competitiveness and effectiveness of the program.
In addition, the Committee administers the 1994 Stock Incentive Plan.

Compensation Philosophy

The Company's overall executive compensation philosophy seeks to achieve
the following three goals:

- To reward the achievement of the Company's strategic goals and the
creation of stockholder value.

- To maintain a close relationship between compensation and shareholder
value.

- To secure, develop, motivate and retain a high quality management team.

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This philosophy is used not only in determining executive compensation, but
is also evident in the Company's overall salary structure.

The Committee is aware of the limitations imposed by Section 162(m) of the
Internal Revenue Code of 1986, as amended, on the deductibility of compensation
paid to certain senior executives to the extent it exceeds $1 million per
executive. The Company currently intends to maintain compensation amounts and
plans which will meet the requirements of deductibility in that no executive
will exceed the million dollar threshold of Section 162(m) of the Internal
Revenue Code.

Elements of the Executive Compensation Program

Base Salaries. Base salary levels for all executive officers are reviewed
annually. As part of this review, the Committee takes into account the
compensation packages offered by other companies. The Committee also gives
consideration to the experience, responsibilities, management and leadership
abilities of its executive officers and their actual performance on behalf of
the Company, as well as compensation policies prevailing generally within the
industry and within the Peer Group described under "Stockholder Return
Performance Presentation."

Incentive Compensation. The Committee also supplements base compensation
through discretionary performance-based bonuses. In February 1996, the Committee
adopted a program under which bonuses are to be calculated as a percentage of
base salary as determined by the percentage of earnings improvement over the
prior year ("Bonus Plan"). For a bonus to be awarded under the Bonus Plan,
operational earnings for each year must be increased by at least 7% over those
achieved in the prior year. In May 1997, the Committee approved the continuation
of the Bonus Plan. In 1997, Nanette Pattee Francini, Mark Spino and Timothy
O'Brien were each awarded a bonus of $10,000, and Mr. Swain received a bonus of
$15,000 pursuant to the Bonus Plan. All such bonuses were based on the Company's
improved earnings in 1996. In 1998, Ms. Pattee Francini and Messrs. Spino,
O'Brien and Swain each received bonuses of $35,000. All such bonuses were based
on the Company's improved earnings in 1997. On April 14, 1998, the Committee
awarded bonuses to Mr. Talla and Mr. Gibbons of $45,000 and $42,000,
respectfully. These bonuses were calculated at 20% of their base salaries and
reflected an earnings increase of more than 16% in 1997 over earnings achieved
in 1996. The Committee retains discretionary authority to award additional
bonuses based on individual performance.

Stock Options. The Committee believes that long-term incentive compensation
in the form of stock options motivates officers and key employees to improve the
long-term performance of the Common Stock on the market and thus directly
increase shareholder value. Stock options may also be used to attract new
executives. The Company's 1994 Stock Incentive Plan provides a means by which
executive officers and other key employees can build an investment in the
Company which will align such employee's economic interests with the interests
of the stockholders. Such options are granted at the prevailing market price of
the Common Stock and only have value if the stock price increases following the
date of grant. Generally, stock options vest over a period of time from date of
grant, and the optionee must be associated with the Company at the time of
vesting in order to exercise the option. In addition to providing performance
incentives to employees, stock options provide the Company with a form of
non-cash compensation which allow it to provide benefits to employees without
making cash expenditures. Accordingly, the Committee views the grant of options
as an effective component of its over-all executive compensation program.

In determining an option grant the Committee also takes into account the
outstanding options held by each individual executive officer and the projected
value of the options based on historical and assumed appreciation rates for the
Company's Common Stock.

Compensation of Chief Executive Officer. The Committee is responsible for
recommending the compensation to be awarded to the Chief Executive Officer and
bases such recommendation upon the same factors as those employed by the
Committee for other executive officers. In determining Mr. Talla's salary the
Committee focuses on the achievement of the Company's earnings and growth goals.

Mr. Talla received a base salary of $225,000 in 1997 in accordance with the
terms of his employment agreement with the Company. No bonus or stock options
were awarded during the last fiscal year. In April

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1998, Mr. Talla received a bonus of $45,000 and was awarded options for the
purchase of 30,000 shares of Common Stock at a price of $8.25 per share, which
amount equalled 110% of the fair market value of the Common Stock on the date of
grant. The Committee may in the future establish additional specific
quantitative and/or qualitative goals, the accomplishment of which will be
considered in fixing Mr. Talla's compensation, In addition, the Committee will
take into account amounts received by Mr. Talla in respect of his interest in
The Sports Club/LA's net cash flow (See "Certain Relationships").

Compensation Committee

Andrew L. Turner
Dennison T. Veru
Brian J. Collins

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The executive compensation for the Company is administered by the
Compensation Committee of the Board, whose members are currently Messrs. Turner,
Veru and Collins. None of these individuals has ever been an officer or employee
of the Company.

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STOCKHOLDER RETURN PERFORMANCE PRESENTATION

The chart below sets forth line graphs comparing the performance of the
Company's Common Stock against the American Stock Exchange (the "AMEX") market
index and a peer group of eight peer companies consisting of Callaway Golf
Company, Carnival Corp, Ben & Jerry's Homemade, Inc., Bally Total Fitness
Holding Corporation, Cedar Fair LP, Family Golf Centers Inc., National Golf
Properties, Inc., and U.S. Physical Therapy, Inc. (collectively, the "Peer
Group"). The Company believes the Peer Group is an accurate representation of
entities engaged in the sports and fitness business. The graph compares the
cumulative total shareholder return on the Company's Common Stock against the
cumulative total return for all AMEX listed companies and the Peer Group for the
period since the date of the Company's initial public offering (October 13,
1994). These indices are included for comparative purposes only and do not
necessarily reflect management's opinion that such indices are an appropriate
measure of the relative performance of the stock involved, and are not intended
to forecast or be indicative of possible future performance of the Company's
Common Stock.

COMPARISON OF 41 MONTH CUMULATIVE TOTAL RETURN
AMONG THE SPORTS CLUB COMPANY, INC., A PEER GROUP AND THE AMEX MARKET VALUE
INDEX

[Download Table]

MEASUREMENT PERIOD
(FISCAL YEAR COVERED) SPORTS CLUB PEER GROUP AMEX

OCT-94 100 100 100
DEC-94 75 94 95
MAR-95 71 99 101
JUN-95 57 101 109
SEP-95 58 105 119
DEC-95 35 115 119
MAR-96 36 131 125
JUN-96 30 141 126
SEP-96 30 150 125
DEC-96 32 153 127
MAR-97 51 165 127
JUN-97 60 188 139
SEP-97 95 207 157
DEC-97 103 237 154
MAR-98 103 290 168

---------------

(1) The lines represent index levels derived from closing stock prices.

(2) If the last day of the period was not a trading day, the preceding trading
day was used.

(3) The index level for all series was set to 100.00 on October 13, 1994.

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BENEFICIAL OWNERSHIP OF COMMON STOCK

The following table sets forth certain information, as of May 31, 1998,
regarding the beneficial ownership of the Company's Common Stock, by (i) each
person known by the Company to be the beneficial owner of more than five percent
of its Common Stock; (ii) each director; (iii) each executive officer listed in
the Summary Compensation Table; and (iv) all directors and executive officers as
a group. Unless otherwise indicated, each of the following stockholders has sole
voting and investment power with respect to the shares beneficially owned,
except to the extent that such authority is shared by spouses under applicable
law.

[Download Table]

NUMBER OF PERCENT
SHARES OF
BENEFICIALLY OUTSTANDING
BENEFICIAL OWNER(1) OWNED SHARES(9)
------------------- ------------ -----------

D. Michael Talla(2)(3)............................... 4,640,342 22.4%
The Licklider Living Trust dated May 2, 1986......... 1,291,562 6.3
Mona Talla(2)(3)..................................... 4,640,342 22.4
Nanette Pattee Francini(2)(3)........................ 4,640,342 22.4
Mark S. Spino(2)(3).................................. 4,640,342 22.4
Philip J. Swain(2)(3)................................ 4,640,342 22.4
The Jared R. Talla Irrevocable Trust dated January 4,
1993(2)(3)......................................... 4,640,342 22.4
The Brett M. Talla Irrevocable Trust dated January 4,
1993(2)(3)......................................... 4,640,342 22.4
John M. Gibbons(4)................................... 271,034 1.3
Dennison T. Veru..................................... 12,000 ***
Timothy M. O'Brien(5)................................ 42,230 ***
Andrew L. Turner..................................... 64,000 ***
Brian J. Collins..................................... 13,001 ***
Millennium(6)........................................ 3,929,863 19.0
Baron Capital Group, Inc.(7)......................... 2,955,000 14.3
All directors and executive officers as a group (10
persons)(8)........................................ 6,334,169 30.2

---------------
*** Less than one percent.

(1) The address of each of the foregoing persons is 11100 Santa Monica
Boulevard, Suite 300, Los Angeles, California 90025.

(2) Includes shares with respect to which the named beneficial owner shares
voting power pursuant to a voting agreement which requires each party to
vote their shares in the manner determined by a majority of all holders. The
agreement is effective until October 20, 2004 or until terminated by persons
holding 66 2/3% of the Common Stock held by all persons subject to the
agreement. Mr. Talla, Mona Talla, The Jared R. Talla Irrevocable Trust dated
January 4, 1993, The Brett M. Talla Irrevocable Trust dated January 4, 1993,
Ms. Pattee Francini, Mr. Spino and Mr. Swain are record owners of 3,770,617;
30,953; 64,714; 64,714; 256,107; 227,969 and 173,164 shares of the Company's
Common Stock, respectively. Mr. Talla (including members of his immediate
family and trusts for their benefit) is the record owner of 3,930,998
shares. Includes 98 shares for Mr. Swain and 339 shares for Mr. Talla vested
under the Company's 401-K Profit Sharing Plan.

(3) Includes 51,667 shares of Common Stock issuable within 60 days upon the
exercise of options granted to Ms. Pattee Francini, Mr. Spino and Mr. Swain
under the Company's 1994 Stock Incentive Plan. Ms. Pattee Francini and Mr.
Spino each hold options exercisable for 15,000 shares and Mr. Swain holds
options exercisable for 21,667 shares.

(4) Includes 40,500 shares owned by Mr. Gibbons, 5,000 shares owned by Mr.
Gibbons' spouse and 225,000 shares of Common Stock issuable within 60 days
upon the exercise of options granted under the

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Company's 1994 Stock Incentive Plan, and 534 shares vested under the
Company's 401-K Profit Sharing Plan.

(5) Includes 41,667 shares of Common Stock issuable within 60 days upon the
exercise of options granted under the Company's 1994 Stock Incentive Plan,
100 shares owned by Mr. O'Brien's son and 463 shares vested under the
Company's 401-K Profit Sharing Plan.

(6) Includes 1,051,000 shares owned by Millennium Development Partners, L.P.,
625,000 shares owned by Millennium Entertainment Partners L.P., and
2,253,863 shares owned by Millennium Partners LLC.

(7) Baron Capital Group, Inc. is a registered investment advisor located at 767
Fifth Avenue, New York, NY 10153.

(8) Includes 318,334 shares of Common Stock issuable within 60 days upon the
exercise of options granted under the Company's 1994 Stock Incentive Plan
and 1,434 shares vested under the Company's 401-K Profit Sharing Plan.

(9) All shares not currently outstanding that are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed to be
outstanding for the purpose of computing the "Percent of Outstanding Shares"
held by the holder thereof, but are not deemed to be outstanding for the
purpose of computing the "Percent of Outstanding Shares" held by any other
shareholder, pursuant to Rule 13d-3(d)(1) under the Securities Exchange Act
of 1934, as amended (the "Exchange Act").

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors and persons who own more than ten percent
of a registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and to furnish the Company with copies of such reports. Based on the Company's
review of copies of those reports and written representations which it has
received, the Company believes that all such filings required to be made from
January 1, 1997, through March 31, 1998, were made.

CERTAIN RELATIONSHIPS

The Company possesses a 50.1% interest in the partnership which owns The
Sports Club/LA; Mr. Talla beneficially owns the remaining 49.9% interest. The
partnership agreement provides that, on an annual basis, the partners will share
in the first $300,000 of The Sports Club/LA's net cash flow in proportion to
their percentage interests. The next $35.0 million of net cash flow will be
distributed to the Company. All distributions of net cash flow thereafter, if
any, will be made to the partners in proportion to their percentage interests.
In addition, the partnership agreement provides the Company with an option to
purchase Mr. Talla's interest for an amount equal to the product of four times
the amount of distributions received by Mr. Talla in the year immediately
preceding the year in which the option is exercised.

As of January 1, 1997, Mr. Talla was either the guarantor of, or the named
debtor with respect to, approximately $245,000 in debts of the Company. The
Company agreed with Mr. Talla to make all payments due with respect to all such
debts, and to indemnify him with respect to all costs incurred in connection
therewith. These debts have been reflected in the Company's financial
statements. All such debts were paid in full during 1997.

In April 1996, the Company extended a loan to Mr. Talla in the amount of
$600,000, secured by 384,000 shares of the Company's Common Stock. The loan was
due and payable on April 3, 1997 and bore interest at 6.8%. In 1997, The
Company's Board of Directors approved the extension of the loan and accrued
interest into a new note in the amount of $641,000 with interest at 5.9%, due on
April 3, 1998, secured by a pledge of 300,000 shares of the Company's stock. Mr.
Talla repaid this loan and accrued interest in September 1997.

Effective August 1, 1996, Mr. Licklider entered into a consulting agreement
with the Company pursuant to which Mr. Licklider receives $10,000 per month plus
reimbursement for reasonable and necessary expenses.

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The agreement has been extended through July 31, 1998. Under the terms of the
agreement, Mr. Licklider advises the Company with respect to strategic and
financial matters for a minimum of 60 hours of service per month outside the
normal scope of his duties as a director. Effective with the commencement of the
consulting agreement, Mr. Licklider resigned from the audit and compensation
committees of the Board of Directors.

Effective January 28, 1997, the Board of Directors approved the use of up
to $3.0 million to repurchase shares of the Company's Common Stock. When the
plan was terminated in February 1998, the Company had repurchased a total of
184,766 shares at prices per share ranging from a low of $3.50 on February 12,
1997, to a high of $6.675 on September 12, 1997, with a weighted-average price
of $5.58 per share. On March 27, 1997, the Company purchased from Ms. Pattee
Francini, Executive Vice President and Secretary, and Mr. Philip Swain, Vice
President of Operations, 25,000 shares and 20,000 shares, respectively, at a
price of $4.6875, representing the closing price of the Common Stock on the AMEX
on March 25, 1997. On September 12, 1997, the Company purchased from D. Michael
Talla, Chairman of the Board and Chief Executive Officer, 97,166 shares of
Common Stock at a price of $6.675, representing the average of the closing price
of the Common Stock on the AMEX for the 10 trading days immediately preceding,
and ending on, September 12th. The proceeds of the purchase of Common Stock from
Mr. Talla were used to repay the loan by the Company to Mr. Talla described
above.

Millennium Entertainment Partners, L.P., along with its affiliates
(collectively "Millennium") is the owner of 3,929,863 shares of the outstanding
Common Stock. Additionally, Millennium is a partner with the Company in the
Reebok Sports Club/NY as well as the landlord of the building in which the
Reebok Sports Club/NY is located. The Reebok-Sports Club/NY partnership pays
rent to Millennium in the amount of $2.0 million per year, and the partnership
agreement provides for a first priority annual distribution of $3.0 million to
Millennium (adjusted to $2.1 million for calendar year 1997). In June 1997,
Millennium and the Company entered into leases with respect to the development
of two additional Sports Clubs in Washington, D.C. and San Francisco, California
and are negotiating the terms of a lease for an additional Sports Club in
Boston, Massachusetts.

On June 11, 1997, the Company issued to Millennium 2,105,263 shares of
Common Stock in exchange for $10.0 million consisting of $5.0 million in cash
and certain interests of Millennium in the Reebok-Sports Club/NY partnership,
including a 9.9% interest in the partnership and a $2.5 million promissory note
issued by the partnership. The Company also granted to Millennium certain
registration and preemptive rights. In addition, for so long as Millennium
maintains at least a 12% interest in the equity securities of the Company, the
Company and certain of its shareholders have agreed to cause a nominee of
Millennium to be appointed or elected to the Board of Directors of the Company;
Brian J. Collins, an officer of Millennium, is currently a member of the
Company's Board of Directors as Millennium's nominee.

On December 31, 1997, the Company sold an additional 625,000 shares of
Common Stock to Millennium for $5.0 million, which the Company used to fund the
cash portion of the acquisition of four Spectrum Clubs from Racquetball World.
In addition, Millennium acquired properties underlying two of the Clubs for
$10.0 million and is leasing these properties to the Company under a financing
lease agreement which is reflected as a capital lease obligation in the
Company's consolidated balance sheet. The lease has a term of twenty years, and
provides for annual rent of $1.0 million for the first ten years and $1.2
million per year thereafter. At any time during the first three years of the
lease the Company may purchase the leased property from Millennium for a
purchase price (currently estimated to be approximately $10.2 million) equal to
$10.0 million plus all costs incurred by Millennium in connection with the
acquisition of such property, plus a 12% compound return on its total
investment. Millennium has the right to require the Company to acquire its
interest in the property at such price if (i) the Company receives private debt
financing in excess of $95.0 million, (ii) the Company receives public equity
financing in excess of $20.0 million, (iii) a default (as defined in the lease)
occurs, or (iv) a major casualty occurs with respect to either property.

In September 1997, the Company entered into a non-binding agreement to
purchase undeveloped land from an unaffiliated third party in La Jolla,
California, for approximately $6.4 million, on which the Company was evaluating
the development of a Sports Club. To secure its right to purchase this property,
the Company made a series of deposits aggregating $425,000 through January 12,
1998, $325,000 of which is non-

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refundable. In March 1998, the Company entered into an agreement with Millennium
pursuant to which Millennium agreed to pay the Company $425,000 in exchange for
an option, exercisable at Millennium's sole discretion, to fund the purchase
price and acquire the La Jolla site, subject to the right of the Company to
reacquire the property as described below. No money was paid by Millennium to
the Company, and this Agreement was terminated by the Company and Millennium on
May 18, 1998.

In March 1998, the Company entered into an agreement to acquire
approximately 3.5 acres of undeveloped land from an unaffiliated third party in
Houston, Texas, for approximately $3.1 million, on which the Company intends to
develop a Sports Club. Millennium has agreed that, in the event the Company does
not otherwise obtain satisfactory financing for the Houston development,
Millennium will acquire and negotiate to develop the Club with the Company.

The Company is considering development alternatives for the Houston
property, including a sale/lease back or other financing or joint venture
arrangements with Millennium or another party. The Company has the right, for a
period of six months to reacquire the Houston property from Millennium at a
purchase price equal to all costs incurred by Millennium in connection with the
acquisition, development and ownership of such property, plus a 12% compound
return on its total investment.

RM Sports Club, Inc., a corporation owned and controlled by D. Michael
Talla, Chairman and Chief Executive Officer of the Company, and Rex Licklider,
Vice Chairman of the Company, entered into an agreement to purchase the Vertical
Club in New York City and in connection therewith made a $1.0 million
non-refundable deposit. In addition, RM Sports Club, Inc. entered into an
agreement with the Company pursuant to which it agreed to transfer its rights
under such agreement to the Company for a purchase price equal to $1.0 million.
On April 15, 1998, the Company exercised its rights and acquired the Vertical
Club.

The Company has entered into agreements with its directors and officers
providing for the indemnification of such directors and officers by the Company
to the maximum extent permitted under Delaware law, in the event such persons
are the subject of lawsuits or otherwise suffer losses as a result of their
activities on behalf of the Company. These agreements include, among other
things, indemnity for judgments and settlements in derivative actions, prompt
payment of legal expenses in advance of indemnification and equitable
contribution by the Company in certain instances in the event a director or
officer is not entitled to full indemnification.

The Company believes that each of the foregoing transactions has been on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All transactions between the Company and any of its
directors or officers are subject to the approval of the disinterested
directors.

INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

For the 1997 fiscal year, KPMG Peat Marwick LLP provided audit services
which included examination of the Company's annual consolidated financial
statements. Upon the recommendation of the Audit Committee, the Board has
approved a resolution retaining KPMG Peat Marwick LLP as its independent
auditors for fiscal 1998. A representative of KPMG Peat Marwick LLP is expected
to attend the Annual Meeting to make any statements he or she may desire and to
respond to appropriate questions.

SUBMISSION OF STOCKHOLDER PROPOSALS

Any proposal which a stockholder intends to present for action at the
Company's 1999 Annual Meeting of Stockholders and which such stockholder wishes
to have included in the Company's proxy materials for such meeting must comply
with the provisions of Rule 14a-8 promulgated under the Exchange Act. Proposals
must be received by the Secretary of the Company at its principal office (11100
Santa Monica Boulevard, Suite 300, Los Angeles, California 90025) no later than
March 4, 1999. It is suggested that any such proposal be submitted by certified
mail, return receipt requested.

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GENERAL

The Board of Directors knows of no matters other than those matters
described above which are likely to be brought before the Annual Meeting.
However, if any other matter properly comes before the Annual Meeting the
proxies confer discretionary authority with respect to acting thereon. The
proxies holders will vote the proxies thereon in accordance with their best
judgment, provided that, to the extent the Company becomes aware a reasonable
time before the Annual Meeting of any matter to come before such meeting, the
Company will provide stockholders an opportunity to vote by proxy directly on
such matter. Upon receipt of such proxies in time for voting, the shares
represented thereby will be voted as indicated thereon and as described in this
Proxy Statement.

Financial Statements for the fiscal year ended December 31, 1997, are not
made a part of this Proxy Statement. However, financial statements are included
in the annual report for the year ended December 31, 1997, enclosed with this
Proxy Statement. The annual report is not to be regarded as proxy soliciting
material or as a communication by means of which any solicitation is made.

Each stockholder is urged to complete, date, sign and promptly return the
enclosed proxy card.

Any questions should be directed to the Company, care of Lois Barberio,
Investor Relations, 11100 Santa Monica Boulevard, Suite 300, Los Angeles,
California 90025, telephone (310) 479-5200.

BY ORDER OF THE BOARD OF DIRECTORS

/s/ NANETTE PATTEE FRANCINI

Nanette Pattee Francini
Secretary
Los Angeles, California
July 2, 1998

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APPENDIX A

THE SPORTS CLUB COMPANY, INC.

1994 STOCK INCENTIVE PLAN
(AS AMENDED AND RESTATED JUNE 3, 1998)

ARTICLE 1

GENERAL PURPOSE OF PLAN

The name of this plan is The Sports Club Company, Inc. 1994 Stock Incentive
Plan (the "Plan"). The purpose of the Plan is to enable The Sports Club Company,
Inc. (the "Company") and any Parent or any Subsidiary to obtain and retain the
services of the types of employees, consultants, officers and directors who will
contribute to the Company's long range success and to provide incentives which
are linked directly to increases in share value which will inure to the benefit
of all shareholders of the Company.

ARTICLE 2

DEFINITIONS

For purposes of the Plan, the following terms shall be defined as set forth
below:

"Administrator" shall have the meaning as set forth in Article 3.

"Board" means the Board of Directors of the Company.

"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor thereto.

"Committee" means a committee of at least two Directors appointed by the
Board to administer the Plan.

"Company" means The Sports Club Company, Inc., a corporation organized
under the laws of the State of Delaware (or any successor corporation).

"Date of Grant" means the date on which the Administrator adopts a
resolution expressly granting a Right to a Participant.

"Director" means a member of the Board.

"Disability" means permanent and total disability as defined by the
Administrator.

"Eligible Person" means an employee or officer or any consultant or
Director of the Company, any Parent or any Subsidiary, other than the
Administrator.

"Fair Market Value" per share at any date shall mean (i) if the Stock is
listed on an exchange or exchanges, or admitted for trading in the Nasdaq
National Market ("National Market"), the last reported sales price per share on
the last business day prior to such date on the principal exchange on which it
is traded, or on the National Market, as applicable, or if no sale was made on
such day on such principal exchange or on the National Market, as applicable,
the last reported sales price per share on the most recent day prior to such
date on which a sale was reported on such exchange or the National Market, as
applicable; or (ii) if the Common Stock is not then traded on an exchange or on
the National Market, the average of the closing bid and asked prices per share
for the Common Stock in the over-the-counter market as quoted on NASDAQ on the
day prior to such date; or (iii) if the Common Stock is not listed on an
exchange or quoted on NASDAQ, an amount determined in good faith by the
Administrator.

"Grantee" means an Eligible Participant who is granted a SAR pursuant to
the Plan.

"Incentive Stock Option" means a Stock Option intended to qualify as an
"incentive stock option" as that term is defined in Section 422 of the Code.

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"Non-Statutory Option" means a Stock Option not intended to qualify as an
Incentive Stock Option.

"Offeree" means an Eligible Participant who is granted a Purchase Right
pursuant to the Plan.

"Optionee" means an Eligible Participant who is granted a Stock Option
pursuant to the Plan.

"Parent" means any present or future corporation which would be a "parent
corporation" as that term is defined in Section 424 of the Code.

"Participant" means any Eligible Person selected by the Administrator,
pursuant to the Administrator's authority in Article 3, to receive grants of
Rights.

"Plan" means The Sports Club Company, Inc. 1994 Stock Incentive Plan, as
the same may be amended or supplemented from time to time.

"Purchase Right" means the right to purchase Stock granted pursuant to
Article 8.

"Rights" means Stock Options, Purchase Rights and SARs.

"Retirement" means retirement from active employment with the Company or
any Parent or Subsidiary as defined by the Administrator.

"SAR" means a stock appreciation right granted alone or in tandem with a
Stock Option pursuant to Article 7.

"Special Terminating Event" with respect to a Participant shall mean the
death, Disability or Retirement of that Participant.

"Stock" means the Common Stock, par value $.01 per share, of the Company.

"Stock Option" means any option to purchase shares of Stock granted
pursuant to Article 6; and, with respect to SARs, also includes options to
purchase shares of Stock granted pursuant to Other Plans.

"Subsidiary" means any present or future corporation which would be a
"subsidiary corporation" as that term is defined in Section 424 of the Code.

"Ten Percent Shareholder" means a person who on the Date of Grant owns,
either directly or through attribution as provided in Section 424(d) of the
Code, Stock possessing more than 10% of the total combined voting power of all
classes of stock of his or her employer corporation or of any Parent or
Subsidiary.

ARTICLE 3

ADMINISTRATION

SECTION 3.1 The Administrator.

(a) Administrator. The Plan shall be administered by either (i) the Board;
or (ii) the Committee (the group that administers the Plan is referred to as the
"Administrator").

(b) Powers in General. The Administrator shall have the power and authority
to grant to Eligible Persons, pursuant to the terms of the Plan: (i) Stock
Options; (ii) SARs; (iii) Purchase Rights; or (iv) any combination of the
foregoing.

(c) Specific Powers. In particular, the Administrator shall have the
authority: (i) to construe and interpret the Plan and apply its provisions; (ii)
to promulgate, amend and rescind rules and regulations relating to the
administration of the Plan; (iii) to authorize any person to execute, on behalf
of the Company, any instrument required to carry out the purposes of the Plan;
(iv) to determine, subject to the limitations set forth in the Plan, when Rights
are to be granted under the Plan; (v) from time to time to select, subject to
the limitations set forth in this Plan, those Eligible Participants to whom
Rights shall be granted; (vi) to determine the number of shares of Stock to be
made subject to each Right; (vii) to prescribe the terms and conditions of each
Stock Option, including, without limitation, the exercise price and medium of
payment, to determine whether the Stock Option is to be an Incentive Stock
Option or a Non-Statutory Option and to
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specify the provisions of the Stock Option agreement relating to such Stock
Option; (viii) to prescribe the terms and conditions of each SAR, including,
without limitation, to determine whether such SAR is to be granted alone or in
tandem with Stock Options during the term of the Related SAR Option and to
specify the provisions of the SAR agreement relating to such SAR including,
without limitation, vesting provisions; (ix) to prescribe the terms and
conditions of each Purchase Right, including, without limitation, the purchase
price and medium of payment, vesting provisions and repurchase provisions, and
to specify the provisions of the Stock purchase agreement relating to such sale;
(x) to amend any outstanding Rights for the purpose of modifying the purchase
price, exercise price or Initial Valuations (as defined in Article 7), as the
case may be, thereunder or otherwise, subject to applicable legal restrictions
and to the consent of the other party to such agreement; (xi) to determine when
a consultant's relationship with the Company is sufficient to constitute
employment with the Company for purposes of the Plan; (xii) to determine the
duration and purpose of leaves of absences which may be granted to a Participant
without constituting termination of their employment for purposes of the Plan;
and (xiii) to make any and all other determinations which it determines to be
necessary or advisable for administration of the Plan.

(d) Decisions Final. All decisions made by the Administrator pursuant to
the provisions of the Plan shall be final and binding on the Company and the
Participants.

(e) The Committee. The Board may, in its sole and absolute discretion, from
time to time delegate any or all of its duties and authority with respect to the
Plan to a Committee of not less than two Directors to be appointed by and to
serve at the pleasure of the Board. Once appointed, the Committee shall continue
to serve until otherwise directed by the Board. From time to time, the Board may
increase or decrease (to not less than two members) the size of the Committee,
add additional members to, remove members (with or without cause) from, appoint
new members in substitution therefor, and fill vacancies, however caused, in the
Committee. The Committee shall act pursuant to a vote of the majority of its
members or, in the case of a Committee comprised of two Directors, the unanimous
vote of its members, whether present or not, or by the written consent of the
majority of its members or, in the case of a Committee comprised of two
Directors, the unanimous vote of its members, and minutes shall be kept of all
of its meetings and copies thereof shall be provided to the Board. Subject to
the limitations prescribed by the Plan and the Board, the Committee may
establish and follow such rules and regulations for the conduct of its business
as it may determine to be advisable.

ARTICLE 4

STOCK SUBJECT TO PLAN

SECTION 4.1 Stock Subject to the Plan.

Subject to adjustment as provided in Article 10, the total number of shares
of Stock reserved and available for issuance under the Plan shall be 1,800,000
shares. The total number of shares of Stock with respect to which SARs granted
with relating to Related SAR Options may be granted shall be equal to 1,800,000
shares. Solely for purposes of determining the number of shares of Stock
reserved and available for issuance under the Plan, each SAR granted without
relation to a Stock Option shall be treated as a Stock Option. Shares reserved
hereunder may consist, in whole or in part, of authorized and unissued shares or
treasury shares.

SECTION 4.2 Unexercised Rights.

To the extent that any Rights expire or are otherwise terminated without
being exercised, the shares underlying such Rights (and shares related thereto)
shall again be available for issuance in connection with future Rights under the
Plan. Shares acquired by the Company upon exercise of Rights pursuant to Section
6.2(e) or Section 8.2(c) or Section 12.3 shall not increase the shares available
for issuance under the Plan.

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ARTICLE 5

ELIGIBILITY

Officers, employees, consultants and Directors of the Company, any Parent
or any Subsidiary, other than the Administrator, who are responsible for or
contribute to the management, growth or profitability of the business of the
Company, any Parent or any Subsidiary shall be eligible to be granted Rights
hereunder subject to limitations set forth in this Plan. The Participants under
the Plan shall be selected from time to time by the Administrator, in its sole
discretion, from among those Eligible Persons.

ARTICLE 6

STOCK OPTIONS

SECTION 6.1 General.

Stock Options may be granted alone or in addition to other Rights granted
under the Plan. Any Stock Option granted under the Plan shall be in such form as
the Administrator may from time to time approve, and the provisions of Stock
Option grants need not be the same with respect to each Optionee or each Stock
Option granted. Stock Options granted under the Plan may be either Incentive
Stock Options or Non-Statutory Options.

SECTION 6.2 Terms and Conditions of Stock Options.

Each Stock Option granted pursuant to the Plan shall be evidenced by a
written option agreement between the Company and the Optionee, which agreement
shall comply with and be subject to the following terms and conditions:

(a) Number of Shares. Each Stock Option agreement shall state the
number of shares of Stock to which the Stock Option relates.

(b) Type of Option. Each Stock Option agreement shall identify the
portion (if any) of the Stock Option which constitutes an Incentive Stock
Option.

(c) Exercise Price. Each Stock Option agreement shall state the price
at which shares subject to the Stock Option may be purchased (the "Exercise
Price"), which shall with respect to Incentive Stock Options be not less
than one hundred percent (100%) of the Fair Market Value of the shares of
Stock on the Date of Grant; provided, however, that in the case of an
Incentive Stock Option granted to a Ten Percent Shareholder, the Exercise
Price shall not be less than one hundred ten percent (110%) of such Fair
Market Value. With respect to Non-Statutory Options, the Exercise Price
shall not be less than eighty-five percent (85%) of the Fair Market Value
of the shares of Stock on the Date of Grant of the Non-Statutory Option.

(d) Value of Shares. The Fair Market Value of the shares of Stock
(determined as of the Date of Grant) with respect to which Incentive Stock
Options are exercisable by an Optionee under this Plan and all other
incentive option plans of the Company and any Parent or Subsidiary shall
not, in the aggregate, exceed $100,000 in any calendar year.

(e) Medium and Time of Payment. The Exercise Price shall be paid in
full, at the time of exercise, in cash or cash equivalents or, with the
approval of the Administrator, in shares of Stock which have been held by
the Optionee for a period of at least six calendar months preceding the
date of surrender and which have a Fair Market Value equal to the Exercise
Price, or in a combination of cash and such shares, and may be effected in
whole or in part (i) with monies received from the Company at the time of
exercise as a compensatory cash payment; or (ii) to the extent that the
Exercise Price exceeds the par value of the shares so purchased, with
monies borrowed from the Company in accordance with Section 12.5.

(f) Term and Exercise of Stock Options. Stock Options shall be
exercisable over the exercise period at the times the Administrator may
determine, as reflected in the related Stock Option
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agreements. The exercise period of any Stock Option shall be determined by
the Administrator, but shall not exceed ten years from the Date of Grant of
the Stock Option. In the case of an Incentive Stock Option granted to a Ten
Percent Shareholder, the exercise period shall be determined by the
Administrator, but shall not exceed five years from the Date of Grant of
the Stock Option. The exercise period shall be subject to earlier
termination as provided in Sections 12.6 and 12.7. A Stock Option may be
exercised, as to any or all full shares of Stock as to which the Stock
Option has become exercisable, by giving written notice of such exercise to
the Company.

(g) Employee's or Engagement Agreement. Each person receiving a Stock
Option under the Plan shall agree to remain in the employ of, and/or to
render services pursuant to his or her engagement with, the Company, any
Subsidiary or any Parent, as the Administrator may from time to time
direct, for a period of one year from the Date of Grant, but such agreement
shall not obligate the Company, any Subsidiary or any Parent to continue to
employ or maintain the engagement of the Optionee for any period
whatsoever. The sole remedy of the Company for breach of this employment or
engagement term by the Optionee shall be cancellation of the Stock Option
granted to the Optionee.

ARTICLE 7

STOCK APPRECIATION RIGHTS

SECTION 7.1 General.

The Administrator shall have the authority to grant SARs in tandem with
Stock Options granted under this Plan (the "Related SAR Option") with respect to
all or some of the shares of Stock covered by the Related SAR Option. SARs
granted in tandem with Related SAR Options may be granted either at the time of
grant of the Related SAR Option or at any time thereafter during the term of the
Related SAR Option. The Administrator shall also have the authority to grant
SARs without relation to any Stock Option granted under this Plan. Each SAR
shall be granted on such terms and conditions not inconsistent with the Plan as
the Administrator may determine. The provisions of the various SAR awards need
not be the same with respect to each Grantee or with respect to any SARs granted
to the same Grantee.

SECTION 7.2 Terms and Conditions of SARs.

Each SAR granted pursuant to the Plan shall be evidenced by a written SAR
agreement between the Company and the Grantee, which agreement shall comply with
and be subject to the following terms and conditions:

(a) Number of SARs. Each SAR agreement shall state the number of SARs
granted pursuant to the agreement.

(b) Initial Valuations. Each SAR agreement shall provide that each SAR
granted in tandem with a Related Stock Option is valued at the Exercise
Price of the Related SAR Option and that each SAR granted without relation
to a Stock Option is valued at the Fair Market Value of a share of Stock on
the Date of Grant (the "Initial Valuation").

(i) Each SAR granted otherwise than in tandem with a Stock Option
shall be exercisable as determined by the Administrator, but in no event
after 10 years from the date of Grant. Each other SAR shall be
exercisable only if, and to the extent that, the Related SAR Option is
exercisable and has not yet terminated or expired, and in the case of a
SAR granted in respect of an Incentive Stock Option, only when the Fair
Market Value per share of the Stock exceeds the Exercise Price of the
Related SAR Option; and upon the exercise of a SAR, the Related SAR
Option shall cease to be exercisable to the extent of the shares of
Stock with respect to which such SAR is exercised, and shall be
considered to have been exercised to that extent for purposes of
determining the number of shares available for the grant of further
Rights pursuant to the Plan. Upon the exercise or termination of a
Related SAR Option, the SAR granted in tandem with such Related SAR
Option

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shall terminate to the extent of the shares of Stock with respect to
which the Related SAR Option was exercised or terminated.

(ii) To exercise a SAR granted in tandem with a Related SAR Option,
the Grantee shall (A) give written notice thereof to the Company
specifying the number of shares of Stock with respect to which the SAR
is being exercised and the percentage of the total amount that the
Grantee is entitled to receive which the Grantee elects to receive in
cash or shares of Stock with respect to the exercise of the SAR; and (B)
if requested by the Administrator, deliver the Related SAR Option
agreement to the Secretary of the Company, who shall endorse thereon a
notation of such exercise and return the Related SAR Option agreement to
the Grantee. To exercise a SAR granted without relation to a Stock
Option, the Grantee shall give written notice thereof to the Company
specifying the number of shares of Stock with respect to which the SAR
is being exercised and the percentage of the total amount that the
Grantee is entitled to receive which the Grantee elects to receive in
cash or shares of Stock with respect to the exercise of the SAR. The
date of exercise of a SAR which is validly exercised shall be deemed to
be the date on which there shall have been delivered to the Company the
appropriate aforesaid instruments.

(iii) Upon the exercise of a SAR, the holder thereof shall be
entitled at the holder's election to receive either:

(A) a number of shares of Stock equal to the quotient computed
by dividing the Spread (as defined in Section 7.2(c)(iv)) by the Fair
Market Value per share of Stock on the date of exercise of the SAR;
provided, however, that in lieu of fractional shares, the Company
shall pay in cash or cash equivalent an amount equal to the same
fraction of the Fair Market Value per share of Stock on the date of
exercise of the SAR; or

(B) an amount of money payable in cash or cash equivalent equal
to the Spread; or

(C) a combination of an amount payable in cash or cash
equivalent and a number of shares calculated as provided in Section
7.2(c)(iii)(A) (after reducing the Spread by such dollar amount);
plus any amounts payable in lieu of any fractional shares as provided
above.

(iv) The term "Spread" as used in Section 7.2(c) shall mean an
amount equal to the product computed by multiplying (A) the excess of
(x) the Fair Market Value per share of Stock on the date the SAR is
exercised, over either (y) in the case of an SAR granted in tandem with
a Related SAR Option, the Exercise Price per share of the Related SAR
Option, or (z) in the case of an SAR not granted in tandem with a Stock
Option, the Initial Valuation of the SAR; by (B) the number of shares
with respect to which such SAR is being exercised.

(v) Notwithstanding the provisions of Section 7.2(c)(iii), the
Administrator shall have sole discretion to consent to or disapprove a
Participant's election to receive an amount of money payable in cash or
cash equivalent in whole or in part ("Cash Election") upon the exercise
of a SAR. Such consent or disapproval may be given at any time after the
election to which it relates. If the Administrator shall disapprove a
Cash Election the exercise of the SAR with respect to which the Cash
Election was made shall be of no effect, but without prejudice to the
right of the holder to exercise such SAR in the future in accordance
with its terms.

(vi) Notwithstanding the foregoing, in the case of a SAR granted in
tandem with an Incentive Stock Option, the holder may not receive an
amount in excess of such amount as will enable the Stock Option to
qualify as an Incentive Stock Option.

(d) Securities Laws. The Company intends that this Section 7.2 shall
comply with the requirements of Rule 16b-3 and any future rules promulgated
in substitution therefor (the "Rule") under the Exchange Act, during the
term of the Plan. Should any provision of Section 7.2 not be necessary to
comply with the requirements of the Rule or should any additional
provisions be necessary for Section 7.2 to comply with the requirements of
the Rule, the Board may amend the Plan to add to or modify the provisions
of the Plan accordingly.

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(e) Limitation on Amounts Payable. Notwithstanding Section
7.2(c)(iii), the Administrator may place a limitation on the amount payable
in cash, Stock or both upon exercise of a SAR. Any such limitation must be
determined as of the Date of Grant, and noted on the instrument evidencing
the Participant's SAR granted hereunder.

ARTICLE 8

PURCHASE RIGHTS

SECTION 8.1 General.

Purchase Rights may be granted alone or in addition to other Rights under
the Plan. Each sale of Stock under this Article 8 shall be evidenced by a Stock
purchase agreement between the Offeree and the Company in the form from time to
time adopted by the Administrator and containing such terms and conditions which
the Administrator deems appropriate; provided, that such terms and conditions
are not inconsistent with the Plan. The provisions of the various Stock purchase
agreements entered into under the Plan need not be identical.

SECTION 8.2 Terms and Conditions of Purchase Rights.

Each Purchase Right granted pursuant to the Plan shall be evidenced by a
written Stock purchase agreement between the Company and the Offeree, which
agreement shall comply with and be subject to the following terms and
conditions:

(a) Number of Shares. Each Stock purchase agreement shall state the
number of shares of Stock which may be purchased pursuant to such
agreement.

(b) Purchase Price. Each Stock purchase agreement shall state the
price at which the Stock subject to such purchase agreement may be
purchased (the "Purchase Price"); provided, however, that the Purchase
Price shall not be less than 85% of the Fair Market Value of the Stock on
the Date of Grant.

(c) Medium and Time of Payment. The Purchase Price shall be paid in
full, at the time of exercise, in cash or cash equivalent or, with the
approval of the Administrator, in shares of Stock which have been held by
the Optionee for a period of at least six calendar months preceding the
date of surrender and which have a Fair Market Value equal to the Purchase
Price or in a combination of cash or cash equivalent and such shares, and
may be effected in whole or in part (i) with monies received from the
Company at the time of exercise as a compensatory cash payment; or (ii) to
the extent the purchase price exceeds the par value of the shares so
purchased, with monies borrowed from the Company in accordance with Section
12.5 of the Plan.

ARTICLE 9

[INTENTIONALLY OMITTED]

ARTICLE 10

ADJUSTMENTS

SECTION 10.1 Effect of Certain Changes.

(a) Stock Dividends, Splits, Etc. If there is any change in the number of
outstanding shares of Stock through the declaration of Stock dividends or
through a recapitalization resulting in Stock splits, or combinations or
exchanges of the outstanding shares, (i) the number of shares of Stock available
for Rights, (ii) the number of shares covered by outstanding Rights, (iii) the
Exercise Price or Purchase Price of any Stock Option or Purchases Right and (iv)
the Initial Valuations of SARs, in effect prior to such change shall be
proportionately adjusted by the Administrator to reflect any increase or
decrease in the number of issued

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shares of Stock; provided, however, that any fractional shares resulting from
the adjustment shall be eliminated.

(b) Liquidating Event. In the event of the proposed dissolution or
liquidation of the Company, or in the event of any corporate separation or
division, including, but not limited to, a split-up, split-off or spin-off
(each, a "liquidating event"), the Administrator may provide that the holder of
any Right then exercisable shall have the right to exercise such Right (at the
price provided in the Rights agreement) subsequent to the liquidating event, and
for the balance of its term, solely for the kind and amount of shares of Stock
and other securities, property, cash or any combination thereof receivable upon
such liquidating event by a holder of the number of shares of Stock for or with
respect to which such Right might have been exercised immediately prior to such
liquidating event; or the Administrator may provide, in the alternative, that
each Right granted under the Plan shall terminate as of a date to be fixed by
the Board; provided, however, that not less than 30 days written notice of the
date so fixed shall be given to each Rights holder and if such notice is given,
each Rights holder shall have the right, during the period of 30 days preceding
such termination, to exercise the Right as to all or any part of the shares of
Stock covered thereby, without regard to any installment or vesting provisions
in his or her Rights agreement, on the condition, however, that the liquidating
event actually occurs; and if the liquidating event actually occurs, such
exercise shall be deemed effective (and, if applicable, the Rights holder shall
be deemed a shareholder with respect to the Rights exercised immediately
preceding the occurrence of the liquidating event, or the date of record for
shareholders entitled to share in such liquidating event, if a record date is
set).

(c) Merger or Consolidation. Each outstanding Right shall terminate upon a
merger or consolidation in which the Company is not the surviving corporation,
provided that (A) each Rights holder to whom no Rights have been tendered by the
surviving corporation pursuant to the terms of item (B) immediately below shall
have the right exercisable during a ten-day period ending on the fifth day prior
to such merger or consolidation in which the Company is not the surviving
corporation, to exercise his or her Rights in whole or in part, without regard
to any installment provisions under his or her Rights agreement on the
condition, however, that the merger or consolidation is actually effected; and
if the merger or consolidation is actually effected, such exercise shall be
deemed effective (and, if applicable, the Participant shall be deemed a
shareholder with respect to the Rights exercised) immediately preceding the
effective time of such merger or consolidation (on the date of record for
shareholders entitled to share in the securities or property distributed in such
merger or consolidation, if a record date is set); and (B) in its sole and
absolute discretion, the surviving corporation may, but shall not be obligated
to, tender to any Rights holder Rights with respect to the surviving
corporation, and such new Rights shall contain such terms and provisions as
shall substantially preserve the rights and benefits of any Rights then
outstanding under this Plan.

(d) Where Company Survives. Section 10.1(c) shall not apply to a merger or
consolidation in which the Company is the surviving corporation, unless shares
of Stock are converted into or exchanged for securities other than
publicly-traded common stock, cash (excluding cash in payment for actual shares)
or any other thing of value. Notwithstanding the preceding sentence, in case of
any consolidation or merger of another corporation into the Company in which the
Company is the surviving corporation and in which there is a reclassification or
change (including a change to the right to receive an amount of money payable by
cash or cash equivalent or other property) of the shares of Stock (other than a
change in par value, or from par value to no par value, or as a result of a
subdivision or combination, but including any change in such shares into two or
more classes or series of shares), the Administrator may provide that the holder
of each Right then exercisable shall have the right to exercise such Right
solely for the kind and amount of shares of Stock and other securities
(including those of any new direct or indirect Parent of the Company), property,
cash or any combination thereof receivable upon such reclassification change,
consolidation or merger by the holder of the number of shares of Stock for which
such Right might have been exercised.

(e) Surviving Corporation Defined. The determination as to which party to a
merger or consolidation is the "surviving corporation" shall be made on the
basis of the relative equity interests of the shareholders in the corporation
existing after the merger or consolidation, as follows: if following any merger
or consolidation the holders of outstanding voting securities of the Company
immediately prior to the merger or consolidation own equity securities
possessing more than fifty percent (50%) of the voting power of the corporation
existing
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following the merger or consolidation, then for purposes of this Plan, the
Company shall be the surviving corporation. In all other cases, the Company
shall not be the surviving corporation. In making the determination of ownership
by the shareholders of a corporation immediately after the merger or
consolidation, of equity securities pursuant to this Section 10.1(e), equity
securities which the shareholders owned immediately before the merger or
consolidation as shareholders of another party to the transaction shall be
disregarded. Further, for purposes of this Section 10(e) only, outstanding
voting securities of a corporation shall be calculated by assuming the
conversion of all equity securities convertible (immediately or at some future
time) into shares entitled to vote.

(f) Par Value Changes. In the event of a change in the Stock of the Company
as presently constituted which is limited to a change of all of its authorized
shares with par value, into the same number of shares without par value, or a
change in the par value, the shares resulting from any such change shall be
"Stock" within the meaning of the Plan.

(g) Decision of Administration Final. To the extent that the foregoing
adjustments relate to stock or securities of the Company, such adjustments shall
be made by the Administrator, whose determination in that respect shall be
final, binding and conclusive; provided that each Incentive Stock Option granted
pursuant to the Plan shall not be adjusted in a manner that causes such Stock
Option to fail to continue to qualify as an Incentive Stock Option.

(h) No Other Rights. Except as hereinbefore expressly provided in this
Article 10, no Rights holder shall have any rights by reason of any subdivision
or consolidation of shares of Stock or the payment of any dividend or any other
increase or decrease in the number of shares of Stock of any class or by reason
of any liquidating event, merger, or consolidation of assets or stock of another
corporation, or any other issue by the Company of shares of stock of any class,
or securities convertible into shares of stock of any class; and except as
provided in this Article 10, none of the foregoing events shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Stock subject to Rights. The grant of a Right pursuant to the Plan
shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structures or to merge or to consolidate or to dissolve, liquidate or
sell, or transfer all or part of its business or assets.

(i) No Rights as Shareholder. Except as specifically provided in this
Article 10, a Rights holder or a transferee of a Right shall have no rights as a
shareholder with respect to any shares covered by the Rights until the date of
the issuance of a Stock certificate to him or her for such shares, and no
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions of other rights for which
the record date is prior to the date such Stock certificate is issued, except as
provided in Section 10.1(b) or 10.1(c).

ARTICLE 11

AMENDMENT AND TERMINATION

The Board may, at any time, amend, alter or discontinue the Plan, but no
amendment, alteration or discontinuation shall be made which would impair the
rights of a Participant under any Right theretofore granted without such
Participant's consent. Stockholder approval for amendments to the Plan shall be
obtained in such a manner and to such degree as required to comply with all
applicable laws and regulations.

The Administrator may amend the terms of any Right theretofore granted,
prospectively or retroactively, but, subject to Article 3, no such amendment
shall impair the rights of any Participant under any Right theretofore granted
without such Participant's consent.

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ARTICLE 12

GENERAL PROVISIONS

SECTION 12.1 General Restrictions.

(a) No View to Distribute. The Administrator may require each person
purchasing shares of Stock pursuant to the Plan to represent to and agree with
the Company in writing that such person is acquiring the shares without a view
to distribution thereof. The certificates for such shares may include any legend
which the Administrator deems appropriate to reflect any restrictions on
transfer.

(b) Legends. All certificates for shares of Stock delivered under the Plan
shall be subject to such stop transfer orders and other restrictions as the
Administrator may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed and any applicable federal or state securities
laws, and the Administrator may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.

SECTION 12.2 Other Compensation Arrangements.

Nothing contained in this Plan shall prevent the Board from adopting other
or additional compensation arrangements, subject to shareholder approval if such
approval is required; and such arrangements may be either generally applicable
or applicable only in specific cases.

SECTION 12.3 Withholding Taxes.

(a) Withholding Required. Each Participant shall, no later than the date as
of which the value of a Right first becomes includable in the gross income of
the Participant for federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Administrator regarding payment of, any
federal, state or local taxes of any kind required by law to be withheld with
respect to the Right or its exercise. The obligations of the Company under the
Plan shall be conditioned upon such payment or arrangements and the Participant
shall, to the extent permitted by law, have the right to request that the
Company deduct any such taxes from any payment of any kind otherwise due to the
Participant.

(b) Withholding Right. The Administrator may, in its discretion, grant a
Rights holder the right (a "Withholding Right") to elect to make such payment by
irrevocably requiring the Company to withhold from shares issuable upon exercise
of the Right that number of full shares of Common Stock having a Fair Market
Value on the Tax Date (as defined below) equal to the amount (or portion of the
amount) required to be withheld. The Withholding Right may be granted with
respect to all or any portion of the Right.

(c) Exercise of Withholding Right. To exercise a Withholding Right, the
Rights holder must follow the election procedures set forth below, together with
such additional procedures and conditions as may be set forth in the related
Rights agreement or otherwise adopted by the Administrator:

(i) The Rights holder must deliver to the Company his or her written
notice of election (the "Election") to have the Withholding Right apply to
all (or a designated portion) of his or her Right.

(ii) The Election must be delivered to the Company not less than 20
days before the date of exercise of the Right to which it relates;

(iii) unless disapproved by the Administrator as provided in
Subsection (iv) below, the Election once made will be irrevocable; and

(iv) no Election is valid unless the Administrator consents to the
Election; the Administrator has the right and power, in its sole
discretion, with or without cause or reason therefor, to consent to the
Election, to refuse to consent to the Election, or to disapprove the
Election; and if the Administrator has not consented to the Election on or
prior to the date that the amount of tax to be withheld is, under
applicable federal income tax laws, fixed and determined by the Company
(the "Tax Date"), the Election will be deemed approved.

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(d) Effect. If the Administrator consents to an Election of a Rights
Holder's Withholding Right, then upon the exercise of the Right (or any portion
thereof) to which the Withholding Right relates, the Company will withhold from
the shares otherwise issuable that number of full shares of Stock having an
actual Fair Market Value equal to the amount (or portion of the amount, as
applicable) required to be withheld under applicable federal and/or state income
tax laws as a result of the exercise.

SECTION 12.4 Indemnification.

In addition to such other rights of indemnification as they may have as
Directors or members of the Committee, and to the extent allowed by applicable
law, the Administrators shall be indemnified by the Company against the
reasonable expenses, including attorney's fees, actually incurred in connection
with any action, suit or proceeding or in connection with any appeal therein, to
which they or any one of them may be party by reason of any action taken or
failure to act under or in connection with the Plan or any option granted under
the Plan, and against all amounts paid by them in settlement thereof (provided
that the settlement has been approved by the Company, which approval shall not
be unreasonably withheld) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such Administrator did
not act in good faith and in a manner which such person reasonably believed to
be in the best interests of the Company, and in the case of a criminal
proceeding, had no reason to believe that the conduct complained of was
unlawful; provided, however, that within 60 days after institution of any such
action, suit or proceeding, such Administrator shall, in writing, offer the
Company the opportunity at its own expense to handle and defend such action,
suit or proceeding.

SECTION 12.5 Loans.

The Company may make loans to Optionees and Offerees as the Administrator,
in its discretion, may determine in connection with the exercise of outstanding
Stock Options and Purchase Rights granted under the Plan. Such loans shall (i)
be evidenced by promissory notes entered into by the holders in favor of the
Company; (ii) be subject to the terms and conditions set forth in this Section
12.5 and such other terms and conditions, not inconsistent with the Plan, as the
Administrator shall determine; and (iii) bear interest, if any, at such rate as
the Administrator shall determine. In no event may the principal amount of any
such loan exceed the Exercise Price or the Purchase Price less the par value of
the shares of Stock covered by the Stock Option or Purchase Right, or portion
thereof, exercised by the Optionee or Offeree. The initial term of the loan, the
schedule of payments of principal and interest under the loan, the extent to
which the loan is to be with or without recourse against the holder with respect
to principal and applicable interest and the conditions upon which the loan will
become payable in the event of the holder's termination of employment shall be
determined by the Administrator; provided, however, that the term of the loan,
including extensions, shall not exceed 10 years. Unless the Administrator
determines otherwise, when a loan shall have been made, shares of Stock having a
Fair Market Value at least equal to the principal amount of the loan shall be
pledged by the holder to the Company as security for payment of the unpaid
balance of the loan and such pledge shall be evidenced by a pledge agreement,
the terms of which shall be determined by the Administrator, in its discretion;
provided, however, that each loan shall comply with all applicable laws,
regulations and rules of the Board of Governors of the Federal Reserve System
and any other governmental agency having jurisdiction.

SECTION 12.6 Termination of Employment.

Except as provided in this Section 12.6, no Right may be exercised unless
the Rights Holder is then a Director of the Company, or in the employ of the
Company or any Parent or Subsidiary, or rendering services as a consultant to
the Company or any Parent or Subsidiary, and unless he or she has remained
continuously so employed since the Date of Grant. If the employment or services
of a Rights holder shall terminate (other than by reason of a Special
Terminating Event), all Rights previously granted to the Rights holder which are
exercisable at the time of such termination may be exercised for the period
ending ninety days after such termination, unless otherwise provided in the
Rights agreement; provided, however, that no Right may be exercised following
the date of its expiration. Nothing in the Plan or in any Right granted pursuant
to the Plan shall confer upon an employee any right to continue in the employ of
the Company or any Parent or Subsidiary or interfere in any way with the right
of the Company or any Parent or Subsidiary to terminate such employment at any
time.
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SECTION 12.7 Special Terminating Events.

If a Special Terminating Event occurs, all Rights theretofore granted to
such Rights holder may, unless earlier terminated in accordance with their
terms, be exercised by the Rights holder or by his or her estate or by a person
who acquired the right to exercise such Right by bequest or inheritance or
otherwise by reason of the death or Disability of the Rights holder, at any time
within one year after the date of the Special Terminating Event. Notwithstanding
the foregoing, an Incentive Stock Option and any SAR granted in relation to an
Incentive Stock Option shall only be exercisable at any time within three months
after the date of Retirement or termination of employment of an Optionee.

SECTION 12.8 Non-Transferability of Rights.

Unless otherwise approved by the Administrator, Rights granted under the
Plan shall not be transferable otherwise than by will or by the laws of descent
and distribution or pursuant to a qualified domestic relations order (as defined
in the Code), and Rights may be exercised, during the lifetime of the Rights
holder, only by the Rights holder or by his or her guardian or legal
representative.

SECTION 12.9 Regulatory Matters.

Each Rights agreement shall provide that no shares shall be purchased or
sold thereunder unless and until (A) any then applicable requirements of state
or federal laws and regulatory agencies shall have been fully complied with to
the satisfaction of the Company and its counsel, and (B) is required to do so by
the Company, the Optionee or Offeree shall have executed and delivered to the
Company a letter of investment intent in such form and containing such
provisions as the Board or Committee may require.

SECTION 12.10 Recapitalizations.

Each Stock Option and Purchase Right Agreement shall contain provisions
required to reflect the provisions of Article 10.

SECTION 12.11 Delivery.

Upon exercise of a Right granted under this Plan, the Company shall issue
Stock or pay any amounts due within a reasonable period of time thereafter.
Subject to any statutory obligations the Company may otherwise have, for
purposes of this Plan, thirty days shall be considered a reasonable period of
time.

SECTION 12.12 Other Provisions.

The Rights agreements authorized under the Plan may contain such other
provisions not inconsistent with this Plan, including, without limitation,
restrictions upon the exercise of the Rights, as the Administrator may deem
advisable.

ARTICLE 13

EFFECTIVE DATE OF PLAN

The Plan shall become effective on the date on which the Plan is adopted by
the Board and approved by its shareholders. Any Right granted before the
approval of the Plan by the Company's shareholders shall be expressly
conditioned upon, and shall not be exercisable until, such approval is obtained.

ARTICLE 14

TERM OF PLAN

No Right shall be granted pursuant to the Plan on or after January 1, 2002,
but Rights theretofore granted may extend beyond that date.

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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

THE SPORTS CLUB COMPANY, INC.

We hereby appoint D. Michael Talla, Timothy O'Brien, Lois Barberio,
or any one of them acting in the absence of the others, as proxyholders, each
with the power to appoint his or her substitute, and hereby authorize them to
represent and to vote, as designated on the reverse side, all the shares of
common stock of The Sports Club Company, Inc. held of record by me/us on
June 24, 1998, at the Annual Meeting of Stockholders to be held on July 31,
1998, or any adjournment thereof.

This proxy when properly executed will be voted in the manner directed
on the reverse side. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
EACH OF THE NOMINEES LISTED ON THE REVERSE SIDE AND FOR AMENDMENT TO THE
COMPANY'S 1994 STOCK INCENTIVE PLAN. This proxy will be voted in the discretion
of the proxyholders upon such other business as may properly come before the
Annual Meeting of Stockholders or any adjournment thereof.

(PLEASE VOTE AND SIGN ON THE OTHER SIDE)

DEFR14A Last Page of 37 TOC 1st Previous Next ↓Bottom Just 37th

Please mark your
A [X] votes as in this
example.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING:

[Enlarge/Download Table]

WITHHOLD
FOR AUTHORITY FOR AGAINST ABSTAIN
1. Election of 2. Approve amendment to Company's [ ] [ ] [ ]
Class I [ ] [ ] 1994 Stock Incentive Plan.
Directors The undersigned hereby acknowledges receipt of the Proxy
Statement dated July 2, 1998 and hereby revokes any proxy
NOMINEES: Brian J. Collins, Andrew L. Turner or proxies heretofore given to vote shares at said meeting
and John M. Gibbons or any adjournment thereof.

(INSTRUCTIONS: To withhold authority to vote for
any individual, write that nominee's name on the PLEASE DATE, SIGN AND RETURN PROMPTLY IN THE
line provided:) ENCLOSED SELF-ADDRESSED, POSTAGE PAID ENVELOPE.

________________________________________________

SIGNATURE__________________________________________ DATE_____________ _________________________________________ DATE_____________
Please sign exactly as name appears hereon Signature if held jointly

NOTE: Both should sign if shares are held in joint tenancy. If signing as attorney, executor, administrator, trustee or guardian,
give full title; if a corporation, sign full corporate name by President or authorized officer; if a partnership, sign
partnership name by authorized person.

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘DEFR14A’ Filing	Date	First	Last	Other Filings

	10/20/04	19
	1/1/02	35
	12/31/01	7		10-K405
	12/31/00	14		10-K
	3/4/99	22		SC 13G/A
	7/31/98	2	36
	7/10/98
Filed on:	7/2/98	2	37
	6/30/98	15		10-Q, DEF 14A
	6/24/98	3	36
	6/3/98	6	24
	6/1/98	15
	5/31/98	6	19
	5/18/98	22
	4/15/98	22		8-K
	4/14/98	16
	4/3/98	20
	3/31/98	20		10-Q, 10-Q/A
	1/12/98	21
	12/31/97	4	23	10-K405, 4, 8-K
	9/12/97	21
	6/11/97	21
	6/1/97	11
	5/27/97	15
	4/3/97	20
	3/27/97	21
	3/25/97	21
	2/12/97	21
	1/28/97	21
	1/1/97	20
	12/31/96	12		10-K405, 10-K405/A
	8/1/96	10	20
	4/24/96	13	15
	12/31/95	12
	10/21/95	15
	8/14/95	11
	7/5/95	13	14
	7/1/95	11	15
	2/27/95	13	15
	10/13/94	18
	8/10/94	14
	1/4/93	19
				List all Filings

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Filing Submission 0000950148-98-001630 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Sports Club Co Inc – ‘DEFR14A’ on 7/2/98

As of: Thursday, 7/2/98 · Accession #: 950148-98-1630 · File #: 1-13290

Revised Definitive Proxy Solicitation Material — Schedule 14AFiling Table of Contents

Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Revised Definitive Proxy Solicitation Material — Schedule 14A
Filing Table of Contents