defa14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o Definitive Proxy Statement
þ Definitive Additional Materials
o Soliciting Material Pursuant to §240.14a-12
BALLY TOTAL FITNESS HOLDING CORPORATION
(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):
þ No fee required.
o Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
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:
o Fee paid previously with preliminary materials.
o 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 paid 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.:
3) Filing Party:
4) Date Filed:
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SEC 1913 (11-01)
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Persons who are to respond to the collection of
information contained in this form are not required to
respond unless the form displays a currently valid OMB
control number. |
Attached hereto is a letter dated January 6, 2006 from Paul A. Toback, Chairman and CEO of Bally,
to stockholders accompanied by Ballys WHITE proxy card. Such materials were mailed to
stockholders on January 6, 2006.
Important Additional Information Filed with the SEC
On
December 27, 2005, as amended on January 9, 2006, Bally filed a definitive proxy statement with
the SEC. The proxy statement was mailed to Bally stockholders on December 28, 2005. INVESTORS AND
STOCKHOLDERS ARE URGED TO READ THE PROXY STATEMENT CAREFULLY BECAUSE IT CONTAINS IMPORTANT
INFORMATION ABOUT BALLY. Investors and stockholders are able to obtain free copies of the Proxy
Statement and other documents filed with the Securities and Exchange Commission (the SEC) by
Bally through the web site maintained by the SEC at www.sec.gov. In addition, investors and
stockholders are able to obtain free copies of the Proxy Statement and other documents filed with
the SEC by Bally by directing a request to Bally Total Fitness Holding Corporation, 8700 West Bryn
Mawr Avenue, Chicago, Illinois 60631, Attention: Investor Relations: Proxy Request.
LISTING OF PERSONS WHO MAY BE DEEMED PARTICIPANTS IN THE SOLICITATION AND CERTAIN INFORMATION
CONCERNING SUCH PERSONS IS SET FORTH IN THE COMPANYS DEFINITIVE PROXY STATEMENT DATED DECEMBER 27,
2005, AS AMENDED ON JANUARY 9, 2006, WHICH MAY BE OBTAINED THROUGH THE WEB SITE MAINTAINED BY THE
SEC AT www.sec.gov.
January 6, 2006
Dear
Shareholder:
Bally Total Fitness recently mailed you its proxy statement for the Companys January 26, 2006
shareholder meeting. We urge you to vote your proxy in support of Ballys Board of Directors and
management team, which has made significant progress in turning around and transforming the
Companys business. We also will provide some insights into what we believe are the questionable
motives underlying other proxy proposals that we believe are designed to advance the interests of a
narrow group of shareholders rather than benefiting the Company or the majority of shareholders.
When new management began running Bally three years ago, we established three important
goals:
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Turn around the Companys sagging operational performance, |
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Restore confidence in the integrity of the financial statements, and |
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Address the Companys debt-heavy capital structure we inherited. |
As our recent restatements clearly demonstrate, we have made significant progress on all
three of these critical goals and have made Bally better operationally, stronger financially, and
more credible with auditors, regulators and investors. In addition, with the recently announced
strategic process being led by J.P. Morgan Securities Inc. and The Blackstone Group, we are also
addressing the last major near-term issue facing Bally.
We have structured this letter as a series of questions and answers to help frame the issues
and inform your thinking about how to cast your vote with regard to your Bally shares.
Q: What is the track record of Ballys current management team?
A: Management has made tremendous progress in turning Bally around, significantly growing
operating income and correcting an extraordinary number of past accounting issues. The Companys
recently reported results clearly tell the story of this teams success. Almost all financial
measures have dramatically improved in the last three years. Costs are down, revenues are up, and
Bally is returning to profitability and is positioned for strong future performance.
A comparison of Ballys performance across key metrics from the periods 2000 through
the first nine months of 2005 shows compelling improvement across the board after the Companys
management changed in December 2002. (Note: Data is presented in thousands, except per member
data and fitness centers.)
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A Dramatic Improvement in Results |
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PREVIOUS MANAGEMENT |
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NEW MANAGEMENT |
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2000 |
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2001 |
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2002 |
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2003 |
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2004 |
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2005 |
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Performance Data |
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(Restated) |
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(Restated) |
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(Restated) |
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(Restated) |
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9 months only |
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Net revenues |
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$ |
735,560 |
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$ |
810,088 |
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$ |
937,847 |
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$ |
1,002,871 |
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$ |
1,047,988 |
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$ |
807,489 |
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Operating income (loss) before
impairment charges(1) |
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(20,776 |
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1,824 |
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(13,989 |
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35,231 |
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53,393 |
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61,697 |
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New members |
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891 |
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908 |
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935 |
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965 |
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1,165 |
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951 |
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End of period members |
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3,556 |
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3,541 |
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3,542 |
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3,616 |
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3,645 |
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3,676 |
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Average monthly membership
revenue recognized per
member |
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15.67 |
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16.70 |
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18.71 |
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19.11 |
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19.17 |
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19.70 |
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Fitness centers |
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384 |
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405 |
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410 |
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417 |
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416 |
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412 |
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(1) |
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The Company believes that this non-GAAP financial metric provides a better
understanding of the Companys current financial performance and the Companys prospects
for the future. Specifically, the Company believes the non-GAAP results provide useful
information to both management and investors by excluding non-cash impairment charges,
which may not be indicative of core operating results. A reconciliation of Operating
Income (Loss) Before Impairment Charges to Operating Income (Loss) is included at the end
of this letter. |
Q: Why is the Company pursuing a strategic alternatives process with J.P. Morgan
Securities Inc. and The Blackstone Group, and is this Board the best group to lead that
process?
A: In addition to executing our business plan, in order to strengthen operations, it is
imperative that we address the challenge our current capital structure poses. To that end, the
Board has retained two highly qualified advisors to run a fair, open and transparent process.
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This Board is committed to an independent and value-creating
strategic
alternatives process led by our independent directors. |
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We have engaged J.P. Morgan Securities Inc. and The Blackstone Group to
assist us in exploring a range of alternatives to enhance value for all of our
shareholders. These alternatives may include a recapitalization, the sale of
securities or assets of the Company, or the sale or merger of the Company
with another entity or strategic partner. |
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Bally management has no intention of putting together a proposal to
purchase the Company and has committed not to align itself with any
bidder in the process until a winning bidder has been chosen.
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Q: Why did management recently sell some of its holdings in Bally stock and why now?
A: Because the Company had been in a quiet period resulting from not filing financial statements
since May 2004, some members of management decided to sell certain holdings of previously
restricted Company stock in connection with personal tax planning or diversification needs.
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Management believes wholeheartedly in Ballys future, and the Companys
Directors and Officers as a group continue to collectively beneficially own
approximately 4.7% of Bally stock. |
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In the middle of 2005, Liberation caused most senior managements
restricted stock to vest when it acquired more than 10% of the Companys
stock. |
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That action created a tax liability for all but two of Ballys executives for
the 2005 tax year that in many cases was a six-figure liability. |
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In addition, due to the 18-month quiet period associated with restating
Ballys financials, the two weeks between December 1 and December 16,
2005 was the only window since May 2004 and until May 2006 during which
members of senior management could trade Bally stock. |
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Many of Ballys senior executives have most of their net worth in Bally
stock and have needed to diversify their holdings for some time. |
Q: Who are Pardus and Liberation? How could two new hedge funds with no track record in turning
around companies possibly create more value for Bally shareholders than the new Board and
management team that are fixing Bally on behalf of shareholders? What are Pardus and Liberations
plans for operating the business or conducting the strategic process?
A: Pardus and Liberation are both hedge funds with no publicly announced plan of their own to
manage Bally or sell or refinance the Company. Pardus and Liberation have agitated and attempted
to discredit Ballys management and Board. We believe they want to control the Company and the
strategic process without paying a control premium to all shareholders.
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Pardus wants effective control without paying a fair premium to Bally
shareholders and without a fair and transparent bidding process for such
control. |
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Pardus asked the Company to waive certain legal requirements under
Delaware law so that they could acquire as much as 30% of the Companys
stock. |
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Liberation began acquiring shares in the Company after new Bally
management terminated Emanuel Pearlmans longstanding consulting role
with the Company, during which he was a well-paid advisor to the
Company while Lee Hillman, Ballys former CEO and Pearlmans close
friend, was CEO. |
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From 1992 to 2003, Mr. Pearlman received at least $3.4 million from Bally,
an average of $283,000 per year, in consulting and investment advisory fees
for transactions he promoted for the Company and its affiliates, which
often proved to be ill conceived. |
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Pardus, a new hedge fund formed in 2005 by Karim Samii, a vulture
investor primarily in debt securities of bankrupt or troubled companies,
began acquiring Bally stock in July 2005. In return for its newly purchased
14% stake in the Company, Pardus demanded 5 of Ballys 9 board seatsnot
for truly independent representatives, but for a Pardus advisory
committee representative, a former business associate of the Pardus
principals and Don Kornstein, Mr. Pearlmans longtime associate. |
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Pardus has indicated that they would like to lead a private recapitalization
of the Company, and we believe their efforts in this contest are intended to
mostly benefit Pardus. |
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Principals of Pardus have met with management several times and each
time threatened that if they didnt get what they demanded they would
go to war with the Company and its Board and management. |
Q: Why wont the Company settle this dispute with Liberation and Pardus since it is distracting and
costly?
A. The Company has been attempting to settle for months and already agreed to take two of the
Pardus directors with no conditions. Pardus and Liberation have rejected every one of the
Companys offers and continue to insist on settlement terms that we believe are designed to
disrupt the strategic process.
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The proposals made by Ballys directors and management, some of which
have been made public, are more than fair and reasonable. We have
already agreed to nominate two of the directors Pardus proposed without
any conditions. That represents more than 20% of the Board, which seems
more than appropriate given that Pardus owns just slightly more than 14%
of the Companys stock. |
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Bally has offered Pardus and Liberation additional concessions privately
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settle this costly dispute, but they have refused all overtures, instead often
increasing their demands or adding new ones. |
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Pardus publicly asked the Board to appoint a special committee to control
the strategic process which the Pardus representatives would control while
at the same time Pardus expressed an interest in participating in a strategic
transaction that would need approval from that very committee. |
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Liberation, in particular, wants to immediately fire Ballys CEO despite
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improvement in the Companys results and while it is in the midst of a
strategic process to refinance and possibly sell the Company, during which
time uncertainties as to management stability could only hurt the process. |
Q: Are Pardus and Liberation working together in a concerted effort to disrupt our strategic
alternatives process?
A: You should consider the facts and reach your own conclusion:
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Liberation made repeated threats to replace Ballys Board members with
its own candidates but decided not to run any directors after Pardus
announced it would nominate a slate. Liberation just put forth a proposal
to fire Ballys CEO and solicit the authority to vote for the Pardus slate. |
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Pardus is promoting a slate with three directors, which includes one of
Mr.
Pearlmans old friends and colleagues, Don Kornstein. |
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Mr. Kornstein has known Mr. Pearlman for 17 years. In Mr. Kornsteins
capacity as CEO, President and a Director of Jackpot Enterprises, Inc., Mr.
Kornstein retained Mr. Pearlman to act as a financial advisor. |
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Mr. Pearlman nominated Mr. Kornstein, along with Mr. Hillman, to be on
his insurgent board slate for InterTAN, Inc. in 2003. |
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When finally confronted with imminent depositions and other discovery
ordered by the Delaware federal courts in litigation brought by Bally,
Liberation amended its proxy materials to admit that it had suggested Mr.
Kornstein to Pardus for the Pardus slate. |
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In 2002, Ballys CEO Lee Hillman proposed to the Bally Board that the
Company be sold to HealthSouth just months before HealthSouths
accounting fraud became public and its stock was delisted and its CEO
fired. The transaction would have had managements stock options
purchased by HealthSouth for cash, while other Bally shareholders were to
receive HealthSouth stock. Interestingly, a key financial advisor to Hillman
on that proposed transaction was Mr. Pearlman. |
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When the Bally Board refused Mr. Hillmans request to sell the Company
to HealthSouth (two of Ballys current directors were directors at that
time), Mr. Hillman attempted to put two of his friends on Ballys board of
directorsMr. Pearlman and Mr. Kornstein. The Board refused to add
either candidate to the Board. |
Q: Whom should Bally shareholders vote for and why?
A: We believe shareholders should vote Ballys WHITE proxy card for Ballys nominees. Because
we have made concessions without conditions and agreed to nominate two of Pardus candidates in an
attempt to avoid a contest, the current contest is really only about who is elected to the
remaining spot: Eric Langshur, the independent director who led the Audit Committee effort to
restate financials, or Don Kornstein, a loyalist of Mr. Pearlman, the friend of Ballys former
discredited CEO. We also believe you should give us your support to reject the Liberation
proposals, which, if enacted, could endanger the positive momentum at Bally and also could disrupt
or torpedo the strategic process already under way.
We think it all comes down to thisdo you want your Company to continue implementing a
well-conceived turnaround plan that is producing results and is based on deep knowledge of the
Bally business and the health and fitness industry? Or do you want to support a dissident former
employee who has been closely associated with a failed strategy that has since been repudiated,
working with a group that has no knowledge of the Companys business and no clear plan to take
Bally forward? We think the answer is clear: Vote FOR Ballys nominees to continue progress
under a plan that is working.
We strongly recommend that you vote FOR the Bally nominees by signing, dating and
returning the WHITE proxy card. We strongly urge you not to sign any green proxy card that may be
sent to you by Pardus Capital Management or a gold proxy card that may be sent to you by Liberation
Investments. If you have previously returned a green or gold proxy card, you can automatically
revoke it by signing, dating and returning the enclosed WHITE proxy card in the accompanying
envelope.
We appreciate your continued support, and if you need assistance or have any questions,
please call MacKenzie Partners toll-free at 800-322-2885 or collect at
212-929-5500.
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Sincerely,
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Paul
A. Toback |
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Chairman and CEO
Bally Total Fitness Holding Corporation |
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If you need assistance in voting your shares, please contact:
105 Madison Avenue
New York, NY 10016
proxy@mackenziepartners. com
Call collect: (212) 929-5500
or Toll-Free: (800) 322-2885
Reconciliation of Operating Income (Loss) Before Impairment Charges to Operating
Income (Loss):
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2000 |
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2001 |
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2002 |
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2003 |
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2005 |
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Performance Data |
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(Restated) |
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(Restated) |
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(Restated) |
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(Restated) |
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2004 |
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9 months |
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Operating income (loss) before impairment
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$ |
(20,776 |
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1,824 |
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(13,989 |
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35,231 |
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$ |
53,393 |
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$ |
61,697 |
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Impairment of goodwill and other intangibles |
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7,396 |
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1,801 |
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1,619 |
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54,505 |
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405 |
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Asset Impairment Charges |
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33,039 |
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26,281 |
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18,258 |
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19,605 |
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14,772 |
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Operating income (loss) |
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(61,211 |
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(26,258 |
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(33,866 |
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(38,879 |
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38,216 |
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61,697 |
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Important Additional Information
Forward-looking statements in this letter including, without limitation, statements
relating to the Companys plans, strategies, objectives, expectations, intentions, and adequacy
of resources, are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements involve known and unknown
risks, uncertainties, and other factors that may cause the actual results, performance or
achievements of the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements.
BALLY TOTAL FITNESS HOLDING CORPORATION
PROXY VOTING INSTRUCTION CARD
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Your vote is important. Casting your vote in one of the three ways described on
this instruction card votes all shares of Common Stock of Bally Total Fitness Holding
Corporation that you are entitled to vote. |
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Please consider the issues discussed in the proxy statement and cast your vote
by: |
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Via Internet |
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Accessing the World Wide Web site http://www.cesvote.com and follow the instructions to
vote via the internet. |
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By Phone |
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Using a touch-tone telephone to vote by phone toll free from the U.S. or Canada. Simply
dial 1-888-693-8683 and follow the instructions. When you are finished voting, your vote
will be confirmed, and the call will end. |
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By Mail |
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Completing, dating, signing and mailing the white proxy card in the postage-paid
envelope included with the proxy statement. |
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You can vote by phone or via the internet any time prior to 11:59 p.m. Eastern Time,
January 25, 2006. You will need the control number printed at the top of this
instruction card to vote by phone or via the internet. If you do so, you do not need to
mail in your proxy card. |
ê FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY BY MAIL ê
WHITE PROXY
BALLY TOTAL FITNESS HOLDING CORPORATION
8700 West Bryn Mawr Avenue, Chicago, Illinois 60631
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Marc D. Bassewitz and Harold Morgan, or either of them,
proxies of the undersigned, each with full power of substitution, to vote all shares of the
undersigned at the annual meeting of stockholders of Bally Total Fitness Holding Corporation to be
held at 8:30 a.m. (local time) on January 26, 2006 at the Renaissance Chicago OHare Hotel, 8500
West Bryn Mawr Avenue, Chicago, Illinois, or at any postponement(s) or adjournment(s) thereof.
The Board of Directors recommends a vote FOR proposal numbers 1, 2, 3 and 5.
The Board of Directors recommends you ABSTAIN from voting for or against proposal number 4.
This proxy, when properly executed, will be voted in the manner directed herein by the
undersigned stockholder. If no direction is made, this proxy will be voted as follows: for
proposal numbers 1, 2 and 3, abstain from voting for or against proposal number 4, and in favor of
granting discretionary authority on proposal number 5. SEE REVERSE SIDE.
(Comments/Change of Address)
(If you have written in the above space, please mark the corresponding box on the reverse side.)
ENTRANCE PASS ANNUAL MEETING OF STOCKHOLDERS
This is an entrance pass for the Annual Meeting
of Stockholders of Bally Total Fitness Holding Corporation.
In order to attend the annual meeting, you must bring this pass with you.
ê FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY BY MAIL ê
BALLY TOTAL FITNESS HOLDING CORPORATION PLEASE MARK VOTE IN SQUARE IN THE FOLLOWING MANNER USING DARK INK ONLY. n
The Board of Directors recommends a vote FOR ALL the below nominees.
1. |
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Election of the following Class III Director nominees for three-year terms expiring in
2008: |
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Eric Langshur
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Charles J. Burdick
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Barry R. Elson |
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For
All
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Withhold
All
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For All
Except
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Instruction: To withhold authority to vote for any individual nominee, mark the For All Except
box and write the name(s) of the nominee(s) you do not support on the line below. Your shares will
be voted for the remaining nominee(s).
Nominee Exception
The Board of Directors recommends a vote FOR the approval of the 2006 Omnibus Equity
Compensation Plan.
2. |
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Approval of the 2006 Omnibus Equity Compensation Plan |
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FOR o
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AGAINST o |
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ABSTAIN o
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Comments/Change of Address o
The Board of Directors recommends a vote FOR the ratification of the appointment of KPMG LLP.
3. |
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Ratification of the appointment of KPMG LLP as independent auditor for the Company for
the fiscal year ending December 31, 2005 |
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FOR o
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AGAINST o |
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ABSTAIN o
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The Board of Directors recommends that you vote to ABSTAIN with respect to the below
stockholder proposal.
4. |
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Proposal to repeal provisions in the Companys By-laws if any, adopted without
stockholder approval after May 25, 2005 and prior to the annual meeting. |
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FOR o
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AGAINST o |
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ABSTAIN o
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The Board of Directors recommends that you vote FOR the granting of discretion on the
Liberation Proposal, if properly brought before the meeting and all other proposals that properly
come before the meeting.
5. |
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In their discretion on all other matters as may properly come before the annual meeting,
including the Liberation Proposal and any motion to adjourn or postpone the meeting or other
matters incidental to the conduct of the meeting. |
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FOR o
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AGAINST o |
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ABSTAIN o
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Signature (if held jointly)
Note: Please sign as name appears hereon.
Joint owners should each sign. When
signing as attorney, executor,
administrator, trustee, or guardian,
please give full title as such.