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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [X]
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 Rule 14a-11(c) or Rule 14a-12
BALLY TOTAL FITNESS HOLDING CORPORATION
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(Name of Registrant as Specified In Its Charter)
PARDUS EUROPEAN SPECIAL OPPORTUNITIES MASTER FUND L.P., PARDUS CAPITAL
MANAGEMENT L.P., PARDUS CAPITAL MANAGEMENT LLC, KARIM SAMII, JOSEPH R.
THORNTON, CHARLES J. BURDICK, BARRY R. ELSON AND DON R. KORNSTEIN
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(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)(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:____________________________________________________________
[_] 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 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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On January 23, 2006 Pardus European Special Opportunities Master Fund
L.P., a limited partnership formed under the laws of the Cayman Islands (the
"Fund"), Pardus Capital Management L.P., a Delaware limited partnership ("PCM"),
Pardus Capital Management LLC, a Delaware limited liability company ("PCM LLC")
and Mr. Karim Samii, the sole member of PCM LLC, filed Amendment Number 16 (the
"Amendment") to the Schedule 13D (as amended, the "Schedule 13D") originally
filed by PCM with the Securities and Exchange Commission on September 6, 2005.
The Amendment amends the previously filed Item 4 disclosure in the Schedule 13D
by adding the following:
"On January 23, 2006, the Fund filed two letters to Company
stockholders with the Securities and Exchange Commission, urging such
stockholders to support the Fund's nominees for election to the Company's board
of directors and to vote according to the Fund's recommendation on a number of
other proposals in connection with the 2005 annual meeting of stockholders to be
held on January 26, 2006. Copies of the letters to Company stockholders have
been attached hereto as Exhibits 19 and 20.
Except as otherwise described in this Item 4 of this Schedule 13D, as
amended, the acquisition of the Shares by the Fund is for investment purposes on
behalf of the Fund."
On January 23, 2006, the Fund filed two letters to stockholders of
Bally Total Fitness Holding Corporation (the "Company") with the Securities and
Exchange Commission urging such stockholders to support the Fund's nominees for
election to the Company's board of directors and to vote according to the Fund's
recommendation on a number of other proposals in connection with the 2005 annual
meeting of stockholders to be held on January 26, 2006. A copy of the letters to
Company stockholders have been attached hereto as Exhibits 1 and 2.
The Fund is the beneficial owner of 5,500,000 shares of the common
stock, par value $0.01 per share (the "Shares"), of the Company, including 1000
shares of common stock owned of record in the name of the Fund and 1000 shares
of common stock owned of record in the name Pardus Capital A/C Pardus European
Special Opportunities Master Fund L.P. PCM serves as the investment manager of
the Fund and possesses sole power to vote and direct the disposition of all
Shares held by the Fund. PCM LLC, as the general partner of PCM, and Mr. Karim
Samii, as the sole member of PCM LLC, may be deemed to be the beneficial owners
of all the Shares held by the Fund; however, PCM LLC and Mr. Karim Samii
disclaim beneficial ownership of all the Shares held by the Fund. Mr. Joseph R.
Thornton, a portfolio manager of PCM, may also earn fees and incentive
allocations on account of the Fund's investment in the Shares. Charles J.
Burdick, Barry R. Elson and Don R. Kornstein do not beneficially own any
securities of the Company and, except for Mr. Kornstein and his wife's joint
0.39% ownership interest in Liberation Investments, L.P., the direct beneficial
owner of 2,848,213 shares of Company common stock, do not have any personal
ownership interest, direct or indirect, in any securities of the Company. Mr.
Burdick currently serves on the PCM Advisory Board which advises PCM and its
affiliates from time to time with respect to investment strategies, assessing
business viability, sourcing transactions and valuing potential investments. The
PCM Advisory Board members do not have any oversight responsibility or
discretion over the investments made by or on behalf of PCM and its affiliates
and the PCM Advisory Board members do not (except to the extent publicly
disclosed by the Fund) have any knowledge of the investments held by PCM and its
affiliates from time to time. Mr. Burdick does not receive and is not entitled
to any
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compensation or remuneration for serving on the PCM Advisory Board from the Fund
or any of its affiliates. The PCM Advisory Board members have the ability to
invest up to an aggregate of $10,000,000 in the Fund and certain of its
affiliates. Mr. Burdick does not have any investment interest in the Fund or any
of its affiliates.
The persons filing this Schedule 14A are PCM, the Fund, PCM LLC and
Messrs. Samii, Thornton, Burdick, Elson and Kornstein (collectively, the
"Reporting Persons"). Based on information provided by the Company, as of
December 20, 2005 there were 38,285,905 shares of the Company's common stock
issued and outstanding. Thus, the Fund and PCM are deemed to beneficially own,
and PCM LLC and Mr. Karim Samii may be deemed to beneficially own, 5,500,000
Shares, or approximately 14.4% of the shares of the Company's issued and
outstanding common stock.
SECURITY HOLDERS ARE ADVISED TO READ THE DEFINITIVE PROXY STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 27, 2005 AND OTHER DOCUMENTS
RELATED TO SOLICITATION OF PROXIES BY THE REPORTING PERSONS BECAUSE THEY CONTAIN
IMPORTANT INFORMATION. A DEFINITIVE PROXY STATEMENT AND A FORM OF PROXY HAVE
BEEN MAILED TO STOCKHOLDERS OF THE COMPANY AND ARE AVAILABLE AT NO CHARGE AT THE
SECURITIES AND EXCHANGE COMMISSION'S WEBSITE AT HTTP://WWW.SEC.GOV. INFORMATION
RELATING TO THE PARTICIPANTS IN A PROXY SOLICITATION IS CONTAINED IN THIS
SCHEDULE 14A AND THE SCHEDULE 13D FILED BY PCM WITH THE SECURITIES AND EXCHANGE
COMMISSION ON SEPTEMBER 6, 2005, AS AMENDED BY AMENDMENT NO. 1, DATED SEPTEMBER
6, 2005, AMENDMENT NO. 2, DATED SEPTEMBER 6, 2005, AMENDMENT NO. 3, DATED
SEPTEMBER 8, 2005, AMENDMENT NO. 4, DATED SEPTEMBER 15, 2005, AMENDMENT NO. 5,
DATED SEPTEMBER 23, 2005, AMENDMENT NO. 6, DATED OCTOBER 6, 2005, AMENDMENT NO.
7, DATED OCTOBER 17, 2005, AMENDMENT NO. 8, DATED OCTOBER 24, 2005, AMENDMENT
NO. 9, DATED NOVEMBER 17, 2005, AMENDMENT NO. 10, DATED NOVEMBER 23, 2005,
AMENDMENT NO. 11, DATED DECEMBER 8, 2005, AMENDMENT NO. 12, DATED DECEMBER 29,
2005, AMENDMENT NO. 13, DATED JANUARY 10, 2006, AMENDMENT NO. 14, DATED JANUARY
12, 2006, AMENDMENT NO. 15, DATED JANUARY 17, 2006, AND AMENDMENT NO. 16, DATED
JANUARY 23, 2006, FILED BY THE FUND, PCM, PCM LLC AND MR. SAMII (AS AMENDED, THE
"SCHEDULE 13D"), WITH RESPECT TO BALLY TOTAL FITNESS HOLDING CORPORATION. THE
SCHEDULE 13D IS CURRENTLY AVAILABLE AT NO CHARGE ON THE SECURITIES AND EXCHANGE
COMMISSION'S WEBSITE AT HTTP://WWW.SEC.GOV.
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3
EXHIBIT 1
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PARDUS EUROPEAN SPECIAL OPPORTUNITIES MASTER FUND L.P.
C/O PARDUS CAPITAL MANAGEMENT L.P.
1001 AVENUE OF THE AMERICAS, SUITE 1100
NEW YORK, NY 10018
January 23, 2006
Dear Fellow Bally Stockholder:
We own 5,500,000 shares of common stock of Bally Total Fitness Holding
Corporation (the "Company" or "Bally") and are Bally's largest stockholder. You
should have received our proxy materials urging you to elect our candidates to
the board of directors at Bally, and to support our positions on various other
proposals at the 2005 annual meeting of stockholders on January 26th. We believe
that management has placed Bally's stockholders at grave risk and we need your
support to put things right. OUR INTERESTS ARE ALIGNED WITH YOURS. Our program
for Bally is simple:
o Stop management from diluting your ownership and lining its pockets at
your expense.
o Restore proper corporate governance and oversight at Bally.
o Maximize stockholder value now.
As our proxy materials and other public filings indicate, we have been extremely
disappointed with the current board and management team. We are deeply concerned
for Bally's future. We stockholders are the ones at risk. We believe management
has consistently exercised poor judgment and the board has demonstrated equally
poor oversight and direction. As stockholders, we all deserve better. The time
has come for a change.
THE CURRENT BOARD AND MANAGEMENT TEAM HAVE CONSISTENTLY
DEMONSTRATED POOR JUDGMENT
Consider the following examples of how Bally's board and management have
exercised poor judgment:
o POOR JUDGMENT: MANAGEMENT'S THREATS TO TRIGGER THE POISON PILL. On
December 23, 2005, Bally's management threatened to trigger the
Company's poison pill. Bally then sued Pardus, its principals and one
of our director nominees on January 11 and sought discovery to attempt
to find evidence that the Company's rights plan had been triggered -
evidence that we believe does not exist. We do not believe a company
has ever triggered a poison pill in the context of a proxy contest, a
view confirmed by statements made by Bally's counsel in a recent
hearing in Delaware Chancery Court. Because such an action appears to
be unprecedented and because we have taken no action that could
conceivably have
2
triggered the Plan, in our view the Company has absolutely no basis for
triggering the Company's poison pill. We believe such an action would
likely lead to significant litigation and create uncertainty for the
Company and its stockholders. Taking such unprecedented action would
threaten disruption of the ongoing sale process, adversely impact
stockholder value and potentially render the Company unable to
refinance its debt. Indeed, the Company's legal counsel recently
informed the Delaware Chancery Court that he would expect that Bally
would be sued within 12 or 24 hours of triggering the pill.
o Moreover, you should be aware that we believe the Company's recent
public assertions that it sought a "declaration" from the Delaware
Chancery Court "as to whether Pardus and Liberation have undisclosed
agreements, arrangements or understandings ... which might result in
Bally's Stockholder Rights Plan being triggered" are not accurate. The
Company's court papers and statements made by its counsel in Court
confirm that the Company has not requested any such declaration that
the Rights Plan had been triggered. In fact, the Company asked the
Court for expedited discovery in order to determine WHETHER there might
be a basis to argue that the Plan had been triggered. As Bally's
counsel told the Delaware Chancery Court, "If we don't find anything
and there is no evidence of a group, it all goes away."
o POOR JUDGMENT: MANAGEMENT'S STOCK SALES. Mr. Paul Toback, your
President, CEO and Chairman sold most of his holdings of Bally's common
stock THE DAY AFTER the earnings release and conference call in which
he trumpeted the size of his stake in the Company. We estimate that Mr.
Toback sold $2.9 million in those trades. We don't understand why Mr.
Toback would sell in light of his claim of good operating results and
the announcement of J.P. Morgan's engagement to sell the Company,
presumably at a premium. We do not think it is fair for him to sell his
stock and then ask Bally's stockholders to approve a new equity
compensation plan.
o POOR JUDGMENT: THREATENED DILUTION. As the largest stockholder of Bally
we oppose any dilutive transaction. In this respect, when we started
accumulating shares on July 11, 2005, the number of shares outstanding
was 34.1 million shares versus the 38.3 million outstanding today. As a
result of the Company's inability to meet extended deadlines it
previously agreed to for filing its financial statements, it was forced
to engage in a bondholder consent solicitation in July 2005, entered
into additional consent agreements with certain bondholders in August
2005 and then engaged in a subsequent consent solicitation in October
2005 with those bondholders who were not a party to the August 2005
consent agreements, the net result of which the Company issued 2.5
million shares and paid $7.8 million in cash. Based on the Company's
current stock price, we estimate the total cost of these consent
solicitation payments at $25.6 million, not counting further millions
spent on lawyers and advisors. Since March 2005, management received
half a million additional shares and options. Any further dilution is
unacceptable. The proposed new equity incentive package is unacceptable
in its current form, as it would leave open a blank check for the
3
issuance of another 1.75 million shares with NO assurance that the
board will place proper limits on equity grants or align management
incentives with those of stockholders. We have been steadfast in our
insistence that appropriate performance hurdles accompany any grants of
new equity to management. In our view, this has been one of the main
obstacles to a settlement between Pardus and Bally's management.
o POOR JUDGMENT: ALIENATION OF INVESTMENT COMMUNITY. The Company recently
held its first earnings call in 18 months, during which Mr. Toback
spent time criticizing another stockholder. Rather than focus on
forward-looking, value-creating opportunities, management chose to open
old wounds and rehash the past. We have lost confidence in his ability
to lead the Company, in the sale process or otherwise.
o POOR JUDGMENT: ASSET FIRE SALES. We believe management rushed to sell
Crunch at a discounted and undervalued deal price. The Company agreed
to sell Crunch for $45 million, which is half of what the Company paid
to acquire the fitness chain in 2001, at a time when the Company could
not provide potential buyers with normal representations and warranties
related to the asset. We believe this reflects either poor judgment
about how the capital markets work or, worse, a willingness to set a
low price on a Company asset. Given that the closing of the transaction
would occur after the Company released its financial results, we
believe that management owes Bally's stockholders an explanation as to
why it was necessary for management to agree to sell this asset so
cheaply. Why has management not optimized its real estate portfolio as
opposed to selling Crunch? With the possibility of a strategic
transaction on the horizon, what has management done to convince you
that it won't sell the entire Company too cheaply?
o POOR JUDGMENT: CRIPPLING THE STRATEGIC PROCESS. As previously discussed
in our December 8, 2005 letter to Bally's board of directors, a member
of the Company's board of directors confirmed to us that management
engaged in discussions with a private equity firm about a sale of all
or a substantial portion of the Company BEFORE it completed its
earnings restatement. Management stopped this inappropriate process
only after we began to question it.
o POOR JUDGMENT: FAILING TO MEET DEADLINES. Management failed to complete
the restatement of financials within the first waiver period obtained
from the Company's bondholders. We believe that management either
underestimated the length of time it needed to complete the restatement
when it paid for the first waiver or failed to address the problem with
bondholders early on in the process. Based on the Company's January 9,
2006 closing stock price, the bondholders ultimately received
approximately $25.6 million in total value from the Company in the form
of additional waiver fees. Is this management up to the challenges
facing Bally's in the future?
4
BALLY'S ATTEMPTS TO DISCREDIT PARDUS:
LET'S SET THE RECORD STRAIGHT
Bally would like you to believe that Pardus has been unreasonable in
settlement negotiations with the Company. UNTRUE. Our settlement proposal does
not involve any veto over the strategic process, it involves only minority
representation on the board, seeks no special benefit for Pardus, and would
permit both Mr. Langshur and Mr. Kornstein to serve on the board. The Company is
fully aware of these facts but we believe has chosen to distort the truth.
Bally's would like you to think that it is our objective to somehow buy
the Company cheaply. UNTRUE. We believe that due to the failures of management
the Company IS TRADING at a deep discount to its peers. We had asked management,
privately and publicly, to allow us to purchase more stock, to which they
responded with a poison pill. We believe our purchases, which we note would not
have given us a control position in the Company, would have resulted in a higher
share price and in turn allowed the Company to achieve a higher price in the
sale process. We find it ironic that management sold most of its shares and is
now asking for a grant of 1.75 million additional shares while at the same time
using a poison pill to stop stockholders from acquiring additional shares. We
are interested in seeing an open, fair sales process led by a truly independent
board committee that is not beholden to management or any other constituency. We
think this will lead to maximizing stockholder value.
Management would like you to believe that Mr. Kornstein is not
qualified to serve on Bally's board. UNTRUE. Mr. Kornstein's 17 year tenure as
an investment banker at Bear Stearns makes him particularly well-suited to lead
a restructuring, recapitalization or sale of the Company. Mr. Kornstein has
served on the boards of three publicly-traded companies and was responsible for
the successful restructuring and sale of three telecom and internet business of
First World Communications in 2000. While Mr. Langshur does not share the same
turnaround experience as Mr. Kornstein, we have proposed to the Company the
establishment of an independent board of directors that includes both Mr.
Kornstein and Mr. Langshur.
Management would like you to think Pardus is seeking control. UNTRUE.
We have proposed three highly qualified individuals who are independent of us.
Three out of nine directors does not constitute control.
Management would like you to think that the nomination of Mr. Burdick
and Mr. Elson was a concession to Pardus. UNTRUE. Bally conducted a search for
director nominees and interviewed Messrs. Burdick and Elson and found them to be
highly qualified individuals that should make a strong contribution to the
board. We do not think the board would have nominated these individuals if it
did not believe them to be the most qualified people they interviewed.
5
WE NEED YOUR HELP TO GET BALLY BACK ON TRACK
Supporting our nominees sends an important message that you refuse to tolerate
further erosion of the Company's stock value and irresponsible governance. The
time has come for a positive change.
Stockholders should ask themselves, where has the board been these past months?
We do not think the board has provided the oversight and direction that Bally's
needs. We have made several proposals that would empower the board:
o Separate the chairmanship from the CEO roles, in keeping with best
corporate practices.
o Create a fully empowered independent strategic board committee charged
with running the strategic process independent of management, subject
only to any transaction being approved by the full board of directors.
o Review recent management stock sales for propriety. We and others have
raised serious questions about Mr. Toback's stock sales, in light of
the other announcements he made to the market, the Company's later
financial statement corrections, his role in the sale process and his
knowledge of the other ongoing material matters involving the Company.
To date, the board has not looked into management stock sales, and they
have only recently adopted a few tentative reforms after months of requests from
stockholders. And the program they announced falls far short of delivering the
reform we think is needed at Bally. Why would the board NOT want these powers to
control and review management? This is your time to speak and send a message to
management and the board that Bally's stockholders are unhappy and want
fundamental change. Send that message now.
Vote FOR the Pardus nominees and in accordance with our recommendation
on the other proposals to be voted on at the upcoming annual meeting by signing,
dating and returning the enclosed GREEN proxy card.
Do not sign the white proxy card from Bally or the gold proxy card from
Liberation Investments. If you have already done so you may revoke your proxy by
delivering a later-dated GREEN proxy card in the enclosed postage-prepaid
envelope.
If you have any questions about voting, or for more information, please
call our proxy solicitors, D.F. King & Co., Inc., toll-free at 888-644-6071.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Very truly yours,
PARDUS EUROPEAN SPECIAL
OPPORTUNITIES MASTER FUND L.P.
By: Pardus Capital Management L.P., its
investment manager
By: Pardus Capital Management LLC, its
general partner
By: /s/ Karim Samii
------------------------------------
Name: Karim Samii
Title: Sole Member
IMPORTANT
On December 27, 2005, Pardus European Special Opportunities Master Fund L.P.,
Pardus Capital Management L.P., Pardus Capital Management LLC, Karim Samii,
Joseph R. Thornton, Charles J. Burdick, Barry R. Elson and Don R. Kornstein
filed a definitive proxy statement with the SEC to solicit proxies in connection
with the 2005 annual meeting of stockholders of Bally Total Fitness Holding
Corporation to be held on January 26, 2006. Company stockholders are encouraged
to read the definitive proxy statement and other proxy materials relating to the
2005 annual meeting because they contain important information, including a
description of who may be deemed to be "participants" in the solicitation of
proxies and the direct or indirect interests, by security holdings or otherwise,
of the participants in the solicitation. Such proxy materials are available at
no charge on the SEC's website at http//www.sec.gov. In addition, stockholders
may also obtain a free copy of the definitive proxy statement and other proxy
materials by contacting D.F. King & Co., Inc. at 888-644-6071 (toll-free) or
212-269-5550 (collect).
GREEN PROXY CARD
BALLY TOTAL FITNESS HOLDING CORPORATION
2005 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF
PARDUS EUROPEAN SPECIAL OPPORTUNITIES MASTER FUND L.P.,
PARDUS CAPITAL MANAGEMENT L.P., PARDUS CAPITAL MANAGEMENT
LLC, KARIM SAMII, JOSEPH R. THORNTON, CHARLES J. BURDICK,
BARRY R. ELSON AND DON R. KORNSTEIN
The undersigned appoints and constitutes Karim Samii and Joseph R. Thornton, and
each of them, as proxies, with full power of substitution, to represent the
undersigned at the Annual Meeting of Stockholders of Bally Total Fitness Holding
Corporation, a Delaware corporation (the "Company"), to be held at 8:30 a.m.
(local time) on January 26, 2006 at the Renaissance Chicago O'Hare Hotel, 8500
West Bryn Mawr Avenue, Chicago, Illinois, and at any adjournment, postponement
or any special meeting that may be called in lieu thereof (the "2005 Annual
Meeting"), hereby revoking any proxies previously given, to vote all shares of
common stock of the Company held or owned by the undersigned as directed below,
and in their discretion upon such other matters as may come before the meeting.
IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED (A) "FOR" THE ELECTION OF
CHARLES J. BURDICK, BARRY R. ELSON AND DON R. KORNSTEIN TO CLASS III OF THE
COMPANY'S BOARD OF DIRECTORS, (B) "FOR" THE APPROVAL AND ADOPTION OF THE BY-LAW
RESOLUTION TO REPEAL EACH PROVISION OR AMENDMENT OF THE BY-LAWS OF THE COMPANY,
IF ANY, ADOPTED BY THE BOARD OF DIRECTORS WITHOUT THE APPROVAL OF THE COMPANY'S
STOCKHOLDERS SUBSEQUENT TO MAY 25, 2005 (PURPORTEDLY THE LAST DATE OF REPORTED
CHANGES) AND PRIOR TO THE APPROVAL AND ADOPTION OF SUCH RESOLUTION AT THE 2005
ANNUAL MEETING, (C) "AGAINST" THE ADOPTION OF THE 2006 OMNIBUS EQUITY
COMPENSATION PLAN, (D) "FOR" THE RATIFICATION OF KPMG LLP AS THE COMPANY'S
INDEPENDENT AUDITOR FOR THE FISCAL YEAR ENDING DECEMBER 31, 2005, AND (E) "FOR"
GRANTING TO THE PROXY HOLDERS DISCRETION ON THE LIBERATION PROPOSALS, IF
PROPERLY BROUGHT BEFORE THE 2005 ANNUAL MEETING, AND ALL OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING.
(Continued and to be signed on the reverse side)
Pardus European Special Opportunities Master Fund, L.P. and certain of its
affiliates and associates recommends a vote "FOR" the election of all of the
nominees listed in Proposal 1 below, "FOR" Proposal 2 below, "AGAINST" Proposal
3 below, "FOR" Proposal 4 below, and "FOR" granting the proxy holders discretion
on the Liberation Proposals, if properly brought before the 2005 Annual Meeting,
and on all other matters as may properly come before the meeting. (Please mark
each matter with an "X" in the appropriate box.)
Pardus European Special Opportunities Master Fund, L.P. (the "Fund") and certain
of its affiliates and associates recommends a vote "FOR ALL" with respect to the
election of all of the nominees listed in Proposal 1 below.
1. Election of Directors:
Nominees: Charles J. Burdick, Barry R. Elson and Don R. Kornstein
[ ] FOR ALL
[ ] WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES
[ ] FOR ALL EXCEPT NOMINEE WRITTEN BELOW
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).
______________________________________________________________
The Fund recommends a vote "FOR" Proposal 2 below.
2. Proposal to repeal provisions in the Company's By-laws that were adopted
after May 25, 2005 (purportedly the last date of reported changes) and
prior to the approval and adoption of this Proposal 2 at the 2005 Annual
Meeting of stockholders:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The Fund recommends a vote "AGAINST" Proposal 3 below.
3. Approval of the 2006 Omnibus Equity Compensation Plan
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The Fund recommends a vote "FOR" Proposal 4 below.
4. Ratification of the appointment of KPMG LLP as independent auditor for the
Company for the fiscal year ending December 31, 2005
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The Fund recommends a vote "FOR" Proposal 5 below.
5. In their discretion on all other matters as may properly come before the
annual meeting, including any motion to adjourn or postpone the meeting or
other matters incidental to the conduct of the meeting.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Please be sure to sign and date this Proxy
DATED: _________________________________
________________________________
(Signature)
________________________________
(Signature, if held jointly)
________________________________
(Title)
Please sign exactly as name appears on this Proxy. When shares are held jointly,
joint owners should each sign. Executors, administrators, trustees, etc., should
indicate the capacity in which signing.
IMPORTANT: PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY!
EXHIBIT 2
---------
PARDUS EUROPEAN SPECIAL OPPORTUNITIES MASTER FUND L.P.
C/O PARDUS CAPITAL MANAGEMENT L.P.
1001 AVENUE OF THE AMERICAS, SUITE 1100
NEW YORK, NY 10018
January 23, 2006
ISS RECOMMENDS PARDUS SLATE AND SAYS BALLY'S
"DISPLAYED QUESTIONABLE JUDGMENT"
Dear Fellow Bally Stockholder:
We are pleased to report that Institutional Shareholder Services, Inc.
("ISS") - which Bally Total Fitness Holding Corporation ("Bally" or the
"Company") itself describes as "the world's leading provider of voting and
corporate governance services" - has recommended that you vote IN FAVOR of
Pardus' slate of nominees for the board. As important as the recommendation
itself are the REASONS given by ISS. Echoing what Pardus has been saying since
we began soliciting proxies, ISS issued a stinging indictment of management and
the board, citing Bally's serious financial and accounting problems, and its
"questionable judgment regarding [the Company's] ongoing operations."
For its part, Bally seeks your vote with what we believe is its most
brazen argument yet - they argue that they deserve your vote because they tried
to settle with us and announced a program of limited reforms responding to some
of Pardus' requests. If they really want good governance, why did it take a
proxy contest for them to make their first proposal? And why are they STILL
leaving important loopholes open, as described in our January 12, 2006 letter to
you?
As ISS said, the Company's proposals "have been made at the '11th hour'
and in the face of a hostile proxy fight. Ultimately, it is important to
interpret the motivations and impetus that led the board to announce these
changes, and not simply focus on the merits of the changes themselves."
ISS'S CRITICISMS OF MANAGEMENT AND THE BOARD
ISS did not simply decide that our slate is superior to Bally's. It
analyzed Bally's recent history and concluded - as we at Pardus have - that
management and the board have repeatedly failed to perform. Among the failures
noted by ISS:
o The Company missed THREE extended deadlines for filing its
financial statements in 2004 and 2005 - requiring it to pay substantial fees and
equity to lenders. Most of current management and the present board - including
the new Lead Director - were in place during this time.
o The Company has "focused on" provisions of the Rights Plan
that purport to prevent owners of more than 15% of Bally's stock from "acting in
concert to run a proxy contest." ISS said - as we have been saying for weeks:
"It is extremely rare
2
for a company to utilize a poison pill in this fashion and this seems to be a
potentially extreme application of the poison pill as it could function to
frustrate rather than protect shareholders. We do not believe that management
should restrict shareholders' ability to speak together and coordinate their
presentation of ideas and concerns to management." Contrary to Bally's
self-serving rhetoric, we believe management and the board are using the pill in
this "extreme" fashion to discourage the election of one of our nominees, not
protect you.
o ISS is concerned that the Company's most recent lawsuit is
an "attempt to frustrate shareholders' ability to present concerns to
management." If management and the board really believe they have performed
well, why do they need to try to stifle dissent?
o Right after the December 1, 2005 earnings call - during
which Mr. Toback emphasized management's ownership of a substantial stake in the
Company - he and others in management made substantial stock sales. We regard
that as a grave breach of management's duties to the Company and to all
stockholders and believe those sales should be investigated by independent
directors.
o Despite, to quote ISS, "the missed filing deadlines and
questionable operating decisions, the board continued to award restricted stock
and options to the senior management team," and "Mr. Toback received a bonus of
$400,000 in 2004, despite the determination of the compensation committee that
the Company's performance goals for 2004 were not met."
Against this background, ISS recommended that stockholders support
Pardus' board slate. ISS parted company with us, however, in deciding to
recommend approval of the stock plan. Where the stock plan is concerned, ISS's
analysis is too narrow. ISS evaluates equity-based compensation in public
companies primarily by evaluating the economic cost of the program to the
Company. That method, however, does not consider the unique circumstances in
Bally's case that make approval of the stock plan completely inappropriate here.
First, given management's substandard performance, as evidenced by,
among other things, the fact that the Company missed its 2004 performance goals
and repeatedly missed extended deadlines to file its financial statements, the
generous compensation (including stock) they have already received, and the fact
that they DUMPED stock just last month promptly after touting management's
ownership stake in the Company on the Company's first earnings conference call
in eighteen months, it is our belief that Bally management is not entitled to
ANYTHING more.
Second, as explained in our January 12 letter, the stock plan, even as
belatedly amended by Bally, creates serious conflicts between management and
stockholders, and, if the Company is sold, would allow senior management to
shift millions in sale proceeds from stockholders to themselves. The "amended"
plan would allow senior management to get a new round of stock options the
moment the sale process is "concluded." Moreover, as ISS commented, the proposed
plan has a number of fundamental flaws -
3
vesting provisions are at the discretion of administrators, performance goals or
hurdles were not established and there was no disclosure of executive stock
ownership or executive holding period guidelines.
While we are prepared to support a properly structured plan - one that
rewards real achievement and does not create conflicts or unfairness in the sale
process - the current plan should be rejected.
AS USUAL, MANAGEMENT AND THE BOARD REFUSE TO LISTEN
On Saturday, January 14, 2006, Bally issued a release commenting on the
ISS recommendation. But, true to form, the Company failed to respond to ISS's
criticisms of management and the board. In fact, the release fails even to
MENTION any of these criticisms. In our opinion, management and the board should
have taken responsibility for the many failures cited by ISS, or, at the least,
tried to explain themselves. Instead, they acted as if those failures never
happened. You can't learn from criticism if you refuse even to ACKNOWLEDGE it.
John Rogers, the new Lead Director, went so far as to use the
opportunity to praise the management team, including Mr. Toback, the recent
seller of so many Bally shares. Mr. Rogers is quoted as saying that the "Board
remains confident that Bally's turnaround is working and that the current
management team led by Paul Toback is responsible for returning the Company to
profitability and setting it on the right path." The board - and particularly
its Lead Director - is supposed to hold management accountable, not be its
apologist.
This release, along with Bally's history of lawsuits and threats to
trigger the Rights Plan despite the fact that they have conceded in Delaware
Chancery Court that they don't have evidence that the Rights Plan has been
triggered, show in our opinion that this board is not yet willing or able to act
in the benefit of the stockholders who own the Company. We urge you to compare
the full ISS report to Bally's press release and decide for yourself whether
Bally is being candid with you. Voting your shares for Pardus will demonstrate
that stockholders will no longer tolerate this management's many mistakes and
will enable reform for the benefit of all stockholders.
If this board will not hold management accountable, then we, as
stockholders, must do so. Pardus will defend itself against all litigation and
threats to trigger the poison pill because, simply, we do not have any
"agreement, arrangement or understanding" with Liberation that could trigger the
Rights Plan. Pardus will hold those who directed and approved the Company's
strategy fully accountable for injuries to us and other stockholders.
WE URGE YOU TO VOTE FOR SHAREHOLDER DEMOCRACY AND REFORM
ISS concluded that "there is a clear argument for fresh views and ideas
on the Bally board." In view of this company's history, that, in our opinion, is
a huge understatement. If you have not already returned one of our proxies, we
urge you to do so, to begin the process of reform at Bally in the interests of
all stockholders.
4
Vote FOR the Pardus nominees and in accordance with our recommendation
on the other proposals to be voted on at the upcoming annual meeting by signing,
dating and returning the enclosed GREEN proxy card.
Do not sign the white proxy card from Bally or the gold proxy card from
Liberation Investments. If you have already done so you may revoke your proxy by
delivering a later-dated GREEN proxy card in the enclosed postage-prepaid
envelope.
If you have any questions about voting, or for more information, please
call our proxy solicitors, D.F. King & Co., Inc., toll-free at 888-644-6071.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Very truly yours,
PARDUS EUROPEAN SPECIAL
OPPORTUNITIES MASTER FUND L.P.
By: Pardus Capital Management L.P., its
investment manager
By: Pardus Capital Management LLC, its
general partner
By: /s/ Karim Samii
-----------------------------------
Name: Karim Samii
Title: Sole Member
IMPORTANT
On December 27, 2005, Pardus European Special Opportunities Master Fund L.P.,
Pardus Capital Management L.P., Pardus Capital Management LLC, Karim Samii,
Joseph R. Thornton, Charles J. Burdick, Barry R. Elson and Don R. Kornstein
filed a definitive proxy statement with the SEC to solicit proxies in connection
with the 2005 annual meeting of stockholders of Bally Total Fitness Holding
Corporation to be held on January 26, 2006. Company stockholders are encouraged
to read the definitive proxy statement and other proxy materials relating to the
2005 annual meeting because they contain important information, including a
description of who may be deemed to be "participants" in the solicitation of
proxies and the direct or indirect interests, by security holdings or otherwise,
of the participants in the solicitation. Such proxy materials are available at
no charge on the SEC's website at http//www.sec.gov. In addition, stockholders
may also obtain a free copy of the definitive proxy statement and other proxy
materials by contacting D.F. King & Co., Inc. at 888-644-6071 (toll-free) or
212-269-5550 (collect).
GREEN PROXY CARD
BALLY TOTAL FITNESS HOLDING CORPORATION
2005 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF
PARDUS EUROPEAN SPECIAL OPPORTUNITIES MASTER FUND L.P.,
PARDUS CAPITAL MANAGEMENT L.P., PARDUS CAPITAL MANAGEMENT
LLC, KARIM SAMII, JOSEPH R. THORNTON, CHARLES J. BURDICK,
BARRY R. ELSON AND DON R. KORNSTEIN
The undersigned appoints and constitutes Karim Samii and Joseph R. Thornton, and
each of them, as proxies, with full power of substitution, to represent the
undersigned at the Annual Meeting of Stockholders of Bally Total Fitness Holding
Corporation, a Delaware corporation (the "Company"), to be held at 8:30 a.m.
(local time) on January 26, 2006 at the Renaissance Chicago O'Hare Hotel, 8500
West Bryn Mawr Avenue, Chicago, Illinois, and at any adjournment, postponement
or any special meeting that may be called in lieu thereof (the "2005 Annual
Meeting"), hereby revoking any proxies previously given, to vote all shares of
common stock of the Company held or owned by the undersigned as directed below,
and in their discretion upon such other matters as may come before the meeting.
IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED (A) "FOR" THE ELECTION OF
CHARLES J. BURDICK, BARRY R. ELSON AND DON R. KORNSTEIN TO CLASS III OF THE
COMPANY'S BOARD OF DIRECTORS, (B) "FOR" THE APPROVAL AND ADOPTION OF THE BY-LAW
RESOLUTION TO REPEAL EACH PROVISION OR AMENDMENT OF THE BY-LAWS OF THE COMPANY,
IF ANY, ADOPTED BY THE BOARD OF DIRECTORS WITHOUT THE APPROVAL OF THE COMPANY'S
STOCKHOLDERS SUBSEQUENT TO MAY 25, 2005 (PURPORTEDLY THE LAST DATE OF REPORTED
CHANGES) AND PRIOR TO THE APPROVAL AND ADOPTION OF SUCH RESOLUTION AT THE 2005
ANNUAL MEETING, (C) "AGAINST" THE ADOPTION OF THE 2006 OMNIBUS EQUITY
COMPENSATION PLAN, (D) "FOR" THE RATIFICATION OF KPMG LLP AS THE COMPANY'S
INDEPENDENT AUDITOR FOR THE FISCAL YEAR ENDING DECEMBER 31, 2005, AND (E) "FOR"
GRANTING TO THE PROXY HOLDERS DISCRETION ON THE LIBERATION PROPOSALS, IF
PROPERLY BROUGHT BEFORE THE 2005 ANNUAL MEETING, AND ALL OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING.
(Continued and to be signed on the reverse side)
Pardus European Special Opportunities Master Fund, L.P. and certain of its
affiliates and associates recommends a vote "FOR" the election of all of the
nominees listed in Proposal 1 below, "FOR" Proposal 2 below, "AGAINST" Proposal
3 below, "FOR" Proposal 4 below, and "FOR" granting the proxy holders discretion
on the Liberation Proposals, if properly brought before the 2005 Annual Meeting,
and on all other matters as may properly come before the meeting. (Please mark
each matter with an "X" in the appropriate box.)
Pardus European Special Opportunities Master Fund, L.P. (the "Fund") and certain
of its affiliates and associates recommends a vote "FOR ALL" with respect to the
election of all of the nominees listed in Proposal 1 below.
1. Election of Directors:
Nominees: Charles J. Burdick, Barry R. Elson and Don R. Kornstein
[ ] FOR ALL
[ ] WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES
[ ] FOR ALL EXCEPT NOMINEE WRITTEN BELOW
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).
_________________________________________________________
The Fund recommends a vote "FOR" Proposal 2 below.
2. Proposal to repeal provisions in the Company's By-laws that were adopted
after May 25, 2005 (purportedly the last date of reported changes) and
prior to the approval and adoption of this Proposal 2 at the 2005 Annual
Meeting of stockholders:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The Fund recommends a vote "AGAINST" Proposal 3 below.
3. Approval of the 2006 Omnibus Equity Compensation Plan
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The Fund recommends a vote "FOR" Proposal 4 below.
4. Ratification of the appointment of KPMG LLP as independent auditor for the
Company for the fiscal year ending December 31, 2005
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The Fund recommends a vote "FOR" Proposal 5 below.
5. In their discretion on all other matters as may properly come before the
annual meeting, including any motion to adjourn or postpone the meeting or
other matters incidental to the conduct of the meeting.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Please be sure to sign and date this Proxy
DATED: _________________________________
________________________________
(Signature)
________________________________
(Signature, if held jointly)
________________________________
(Title)
Please sign exactly as name appears on this Proxy. When shares are held jointly,
joint owners should each sign. Executors, administrators, trustees, etc., should
indicate the capacity in which signing.
IMPORTANT: PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY!