UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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Soliciting Material Pursuant to §240.14a-12 |
Life Time Fitness, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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DATED April 30, 2015
MERGER PROPOSEDYOUR VOTE IS VERY IMPORTANT
April 30, 2015
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of Life Time Fitness, Inc., which we refer to as Life Time, to be held on Thursday, June 4, 2015 at our offices at 2902 Corporate Place, Chanhassen, Minnesota 55317, at 9:00 a.m., Central Time.
At the special meeting, you will be asked to consider and vote on a proposal to approve and adopt the Agreement and Plan of Merger (as it may be amended from time to time), dated March 15, 2015, which we refer to as the merger agreement, by and among Life Time, LTF Holdings, Inc., which we refer to as Parent, and LTF Merger Sub, Inc., an indirect, wholly owned subsidiary of Parent, which we refer to as Merger Sub. Parent and Merger Sub are affiliates of Leonard Green & Partners, L.P. and TPG Capital, L.P. Pursuant to the terms of the merger agreement, Merger Sub will merge with and into Life Time, and Life Time will become an indirect, wholly owned subsidiary of Parent, which we refer to as the merger. You will also be asked to consider and vote on: (i) a proposal to adjourn the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement at the time of the special meeting; and (ii) a proposal to approve by non-binding advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
If the merger is consummated, you will be entitled to receive $72.10 in cash, without interest, for each share of our common stock you own (unless you have properly perfected your dissenters rights with respect to such shares), which represents a premium of (i) approximately 73% to Life Times closing stock price on August 22, 2014, the last trading day prior to Life Times public announcement that Life Times board of directors and senior management team had initiated a process to explore a potential conversion of Life Times real estate assets into a real estate investment trust, or REIT; (ii) approximately 22% over the volume weighted average share price of the common stock during the 90 days ended March 13, 2015, the last trading day before the merger agreement was signed; (iii) approximately 25% over the closing share price on March 5, 2015, the last trading day before the publication of articles suggesting that Life Time was for sale; and (iv) approximately 7% over the closing share price on March 13, 2015. Life Times common stock has never traded at prices higher than the per-share merger consideration of $72.10 since Life Time went public in 2004.
After consideration of, and based upon, the recommendation of a special committee of the board of directors consisting entirely of independent and disinterested directors, our board of directors unanimously determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are fair to, advisable, and in the best interests of Life Time and its shareholders, declared the merger agreement advisable under Minnesota law and approved, adopted and authorized the merger agreement and the transactions contemplated by the merger agreement, including the merger. Our board of directors unanimously recommends that you vote (i) FOR the proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger; (ii) FOR the proposal to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate, to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement at the time of the special meeting; and (iii) FOR the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
We encourage you to read the enclosed proxy statement and its appendices, including the merger agreement, carefully and in their entirety. You may also obtain more information about Life Time from documents we file with the Securities and Exchange Commission from time to time.
Your vote is very important, regardless of the number of shares that you own. We cannot consummate the merger unless the proposal to approve and adopt the merger agreement is approved by the affirmative vote of the holders of a majority of the voting power of all shares of our common stock entitled to vote at the special meeting. The failure of any shareholder to vote in person by ballot at the special meeting, to submit a signed proxy card or to grant a proxy electronically over the Internet or by telephone will have the same effect as a vote AGAINST the proposal to approve and adopt the merger agreement. If you hold your shares in street name, the failure to instruct your broker, bank or other nominee on how to vote your shares will have the same effect as a vote AGAINST the proposal to approve and adopt the merger agreement.
We hope that you will be able to attend the special meeting. However, whether or not you plan to attend in person, please complete, sign, date and return the enclosed proxy card in the accompanying postage prepaid envelope as promptly as possible. You also may grant your proxy by using the toll-free telephone number, or by accessing the Internet website, specified on your proxy card. If you attend the special meeting and wish to vote in person, you must deliver to our Secretary a written revocation of any proxy you previously submitted, as your vote by ballot will not revoke any proxy previously submitted. If you have any questions or need assistance voting your shares of our common stock, please contact MacKenzie Partners Inc., our proxy solicitor, by calling (800) 322-2885 toll-free or (212) 929-5500 collect.
On behalf of our board of directors, I thank you for your support and appreciate your consideration of this matter.
Sincerely,
Bahram Akradi
Chairman of the Board of Directors, President and
Chief Executive Officer
This proxy statement is dated April 30, 2015, and is first being mailed to shareholders of Life Time Fitness, Inc. on or about April 30, 2015.
DATED APRIL 30, 2015
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 4, 2015
Notice is hereby given that a special meeting of shareholders of Life Time Fitness, Inc., a Minnesota corporation, which we refer to as Life Time, will be held on June 4, 2015 at our offices at 2902 Corporate Place, Chanhassen, Minnesota 55317, at 9:00 a.m., Central Time, for the following purposes:
1. | To consider and vote on the proposal to approve and adopt the Agreement and Plan of Merger, dated March 15, 2015, by and among LTF Holdings, Inc., which we refer to as Parent, LTF Merger Sub, Inc., an indirect, wholly owned subsidiary of Parent, and Life Time, as it may be amended from time to time, which we refer to as the merger agreement; |
2. | To consider and vote on the proposal to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement at the time of the special meeting; and |
3. | To consider and vote on the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger contemplated by the merger agreement. |
The affirmative vote of the holders of a majority of the voting power of all shares of our common stock entitled to vote at the special meeting is required to approve the proposal to approve and adopt the merger agreement. The affirmative vote of a majority of our shares of common stock represented at the special meeting, either in person or by proxy, and entitled to vote at the special meeting, whether or not a quorum is present, is required to approve the proposal to approve one or more adjournments of the special meeting and affirmative vote of a majority of our shares of common stock represented at the special meeting, either in person or by proxy, and entitled to vote at the special meeting, is required to approve the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
The failure of any shareholder of record to submit a signed proxy card, grant a proxy electronically over the Internet or by telephone or to vote in person by ballot at the special meeting will have the same effect as a vote AGAINST the proposal to approve and adopt the merger agreement, but will not have any effect on the adjournment proposal or the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger. If you hold your shares in street name, the failure to instruct your broker, bank or other nominee on how to vote your shares will have the same effect as a vote AGAINST the proposal to approve and adopt the merger agreement, but will not have any effect on the adjournment proposal or the proposal to approve, by non-binding, advisory vote, compensation that will or may be paid to Life Times named executive officers that is based on or otherwise relates to the merger. Abstentions will have the same effect as a vote AGAINST the proposal to approve and adopt the merger agreement, the adjournment proposal and the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
The presence at the meeting, in person or by proxy, of the holders of a majority of the voting power of the shares of common stock entitled to vote at the special meeting will constitute a quorum for the transaction of business at the meeting. Abstentions and broker non-votes, if any, will be counted as present for purposes of determining the existence of a quorum.
Only shareholders of record as of the close of business on April 27, 2015 are entitled to notice of the special meeting and to vote at the special meeting or at any adjournment or postponement thereof.
Shareholders who do not vote in favor of the proposal to approve and adopt the merger agreement will have the right to assert dissenters rights if they deliver a demand for dissenters rights before the vote is taken on the merger agreement and comply with all the requirements of Minnesota law, which are summarized herein and reproduced in their entirety in Appendix B to the accompanying proxy statement.
After consideration of, and based upon, the recommendation of a special committee of the board of directors consisting entirely of independent and disinterested directors, our board of directors unanimously recommends that you vote (i) FOR the proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger; (ii) FOR the proposal to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement at the time of the special meeting; and (iii) FOR the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
By Order of the Board of Directors,
Bahram Akradi
Chairman of the Board of Directors, President and
Chief Executive Officer
Chanhassen, Minnesota
April 30, 2015
YOUR VOTE IS IMPORTANT
If your shares are registered directly in your name: If you are a shareholder of record, you may vote your shares through the Internet, by telephone or by mail as described below. Please help us save time and postage costs by voting through the Internet or by telephone. Each method is generally available 24 hours a day and will ensure that your vote is confirmed and posted immediately. To vote:
1. BY INTERNET
a. | Go to the website at www.proxyvote.com, 24 hours a day, seven days a week, until 11:59 p.m., Eastern Time on June 3, 2015. |
b. | Please have your proxy card available to verify your identity and create an electronic ballot. |
c. | Follow the simple instructions provided. |
2. BY TELEPHONE
a. | On a touch-tone telephone, call toll-free 1-800-690-6903, 24 hours a day, seven days a week, until 11:59 p.m., Eastern Time on June 3, 2015. |
b. | Please have your proxy card available to verify your identity. |
c. | Follow the simple instructions provided. |
3. BY MAIL
a. | Mark, sign and date your proxy card. |
b. | Return it in the postage-paid envelope that will be provided. |
If your shares are held in the name of a broker, bank or other nominee: You will receive voting instructions from the organization holding your account and you must follow those instructions to vote your shares. As a beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote the shares in your account. Your broker, bank or other nominee cannot vote on any of the proposals, including the proposal to approve and adopt the merger agreement, without your instructions.
If you fail to return your proxy card, grant your proxy electronically over the Internet or by telephone or vote by ballot in person at the special meeting, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting. If you hold your shares through a broker, bank or other nominee, you must obtain from the record holder a valid proxy issued in your name in order to vote in person at the special meeting. A shareholder providing a proxy may revoke it at any time before it is exercised by providing written notice of revocation to our Secretary or by providing a proxy of a later date.
We encourage you to read the accompanying proxy statement, including all documents incorporated by reference into the accompanying proxy statement, and its appendices carefully and in their entirety. If you have any questions concerning the merger, the special meeting or the accompanying proxy statement, would like additional copies of the accompanying proxy statement or need help voting your shares of common stock, please contact our proxy solicitor:
MacKenzie Partners, Inc.
105 Madison Avenue
New York, NY 10016
Email: proxy@mackenziepartners.com
Call collect: (212) 929-5500
Call toll-free: (800) 322-2885
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER |
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112 | ||
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PROPOSAL 3: ADVISORY VOTE ON MERGER-RELATED NAMED EXECUTIVE OFFICER COMPENSATION |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
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APPENDICES
A-1 | ||
B-1 | ||
C-1 | ||
D-1 | ||
E-1 | ||
F-1 |
This summary highlights selected information from this proxy statement related to the merger of LTF Merger Sub, Inc. with and into Life Time Fitness, Inc., with Life Time Fitness, Inc. surviving as an indirect, wholly owned subsidiary of LTF Holdings, Inc., which transaction we refer to as the merger, and may not contain all of the information that is important to you. To understand the merger more fully and for a more complete description of the legal terms of the merger, you should read carefully this entire proxy statement, the appendices to this proxy statement, including the merger agreement, and the documents we incorporate by reference in this proxy statement. You may obtain the documents and information incorporated by reference in this proxy statement without charge by following the instructions under Where You Can Find More Information beginning on page 119. The merger agreement is attached as Appendix A to this proxy statement.
Except as otherwise specifically noted in this proxy statement or as context otherwise requires, Life Time, we, our, us and similar words in this proxy statement refer to Life Time Fitness, Inc. including, in certain cases, our subsidiaries. Throughout this proxy statement we refer to LTF Holdings, Inc. as Parent and LTF Merger Sub, Inc. as Merger Sub. In addition, throughout this proxy statement we refer to the Agreement and Plan of Merger, dated March 15, 2015, as it may be amended from time to time, by and among Parent, Merger Sub and Life Time, as the merger agreement.
Parties Involved in the Merger (page 33)
Life Time Fitness, Inc.
2902 Corporate Place
Chanhassen, Minnesota 55317
(952) 947-0000
Life Time is The Healthy Way of Life Company. We help organizations, communities and individuals achieve their total health objectives, athletic aspirations and fitness goals by engaging in their areas of interest, or discovering new passions, both inside and outside of Life Times distinctive, resort-like sports, professional fitness, family recreation and spa destinations, most of which operate 24 hours a day, seven days a week. Our Healthy Way of Life approach enables our customers to achieve success by providing the best places, people and programs of exceptional quality and value.
For more information about Life Time, please visit our website at www.lifetimefitness.com. Our website address is provided as an inactive textual reference only. The information contained on our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document on file with or furnished to the U.S. Securities and Exchange Commission, or the SEC. See also Where You Can Find More Information beginning on page 119.
Our common stock is currently listed on the New York Stock Exchange, which we refer to as the NYSE, under the symbol LTM.
LTF Holdings, Inc.
c/o Leonard Green & Partners, L.P.
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025
(310) 954-0444
c/o TPG Capital, L.P.
345 California Street, Suite 3300
San Francisco, California 94104
(415) 743-1500
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LTF Holdings, Inc. is a Delaware corporation that was formed by affiliates of Leonard Green & Partners, L.P., which we refer to as Leonard Green, and an affiliate of TPG Capital, L.P., which we refer to as TPG, solely for the purpose of entering into the merger agreement and completing the transactions contemplated by the merger agreement and the related financing transactions. Leonard Green is a private equity firm based in Los Angeles, California. TPG is a leading global private equity firm with 17 offices worldwide. Upon completion of the merger, Life Time will be an indirect, wholly owned subsidiary of Parent.
LTF Merger Sub, Inc.
c/o Leonard Green & Partners, L.P.
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025
(310) 954-0444
c/o TPG Capital, L.P.
345 California Street, Suite 3300
San Francisco, California 94104
(415) 743-1500
LTF Merger Sub, Inc. is a Minnesota corporation that was formed by Parent solely for the purpose of entering into the merger agreement and completing the transactions contemplated by the merger agreement and the related financing transactions. Upon the completion of the merger, Merger Sub will cease to exist and Life Time will continue as the surviving corporation of the merger and an indirect, wholly owned subsidiary of Parent.
The Special Meeting (page 26)
Date, Time and Place
A special meeting of our shareholders will be held on June 4, 2015, at our offices at 2902 Corporate Place, Chanhassen, Minnesota, 55317, at 9:00 a.m., Central Time.
Record Date; Shares Entitled to Vote
You are entitled to vote at the special meeting if you owned shares of our common stock at the close of business on April 27, 2015, the record date for the special meeting. You will have one vote at the special meeting for each share of our common stock you owned at the close of business on the record date.
Purpose
At the special meeting, we will ask our shareholders of record as of the record date to vote on proposals (i) to approve and adopt the merger agreement; (ii) to approve one or more adjournments of the special meeting to a later date or dates to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement at the time of the special meeting; and (iii) to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
Quorum
As of the record date, there were 39,043,889 shares of our common stock outstanding and entitled to be voted at the special meeting. A quorum of shareholders is necessary to hold a special meeting. The holders of a majority of the voting power of all shares of our common stock entitled to vote at the special meeting, either
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present in person or represented by proxy, will constitute a quorum at the special meeting. As a result, 19,521,945 shares must be represented by proxy or by shareholders present and entitled to vote at the special meeting to have a quorum.
Required Vote
Approval and adoption of the merger agreement requires the affirmative vote of at least a majority of the voting power of all shares of our common stock entitled to vote at the special meeting. Approval of the proposal to approve one or more adjournments of the special meeting, whether or not a quorum is present, requires the affirmative vote of a majority of the voting power of all shares of our common stock represented at the special meeting, either in person or by proxy, and entitled to vote at the special meeting. Approval of the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger requires the affirmative vote of a majority of the voting power of all shares of our common stock represented at the special meeting, in person or by proxy, and entitled to vote at the special meeting.
Share Ownership of Our Directors and Executive Officers
As of April 27, 2015, the record date, our directors and executive officers beneficially owned and were entitled to vote, in the aggregate, 3,090,119 shares of our common stock (excluding any shares of our common stock that would be delivered upon exercise or conversion of stock options or other equity-based awards), representing approximately 7.9% of the outstanding shares of our common stock. In connection with the merger agreement, Bahram Akradi, our Chairman, Chief Executive Officer, and President entered into a voting agreement with Parent, pursuant to which he agreed to, among other things, vote his shares of Life Time common stock (i) in favor of the approval and adoption of the merger agreement, (ii) in favor of any related proposal in furtherance of the merger and the transactions contemplated by the merger agreement and (iii) against any alternative proposal or any proposal relating to an alternative proposal. Such voting agreement will terminate upon the earlier of (a) the effective time of the merger; (b) the date on which the merger agreement is terminated in accordance with its terms; and (c) the date on which the parties thereto terminate the voting agreement by mutual agreement. Additionally, our other directors and executive officers have informed us that they currently intend to vote all of their shares of Life Time common stock (i) FOR the proposal to approve and adopt the merger agreement; (ii) FOR the proposal to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement at the time of the special meeting; and (iii) FOR the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
Voting of Proxies
Any Life Time shareholder of record entitled to vote at the special meeting may submit a proxy by returning a signed proxy card by mail or voting electronically over the Internet or by telephone, or may vote in person by attending at the special meeting. If you are a beneficial owner and hold your shares of Life Time common stock in street name through a broker, bank or other nominee, you should instruct your broker, bank or other nominee on how you wish to vote your shares of Life Time common stock using the instructions provided by your broker, bank or other nominee. Under applicable stock exchange rules, brokers, banks or other nominees have the discretion to vote your shares on routine matters if you fail to instruct your broker, bank or other nominee on how to vote your shares with respect to such matters. The proposals in this proxy statement are non-routine matters, and brokers, banks and other nominees therefore cannot vote on these proposals without your instructions, resulting in what we refer to as a broker non-vote. Therefore, it is important that you cast your vote or instruct your broker, bank or nominee on how you wish to vote your shares.
If you are a shareholder of record, you may change your vote or revoke your proxy at any time before it is voted at the special meeting by submitting a new proxy electronically over the Internet or by telephone after the date of
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the earlier submitted proxy, signing another proxy card with a later date and returning it to us prior to the special meeting by providing written notice of revocation to our Secretary before your proxy is exercised. If you hold your shares of common stock in street name, you should contact your broker, bank or other nominee for instructions regarding how to change your vote.
The failure of any shareholder of record to submit a signed proxy card, grant a proxy electronically over the Internet or by telephone or to vote in person by ballot at the special meeting will have the same effect as a vote AGAINST the proposal to approve and adopt the merger agreement, but will not have any effect on the adjournment proposal or the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger. If you hold your shares in street name, the failure to instruct your broker, bank or other nominee on how to vote your shares will have the same effect as a vote AGAINST the proposal to approve and adopt the merger agreement, but will not have any effect on the adjournment proposal or the proposal to approve, by non-binding, advisory vote, compensation that will or may be paid to Life Times named executive officers that is based on or otherwise relates to the merger. Abstentions will have the same effect as a vote AGAINST the proposal to approve and adopt the merger agreement, the adjournment proposal and the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
Neither the SEC nor any state securities regulatory agency has approved or disapproved of the transactions described in this document, including the merger, or determined if the information contained in this document is accurate or adequate. Any representation to the contrary is a criminal offense.
Certain Effects of the Merger on Life Time (page 34)
Upon the terms and subject to the conditions of the merger agreement, Merger Sub will merge with and into Life Time, with Life Time continuing as the surviving company and an indirect, wholly owned subsidiary of Parent. Throughout this proxy statement, we use the term surviving company to refer to Life Time as the surviving company following the merger. If the merger is consummated, you will not own any shares of the capital stock of the surviving company.
The time at which the merger will become effective, which we refer to as the effective time of the merger, will occur upon the filing of the articles of merger with the Secretary of State of the State of Minnesota (or at such later time as we and Parent may agree and specify in the articles of merger).
Effect on Life Time if the Merger is Not Completed (page 34)
If the merger agreement is not adopted by Life Time shareholders or if the merger is not completed for any other reason, Life Time shareholders will not receive any payment for their shares of common stock. Instead, Life Time will remain a public company, our common stock will continue to be listed and traded on the NYSE and registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and we will continue to file periodic reports with the SEC. Under specified circumstances, Life Time may be required to reimburse certain of Parents expenses incurred in respect of the transactions contemplated by the merger agreement or pay Parent a termination fee, or may be entitled to receive a reverse termination fee from Parent, upon the termination of the merger agreement, as described under The Merger AgreementTermination Fees beginning on page 109.
Merger Consideration (pages 35; 93)
In the merger, each outstanding share of our common stock (other than (i) shares held by Life Time, Parent or Merger Sub or any direct or indirect subsidiary of Life Time or Parent; (ii) shares being contributed to Parent by Mr. Akradi and any other persons pursuant to the contribution and subscription agreement (described below);
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and (iii) shares held by shareholders who have perfected and not withdrawn a demand for dissenters rights or who have not otherwise lost dissenters rights under Minnesota law with respect to such shares, which we refer to collectively as the excluded shares) will be converted automatically into the right to receive $72.10 in cash, without interest and less any applicable withholding taxes, which amount we refer to as the per-share merger consideration. All shares converted into the right to receive the per-share merger consideration will automatically be cancelled at the effective time of the merger, and each certificate formerly representing any of the shares of Life Time common stock will thereafter represent only the right to receive the per-share merger consideration. As described further in The Merger AgreementExchange and Payment Procedures beginning on page 94, at or immediately prior to the effective time of the merger, Parent will deposit or cause to be deposited cash sufficient to pay the aggregate per-share merger consideration with a designated paying agent. Following completion of the merger, after a shareholder has provided the paying agent with his or her stock certificates (or, with respect to shares held in book-entry form, an agents message with respect to such shares) and the other items specified by the paying agent, the paying agent will promptly pay the shareholder the per-share merger consideration.
After the merger is completed, under the terms of the merger agreement, you will have the right to receive the per-share merger consideration, but you will no longer have any rights as a Life Time shareholder as a result of the merger (except that shareholders who properly perfect their demand for dissenters rights will have the right to receive a payment for the fair value of their shares as contemplated by Minnesota law, as described below under The MergerDissenters Rights beginning on page 84).
Treatment of Equity Awards; Employee Stock Purchase Plan (page 74)
The merger agreement provides for the following treatment of equity and equity-based awards relating to Life Time common stock:
Stock Options
Effective as of the effective time of the merger, each then-outstanding option to purchase shares of Life Time common stock, whether or not vested, will be cancelled and converted into the right to receive an amount in cash equal to the product of (i) the total number of shares of Life Time common stock subject to the option and (ii) the amount, if any, by which the per-share merger consideration exceeds the exercise price per share of Life Time common stock underlying the stock option (less any applicable withholding taxes).
Restricted Stock
Effective as of the effective time of the merger, each then-outstanding share of restricted Life Time common stock, which we refer to as restricted stock, including shares of restricted stock subject to time-based or performance-based vesting, will become fully vested and will be considered to be an outstanding share of Life Time common stock for purposes of the merger agreement that will entitle the holder to receive an amount in cash equal to the per-share merger consideration (less any applicable withholding taxes) in accordance with the same terms and conditions as applied to holders of Life Time common stock generally.
Employee Stock Purchase Plan
No new offering period will commence under Life Times Employee Stock Purchase Plan, which we refer to as the ESPP, following completion of the offering period in progress as of the date of the merger agreement. The ESPP will be terminated as of the effective time of the merger, provided that if the effective time of the merger has not occurred by June 30, 2015, the end of the current offering period, the ESPP will then be suspended until the effective time of the merger, at which time it will be terminated.
If the effective time of the merger occurs on or before June 30, 2015, Life Time will pay to each participant in the current offering period an amount (not less than zero) in cash equal to the per-share merger consideration multiplied by (i) the result obtained by dividing the amount of the payroll deductions credited to such
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participants account pursuant to the ESPP as of the last day of the current offering period by (ii) the purchase price (as defined by the ESPP). If the effective time of the merger occurs on or after July 1, 2015, Life Time will issue shares of Life Time common stock to the participants in the current offering period in accordance with its terms as of the end of the current offering period and the participants will receive the per-share merger consideration for each such share the participant holds as of the effective time of the merger.
Recommendation of Our Board of Directors and Reasons for the Merger (page 47)
Our board of directors, which we refer to as the Board, acting upon the recommendation of a special committee of the Board consisting entirely of independent and disinterested directors, which we refer to as the Special Committee, and after considering various factors described in the section entitled The MergerRecommendation of Our Board of Directors and Reasons for the Merger, unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are fair to, advisable and in the best interests of Life Time and its shareholders, declared the merger agreement advisable under Minnesota law and approved, adopted and authorized the merger agreement and the transactions contemplated by the merger agreement, including the merger.
The Board unanimously recommends that you vote (i) FOR the proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger; (ii) FOR the proposal to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement at the time of the special meeting; and (iii) FOR the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
Opinions of Financial Advisors (page 53)
Guggenheim Securities
Guggenheim Securities, LLC, which we refer to as Guggenheim Securities, delivered its opinion to the Special Committee and the Board to the effect that, as of March 15, 2015 and based on the matters considered, the procedures followed, the assumptions made and various limitations of and qualifications to the review undertaken, the per-share merger consideration in connection with the merger was fair, from a financial point of view, to the holders of shares of common stock, par value $0.02 per share, of Life Time, other than shares held by a specified member of the Companys management, which we refer to as the rollover shares, being contributed to Parent, which we refer to as the rollover. The full text of Guggenheim Securities written opinion, which is attached as Appendix C to this proxy statement and which you should read carefully and in its entirety, is subject to the assumptions, limitations, qualifications and other conditions contained in such opinion and is necessarily based on economic, capital markets and other conditions, and the information made available to Guggenheim Securities, as of the date of such opinion.
Guggenheim Securities opinion was provided to the Special Committee and the Board (in their capacity as such) for their information and assistance in connection with their evaluation of the per-share merger consideration, did not constitute a recommendation to the Special Committee or Board with respect to the merger and does not constitute advice or a recommendation to any holder of Life Time common stock as to how to vote in connection with the merger or otherwise. Guggenheim Securities opinion addresses only the fairness, from a financial point of view, of the per-share merger consideration to the shareholders of Life Time, excluding the holders of the rollover shares, in connection with the merger and does not address any other term or aspect of the merger, the merger agreement or any other agreement, transaction document or instrument contemplated by the merger agreement or to be entered into or amended in connection with the merger or any financing or other transactions related thereto.
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More specifically, Guggenheim Securities opinion (i) did not address Life Times underlying business or financial decision to pursue the merger, the relative merits of the merger as compared to any alternative business or financial strategies that might exist for Life Time, the financing of the merger or the effects of any other transaction in which Life Time might engage; (ii) addressed only the fairness, from a financial point of view, to Life Times shareholders of the per-share merger consideration pursuant to the merger agreement, excluding the holders of the rollover shares; (iii) expressed no view or opinion as to (a) any other term or aspect of the merger, the merger agreement or any other agreement, transaction document or instrument contemplated by the merger agreement or to be entered into or amended in connection with the merger, or (b) the fairness, financial or otherwise, of the rollover, or the fairness, financial or otherwise, of the merger to, or of any consideration to be paid to or received by, the holders of any class of securities (except as set forth in clause (ii) of this paragraph), creditors or other constituencies of Life Time or the holders of the rollover shares; (iv) expressed no view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation payable to or to be received by any of Life Times officers, directors or employees, or any class of such persons, in connection with the merger relative to the per-share merger consideration pursuant to the merger agreement or otherwise; and (v) did not constitute a solvency opinion or a fair value opinion, and Guggenheim Securities did not evaluate the solvency or fair value of Life Time under any relevant laws relating to bankruptcy, insolvency or similar matters.
Wells Fargo Securities
In connection with the merger, on March 15, 2015, Wells Fargo Securities, LLC, which we refer to as Wells Fargo Securities, rendered its opinion to the Special Committee (which was subsequently confirmed in writing by delivery of a written opinion to the Board and Special Committee dated March 15, 2015), that, as of March 15, 2015, and based on and subject to various assumptions made, procedures followed, matters considered and limitations on the review undertaken by Wells Fargo Securities in connection with the opinion, the experience of its investment bankers and other factors it deemed relevant, the merger consideration to be received by holders of Life Time common stock (excluding the excluded shares) pursuant to the merger agreement was fair, from a financial point of view, to such holders.
The full text of Wells Fargo Securities written opinion, dated March 15, 2015, to the Board and the Special Committee is attached as Appendix D to this proxy statement and sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken by Wells Fargo Securities in rendering its opinion. Wells Fargo Securities provided its opinion for the information and use of the Board and the Special Committee (in their capacity as such) in connection with their evaluation of the merger. Wells Fargo Securities opinion does not address the merits of the underlying decision by Life Time to enter into the merger agreement or the relative merits of the merger compared with other business strategies or transactions available or that have been or might be considered by Life Times management, the Board or the Special Committee or in which Life Time might engage. Wells Fargo Securities opinion also did not and does not constitute a recommendation to the Board, the Special Committee or to any other person or entity in respect of the merger or otherwise, including, without limitation, as to how a stockholder of Life Time should vote or act in connection with any matter relating to the merger, the merger agreement or any other matters. See the section entitled Opinion of Wells Fargo Securities beginning on page 62 of this proxy statement for additional information.
Interests of the Directors and Executive Officers of Life Time in the Merger (page 72)
When considering the recommendation of the Board that you vote for the proposal to approve and adopt the merger agreement, you should be aware that certain of our directors and executive officers may have interests in the merger that are different from, or in addition to, your interests as a shareholder. The Special Committee was aware of these interests and considered them, among other matters, in evaluating and overseeing the negotiation of the merger agreement, and in recommending that the Board approve the merger agreement and the merger. The Board was also aware of these interests in approving the merger agreement and the merger and in
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recommending that the merger agreement be approved and adopted by the shareholders of Life Time. These interests include the following:
| Agreements between Parent and Mr. Akradi, pursuant to which he will (i) serve as the chairman of the board, chief executive officer and president of the surviving company following the closing of the merger; (ii) be entitled to participate in an equity incentive plan to be adopted by Parent following the closing of the merger, consisting of stock options and restricted stock grants; (iii) contribute to Parent up to $125 million of Life Time common stock in exchange for shares of Parent; (iv) vote in favor of the proposal to approve and adopt the merger agreement and any related proposals at the special meeting; and (v) vote against any alternative proposal or any proposal relating to an alternative proposal. |
| Accelerated vesting of stock options and shares of restricted stock, and the settlement of those awards in exchange for cash in the amounts specified in this proxy statement; |
| The entitlement of certain of Life Times executive officers to receive severance payments and benefits under their respective executive employment agreements in the event the officers employment is terminated on or following the closing of the merger either by the surviving company without cause or by the officer for good reason; and |
| Continued indemnification and directors and officers liability insurance to be provided by the surviving company. |
If the proposal to approve and adopt the merger agreement is approved by our shareholders and the merger closes, any shares of Life Time common stock held by our directors and executive officers will be treated in the same manner as outstanding shares of Life Time common stock held by all other Life Time shareholders entitled to receive the per-share merger consideration.
Financing of the Merger (page 78)
We anticipate that the total amount of funds necessary to consummate the merger and the related transactions will be approximately $3,790,788,594, including the funds needed to (i) pay our shareholders the amounts due to them under the merger agreement; (ii) make payments in respect of Life Times outstanding stock options and restricted stock pursuant to the merger agreement; (iii) refinance or otherwise discharge certain outstanding indebtedness of Life Time, including indebtedness that will come due or otherwise be repaid or repurchased as a result of the merger; and (iv) pay all fees and expenses payable by Parent and Merger Sub under the merger agreement and in connection with the debt financing under the debt commitment letters described below. This amount will be funded through a combination of up to approximately $1.75 billion in equity financing under the equity commitment letters described below, up to $2.747 billion in debt financing under the debt commitment letter described below, which we refer to collectively as the financing letters, and Life Times cash and cash equivalents on hand at closing.
In connection with the financing of the merger, Parent has entered into an equity commitment letter, dated as of March 15, 2015, which we refer to as the LGP equity commitment letter, with Green Equity Investors VI, L.P. and Green Equity Investors Side VI, L.P., which are funds affiliated with Leonard Green, which we refer to as the LGP funds, and an equity commitment letter, dated as of March 15, 2015, which we refer to as the TPG equity commitment letter and, together with the LGP equity commitment letter, the equity commitment letters, with TPG Partners VII, L.P., which is a fund affiliated with TPG, which we refer to as the TPG fund and, together with the LGP funds, as the equity investors. Pursuant to the LGP equity commitment letter, the LGP funds have committed, on a several (not joint and several) basis, to purchase, and/or through one or more of their affiliated entities or co-investors, cause the purchase of equity securities of Parent, at or prior to the closing of the merger, for an amount equal to approximately $879 million in the aggregate. Each LGP fund may allocate all or a portion of its equity commitment to other investors. However, the allocation of any portion of the LGP equity
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commitment to other investors will reduce such LGP funds commitment to make or secure capital contributions pursuant to the LGP equity commitment letter only by the amount actually contributed to Parent by such other investors at or prior to the closing of the merger for the purpose of funding a portion of the merger consideration and that is so applied.
Pursuant to the TPG equity commitment letter, the TPG fund has committed to purchase, and/or through one or more of its affiliated entities or co-investors, cause the purchase of equity securities of Parent, at or prior to the closing of the merger, for an amount equal to approximately $879 million. The TPG fund may allocate all or a portion of its equity commitment to other investors. However, the allocation of any portion of the TPG equity commitment to other investors will reduce the TPG funds commitment to make or secure capital contributions pursuant to the TPG equity commitment letter only by the amount actually contributed to Parent by such other investors at or prior to the closing of the merger for the purpose of funding a portion of the merger consideration and that is so applied.
In connection with the financing of the merger, Parent has also received a commitment letter, dated as of March 15, 2015, as amended and restated on April 3, 2015, which, along with the related fee letter, we refer to as the debt commitment letter, from Deutsche Bank AG New York Branch, Deutsche Bank AG Cayman Islands Branch, Deutsche Bank Securities Inc., Goldman Sachs Bank USA, Jefferies Finance LLC, Bank of Montreal, BMO Capital Markets Corp., Royal Bank of Canada, MIHI LLC, Macquarie Capital (USA) Inc., Nomura Securities International, Inc., Mizuho Bank, LTD. and U.S. Bank, National Association, which we refer to as the debt financing sources.
The funding under the financing letters is subject to certain customary conditions, including conditions that do not relate directly to the merger agreement. We believe the amounts committed under the financing letters will be sufficient to complete the transactions contemplated by the merger agreement, but we cannot be assured that the full amount of financing will be available or that the committed financing will be sufficient to complete the transactions contemplated by the merger agreement. The amounts committed might be insufficient if, among other things, one or more of the parties to the financing letters fails to fund the committed amounts in breach of such financing letters or if the conditions to the commitments to fund the amounts set forth in such financing letters are not met. The failure of Parent and Merger Sub to obtain any portion of the committed financing (or any alternate financing) is likely to result in the failure of the merger to be consummated. In that case, Parent may be obligated to pay a reverse termination fee to Life Time, as described under The Merger AgreementTermination Fees beginning on page 109. Parents obligation to pay the reverse termination fee is guaranteed pursuant to the guarantee (as described further below).
Limited Guarantee (page 83)
Pursuant to the limited guarantee delivered by the equity investors in favor of Life Time, dated as of March 15, 2015, which we refer to as the guarantee, each guarantor agreed to guarantee the due and punctual performance and discharge of its respective percentage, which we refer to as the guarantee percentage, of the following payment obligations of Parent and, where applicable, Merger Sub:
| Parents obligation to reimburse Life Time for all reasonable out-of-pocket costs incurred in connection with the debt financing and obtaining payoff letters for Life Times existing company debt and liens; |
| Parents and Merger Subs obligation to indemnify Life Time, its affiliates, and representatives from and against all liabilities, obligations, losses, damages, claims, costs, expenses, interest, awards, judgments and penalties incurred by them in connection with the equity and debt financings and delivery of the payoff letters for Life Times existing debt and liens; |
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| Parents obligation to pay a reverse termination fee of $167 million to Life Time under certain circumstances; and |
| Parents obligation to reimburse Life Time for all reasonable and documented out-of-pocket costs and expenses (including attorneys fees and expenses) in connection with any action against Parent to enforce its right to receive the reverse termination fee. |
Each guarantors aggregate liability under the guarantee is subject to a cap equal to such guarantors guaranteed percentage of $169 million.
Employee Benefits (page 104)
The merger agreement provides for the following treatment with respect to those employees of Life Time and its subsidiaries who continue to be so employed following the effective time of the merger, who we refer to collectively as the continuing employees:
| During the one-year period following the closing of the merger, each continuing employee will receive (i) at least the same base salary and the same annual bonus opportunity as was provided to the continuing employee by Life Time immediately prior to the effective time of the merger and (ii) employee benefits that are substantially comparable in the aggregate to those provided to the continuing employee by Life Time immediately prior to the effective time of the merger, provided that nothing requires Parent to provide such benefits in the form of equity or equity-based compensation; |
| Each continuing employee who incurs a termination of employment during the one-year period following the closing of the merger will receive severance benefits that are no less favorable than the severance benefits the continuing employee would have received upon such termination under Life Times severance policies and practices in effect immediately prior to the effective time of the merger; |
| Each continuing employee will receive service credit for purposes of eligibility, vesting and determination of the level of benefits (including for purposes of vacation and severance, but not for purposes of benefit accruals under defined benefit pension plans) under any employee benefit plans maintained by Parent or the surviving company in which the continued employee participates, subject to certain exceptions; and |
| Parent has agreed to: (i) waive any preexisting condition limitations applicable to continuing employees and their eligible dependents under any Parent health benefit plans in which continuing employees may be eligible to participate following the closing of the merger; (ii) honor any deductible, co-payment and out-of-pocket maximums incurred by the continuing employees and their eligible dependents under the health plans in which they participated immediately prior to the closing date for purposes of satisfying any such amounts under any health plans of Parent or the surviving company in which they are eligible to participate following the closing; and (iii) waive any waiting period limitation or evidence of insurability requirement that would otherwise be applicable to a continuing employee and his or her eligible dependents on or after the closing date of the merger, subject to certain limitations. |
Dissenters Rights (page 84)
If the merger is approved and becomes effective, holders of our common stock who do not vote their shares in favor of the merger will be entitled to statutory dissenters rights if they strictly comply with Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act, as amended. For a description of the rights of such holders and of the procedures to be followed in order to assert such rights and obtain payment of the fair value of
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their shares of stock, see Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act, copies of which are attached as Appendix B, as well as the information set forth below.
IN ORDER TO PERFECT DISSENTERS RIGHTS WITH RESPECT TO THE MERGER, A SHAREHOLDER MUST SEND A NOTICE TO LIFE TIME BEFORE THE DATE OF THE SPECIAL MEETING AND MUST NOT VOTE IN FAVOR OF THE PROPOSAL TO APPROVE THE MERGER BY PROXY OR OTHERWISE.
U.S. Federal Income Tax Consequences of the Merger (page 86)
The receipt of cash for shares of Life Time common stock pursuant to the merger generally will be a taxable transaction for U.S. federal income tax purposes. The receipt of cash by a U.S. Holder (as defined under The MergerU.S. Federal Income Tax Consequences of the Merger beginning on page 86) in exchange for such U.S. Holders shares of Life Time common stock in the merger generally will result in the recognition of gain or loss in an amount measured by the difference between the cash such U.S. Holder receives in the merger and such U.S. Holders adjusted tax basis in the shares of Life Time common stock surrendered in the merger. A Non-U.S. Holder (as defined under The MergerU.S. Federal Income Tax Consequences of the Merger beginning on page 86) generally will not be subject to U.S. federal income tax with respect to the exchange of our common stock for cash in the merger unless such Non-U.S. Holder has certain connections to the United States or holds greater than 5% of our common stock. Shareholders should refer to the discussion in the section entitled The MergerU.S. Federal Income Tax Consequences of the Merger, beginning on page 86 and consult their own tax advisors concerning the U.S. federal income tax consequences relating to the merger in light of their particular circumstances and any consequences arising under the laws of any state, local or foreign taxing jurisdiction.
Regulatory Approvals Required for the Merger (page 88)
Under the merger agreement, the merger cannot be completed until the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, or the HSR Act, has expired or been terminated. Life Time and Parent and its affiliates filed their respective HSR Act notifications on March 27, 2015. On April 14, 2015, Life Time announced that it received early termination of the required waiting period under the HSR Act.
No Solicitation of Other Offers (page 100)
In the merger agreement, subject to certain exceptions, Life Time has agreed that it will not, directly or indirectly, among other things:
| Solicit, initiate or knowingly encourage or facilitate any inquiry or the making of an alternative proposal; |
| Furnish non-public information to or afford access to the business, employees, officers, contracts, properties, assets, books and records of Life Time and its subsidiaries to any person that would reasonably be expected to lead to, or in connection with, an inquiry or an alternative proposal; |
| Enter into, continue or maintain negotiations or discussions with any person with respect to an inquiry or an alternative proposal; |
| Cooperate with or assist or participate in or facilitate any discussions or negotiations regarding, or furnish or cause to be furnished to any person or Group any non-public information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or could be reasonably be expected to result in, an alternative proposal; |
| Approve, agree to, accept, endorse or recommend, or submit to a vote of its shareholders, any alternative proposal; |
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| Grant any waiver, amendment or release under any confidentiality or standstill agreement (or terminate or fail to use reasonable best efforts to enforce such agreement), provided that Life Time shall not be required to enforce, and shall be permitted to waive, any provision that prohibits or purports to prohibit a confidential proposal being made to the Board; |
| Effect any adverse recommendation change (as summarized below); or |
| Enter into any letter of intent or agreement in principle or any agreement providing for any alternative proposal (except for acceptable confidentiality agreements (as described below)). |
Notwithstanding these restrictions, if at any time prior to the special meeting, Life Time receives an alternative proposal from a third party and such alternative proposal does not result from any willful breach by Life Time of the restrictions described above, then Life Time may, among other things, and at any time prior to the special meeting, enter into and maintain discussions or negotiations with any person with respect to such alternative proposal, and pursuant to the prior execution of an acceptable confidentiality agreement (as described below), furnish any information and afford access to Life Time and its subsidiaries business, employees and properties, to any person in response to such alternative proposal, subject to the Board first determining in good faith (after consultation with Life Times financial advisors and legal counsel) that (i) the failure to take such action would be inconsistent with the directors exercise of their fiduciary duties under applicable law and (ii) such proposal either constitutes, or would reasonably be expected to lead to, a superior proposal (as described below).
For a further discussion of the limitations on solicitation of acquisition proposals from third parties, see The Merger AgreementNo Solicitation of Other Offers beginning on page 100.
Adverse Recommendation Changes; Alternative Acquisition Agreements (page 102)
Under the merger agreement, subject to certain exceptions, the Board may not withdraw, qualify or modify, or propose publicly to withdraw, qualify or modify, in a manner adverse to Parent, its merger recommendation or take any action, or make any public statement, filing or release inconsistent with its merger recommendation including recommending against the merger recommendation or approving, endorsing or recommending any alternative proposal (each of the foregoing, we refer to as an adverse recommendation change) except as provided in the merger agreement.
Prior to the special meeting, and notwithstanding the restrictions described above in No Solicitation of Other Offers, the Board is permitted in certain circumstances and subject to Life Times compliance with certain obligations (as summarized below), to (i) make an adverse recommendation change, and (ii) terminate the merger agreement and enter into a definitive written agreement providing for a superior proposal.
The Board is permitted to (i) make an adverse recommendation change in the event of an intervening event (as described below) or in the case of a superior proposal, and (ii) terminate the merger agreement to enter into a definitive written agreement providing for a superior proposal if such superior proposal does not result from a willful breach of the restrictions described above in No Solicitation of Other Offers, if, in each case, the Board determines in good faith (after consultation with its financial advisors and legal counsel) that the failure to take such action would be inconsistent with the directors exercise of their fiduciary duties under applicable law subject further to Life Times compliance with certain notice and other requirements as set forth in the merger agreement.
For a further discussion of the limitations on effecting adverse recommendation changes, and terminating the merger agreement in connection with a superior proposal, see The Merger AgreementAdverse Recommendation Changes; Alternative Acquisition Agreements beginning on page 102.
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Conditions to the Closing of the Merger (page 107)
The parties expect to complete the merger after all of the conditions to the merger in the merger agreement are satisfied or waived. The parties currently expect to complete the merger in the second quarter of 2015. However, it is possible that factors outside of each partys control could require them to complete the merger at a later time or not to complete it at all. The following are some of the conditions that must be satisfied or, where permitted by law, waived before the merger may be consummated:
| The approval of the proposal to approve and adopt the merger agreement by the requisite affirmative vote of Life Times shareholders; |
| The expiration or termination of the applicable waiting period under the HSR Act (see The MergerRegulatory Approvals Required for the Merger beginning on page 88); |
| The consummation of the merger not being restrained, enjoined, rendered illegal or otherwise prohibited by any law or order of any governmental authority; |
| The accuracy of the representations and warranties of Life Time, Parent and Merger Sub in the merger agreement, subject in some instances to materiality or material adverse effect qualifiers, at and as of the closing date of the merger; |
| The performance in all material respects by Life Time, on the one hand, and Parent and Merger Sub, on the other hand, of their respective obligations required to be performed by them under the merger agreement on or before the closing date of the merger; and |
| Since the date of the merger agreement, there not having occurred any fact, circumstance, effect, change, event or development that, individually or in the aggregate, has had or would reasonably be expected to have a Company material adverse effect (as described below). |
Termination of the Merger Agreement (page 108)
In general, the merger agreement may be terminated at any time prior to the effective time of the merger, whether before or after approval of the proposal to approve and adopt the merger agreement by the shareholders of Life Time, in the following ways:
| By mutual written consent of Parent and Life Time; |
| By either Parent or Life Time: |
| If the merger has not been consummated on or before October 6, 2015, which date we refer to as the termination date; |
| If any governmental authority has, by law or order, permanently restrained, enjoined, rendered illegal or otherwise prohibited the transactions contemplated by the merger agreement and such law or order has become final or nonappealable; or |
| If Life Times shareholders fail to approve the proposal to approve and adopt the merger agreement at the special meeting of shareholders, or any adjournment or postponement thereof, at which a vote on such proposal is taken; or |
| By Life Time: |
| If Parent or Merger Sub has breached any of their respective representations, warranties, covenants or other agreements in the merger agreement, which (i) would result in the failure of a related closing condition and (ii) is not capable of being cured, or is not cured, before the earlier of the termination date or the date that is 30 calendar days following Life Times delivery of written notice of such breach; |
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| Prior to receiving the shareholder approval, if (i) the Board has, after complying with its obligations to notify and consult with Parent with respect to a superior proposal, authorized Life Time to enter into a definitive written agreement with respect to such superior proposal, (ii) Life Time enters into such an alternative acquisition agreement and (iii) Life Time pays to Parent the termination fee of $97 million under the merger agreement; |
| If (i) the marketing period (as described below) has ended and all of the conditions to Parents and Merger Subs obligation to consummate the merger are satisfied (other than those conditions that by their terms are to be satisfied at the closing, each of which are then capable of being satisfied at the closing) or, to the extent permitted by law, waived, (ii) Life Time has notified Parent in writing that it is ready and willing to consummate the merger and (iii) Parent and Merger Sub have failed to consummate the merger within three business days following Life Times delivery of such notice; or |
| By Parent: |
| If Life Time has breached any of its representations, warranties, covenants or other agreements in the merger agreement such that specified conditions in the merger agreement, which (i) would result in the failure of a related closing condition and (ii) is not capable of being cured, or is not cured, before the earlier of the termination date or the date that is 30 calendar days following Parents delivery of written notice of such breach; or |
| If at any time before receiving the shareholder approval, the Board makes an adverse recommendation change. |
Termination Fees (page 109)
Under the merger agreement, Life Time may be required to pay to Parent a termination fee of $97 million if the merger agreement is terminated under specified circumstances.
Under the merger agreement, Parent may be required to pay to Life Time a reverse termination fee of $167 million if the merger agreement is terminated under specified circumstances. In no event will either Life Time or Parent be required to pay a termination fee more than once.
Expense Reimbursement (page 110)
If the merger agreement is terminated because Life Times shareholders fail to approve the proposal to approve and adopt the merger agreement at the special meeting of shareholders, Life Time would be required to reimburse Parent up to $7 million in respect of certain costs and expenses reasonably incurred by Parent and Merger Sub in connection with the merger agreement and the transactions contemplated thereby. The amount of any termination fee paid by Life Time to Parent would be reduced by any such expense reimbursement amount previously paid.
Specific Performance (page 110)
Parent, Merger Sub and Life Time are entitled to an injunction or injunctions to prevent breaches or threatened breaches of the merger agreement and to enforce specifically the terms of the merger agreement in addition to any other remedy to which they are entitled at law or in equity. Life Time is entitled to obtain specific performance or other equitable relief to cause the full proceeds of the equity financing contemplated by the equity commitment letters to be drawn down on the terms and subject to the conditions set forth in the equity commitment letters and the merger agreement and/or to cause Parent and/or Merger Sub to consummate the transactions contemplated by the merger agreement only upon the occurrence of certain events.
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Fees and Expenses (page 110)
Except in specified circumstances, whether or not the merger is consummated, Life Time and Parent are each responsible for all of their respective costs and expenses incurred in connection with the merger and the other transactions contemplated by the merger agreement.
Contribution and Subscription Agreement (page 89)
In connection with the merger agreement, Bahram Akradi, our Chairman, President, and Chief Executive Officer, entered into a contribution and subscription agreement (as amended), which we refer to as the contribution and subscription agreement, with Parent, pursuant to which, at the closing of the merger, Mr. Akradi will contribute to Parent up to $125 million of common stock of Life Time in exchange for shares of Parent. Upon the closing of the merger, Mr. Akradi is expected to beneficially own an indirect interest in Life Time of between approximately 7.4% and approximately 7.7%, without giving effect to any grants of restricted common stock of Parent or options to purchase common stock of Parent that Mr. Akradi is expected to receive following the closing of the merger as part of his employment arrangement with Parent. Mr. Akradis indirect beneficial ownership in Life Time after the closing of the merger will be greater than his current beneficial ownership in Life Time due to the higher level of debt that will be included in Life Times capitalization after the closing of the merger. Pursuant to the contribution and subscription agreement, at any time and from time to time prior to the closing of the merger, additional persons, including any of our executive officers, may be made parties to such contribution and subscription agreement and, immediately prior to the closing of the merger, such persons will contribute to Parent a number of shares of Life Time common stock with an agreed upon aggregate value, based on the per-share merger consideration, in exchange for shares of Parent.
Company Shareholder Voting Agreement (page 89)
In connection with the merger agreement, Mr. Akradi also entered into a voting agreement with Parent, pursuant to which he agreed to, among other things, vote his shares of Life Time common stock in favor of (i) the adoption of the merger agreement and approval of the merger and (ii) any proposal or action in respect of which approval of Life Times shareholders is requested that could reasonably be expected to facilitate the merger and the other transactions contemplated by the merger agreement. Pursuant to such voting agreement, Mr. Akradi has also agreed to vote his shares of Life Time common stock against any alternative proposal or any proposal relating to an alternative proposal. Such voting agreement will terminate upon the earlier of (a) the effective time of the merger; (b) the date on which the merger agreement is terminated in accordance with its terms; and (c) the date on which the parties thereto terminate the voting agreement by mutual agreement.
Market Prices and Dividend Data (page 115)
Our common stock is listed on the NYSE under the symbol LTM. On March 13, 2015, the last trading day prior to the public announcement of the execution of the merger agreement, the closing price of our common stock on the NYSE was $67.20 per share. On April 27, 2015, the latest practicable trading day before the printing of this proxy statement, the closing price of our common stock on the NYSE was $71.56 per share.
Under the terms of the merger agreement, from the date of the merger agreement until the earlier of the effective time of the merger or the termination of the merger agreement, we may not declare or pay quarterly cash dividends to our common shareholders without Parents written consent. Under our current dividend policy, we have never declared or paid any cash dividends on our common stock and have retained any future earnings to support operations and to finance the growth and development of our business.
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Legal Proceedings Regarding the Merger (page 89)
Following the announcement of the merger, a putative class and derivative action was filed on March 30, 2015 by a purported Life Time shareholder in the First Judicial District Court of the State of Minnesota, County of Carver, captioned St. Clair County Employees Retirement System v. Life Time Fitness, Inc., et al., Case No. 10-CV-15-358. On April 22, 2015 plaintiff filed a First Amended Shareholder Derivative and Direct Class Action Complaint for Breach of Fiduciary Duties, Waste of Corporate Assets, and Abuse of Control, which we refer to as the Amended St. Clair Complaint.
Plaintiff purports to bring the litigation as a class action on behalf of the public shareholders of Life Time, and as a derivative action on behalf of nominal defendant Life Time. The Amended St. Clair Complaint names as defendants the members of the Board, Parent, Merger Sub, Leonard Green, TPG and LNK Partners, which we refer to as LNK. The Amended St. Clair Complaint names Life Time as a nominal defendant. The Amended St. Clair Complaint generally alleges that the Board breached its fiduciary duties to Life Time shareholders in connection with the merger because, among other reasons, the Board failed to fully inform itself of the market value of Life Time; the Board failed to maximize shareholder value; the Board failed to promptly form a committee of disinterested directors under Minnesota Statute section 302A.673; certain individual defendants are interested in the merger; and certain provisions in the merger agreement unfairly preclude a third party from making an offer for Life Time. The Amended St. Clair Complaint alleges that Mr. Akradi, Leonard Green, TPG and LNK aided and abetted the Boards alleged breaches of fiduciary duty. The Amended St. Clair Complaint also alleges that Life Time and the Board failed to disclose material information to stockholders in connection with the merger. In particular, among other things, the Amended St. Clair Complaint alleges that Life Time and the Board failed to disclose material information in the Preliminary Proxy Statement on Form 14A filed on April 3, 2015, which we refer to as the Preliminary Proxy, regarding the background of the merger and financial information that shareholders need to fully consider the merits of the merger. The Amended St. Clair Complaint seeks, among other things, equitable relief under Minnesota Statute section 302A.467, including to enjoin the closing of the merger, to direct disclosure of all material information concerning the merger prior to the shareholder vote, and to award plaintiffs costs and disbursements, including attorneys fees. Life Time and the Board believe that the action is without merit, and intend to vigorously defend against all claims asserted.
On April 8, 2015, a second putative class action was filed by a purported Life Time shareholder in the First Judicial District Court of the State of Minnesota, County of Carver, captioned Bell v. Akradi, et al., Case No. 10-CV-15-392.
Plaintiff purports to bring the litigation as a class action on behalf of the public shareholders of Life Time. The complaint names as defendants Life Time, the members of the Board, Parent, Merger Sub, Leonard Green, TPG and LNK. The complaint generally alleges that the Board breached its fiduciary duties to Life Time shareholders in connection with the merger because, among other reasons, the terms of the merger are not entirely fair to Life Time shareholders in terms of price or process; the Board retained conflicted financial advisors in connection with the merger; certain individual defendants are interested in the merger; and certain provisions in the merger agreement unfairly preclude a third party from making an offer for Life Time. The complaint also alleges that Life Time and the Board failed to disclose material information to stockholders in connection with the merger. In particular, among other things, the complaint alleges that Life Time and the Board failed to disclose material information in the Preliminary Proxy, regarding the background of the merger and financial information that shareholders need to fully consider the merits of the merger. The complaint also alleges that Parent, Merger Sub, Leonard Green, TPG and LNK aided and abetted the Boards alleged breaches of fiduciary duty. The complaint further alleges violations of Minnesota Business Corporation Act sections 302A.467 and 302A.255, as well as violations of the Minnesota Securities Act section 80A.68, section 80A.69, and section 80A.76. The complaint seeks, among other things, to enjoin the closing of the merger, to award unspecified damages, and to award plaintiffs costs and disbursements, including attorneys fees. Life Time and the Board believe that the action is without merit, and intend to vigorously defend against all claims asserted.
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On April 10, 2015, a third putative class action was filed by a purported Life Time shareholder in the United States District Court for the District of Minnesota, captioned Lusk v. Life Time Fitness, Inc., et al., Case No. 0:15-cv-01911.
Plaintiff purports to bring the litigation as a class action on behalf of the shareholders of Life Time. The complaint names as defendants Life Time and the members of the Board. The complaint alleges that Life Time and the Board violated Section 14(a) of Exchange Act and Rule 14a-9 promulgated thereunder, and that the Board violated Section 20(a) of the Exchange Act because the Preliminary Proxy is allegedly false and materially misleading. In particular, the complaint alleges that Life Time and the Board failed to disclose material information in the Preliminary Proxy regarding the background of the merger and financial information that shareholders need to fully consider the merits of the merger. The complaint seeks, among other things, to enjoin the closing of the merger, to award unspecified damages, and to award plaintiffs costs, including attorneys fees. Life Time and the Board believe that the action is without merit, and intend to vigorously defend against all claims asserted.
These shareholder actions are in their early stages, and thus Life Time is unable to reasonably estimate any potential material loss in the event of an unfavorable outcome in one or more of these actions. While they could impact consummation of the transactions contemplated by the merger agreement, Life Time and the Board intend to vigorously defend the actions, denying any violations of state or federal law alleged therein.
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers are intended to address briefly some commonly asked questions regarding the merger, the merger agreement and the special meeting. These questions and answers may not address all questions that may be important to you as a shareholder of Life Time. Please refer to the Summary and the more detailed information contained elsewhere in this proxy statement, the appendices to this proxy statement and the documents incorporated by reference or referred to in this proxy statement, which you should read carefully and in their entirety.
Q: | Why am I receiving these materials? |
A: | The Board is furnishing this proxy statement and form of proxy card to the holders of Life Time common stock in connection with the solicitation of proxies to be voted at a special meeting of shareholders or at any adjournments or postponements of the special meeting. |
Q: | When and where is the special meeting? |
A: | The special meeting will take place on June 4, 2015 at our offices at 2902 Corporate Place, Chanhassen, Minnesota 55317, at 9:00 a.m., Central Time. |
Q: | Who is entitled to vote at the special meeting? |
A: | Only shareholders of record as of the close of business on April 27, 2015 are entitled to notice of the special meeting and to vote at the special meeting or at any adjournments or postponements thereof. Each holder of Life Time common stock is entitled to cast one vote on each matter properly brought before the special meeting for each share of Life Time common stock that such holder owned as of the record date. |
Q: | May I attend the special meeting and vote in person? |
A: | Yes. All shareholders as of the record date may attend the special meeting and vote in person. Seating will be limited. Shareholders will need to present proof of ownership of Life Time common stock, such as a bank or brokerage account statement, and a form of personal identification to be admitted to the special meeting. No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the special meeting. Even if you plan to attend the special meeting in person, we encourage you to complete, sign, date and return the enclosed proxy or vote electronically over the Internet or via telephone to ensure that your shares will be represented at the special meeting. If you attend the special meeting and wish to vote in person, you must deliver to our Secretary a written revocation of any proxy you previously submitted, as your vote by ballot will not revoke any proxy previously submitted. If you hold your shares in street name, because you are not the shareholder of record, you may not vote your shares in person at the special meeting unless you request and obtain a valid proxy from your broker, bank or other nominee. |
Q: | What am I being asked to vote on at the special meeting? |
A: | You are being asked to consider and vote on the following proposals: |
| To approve and adopt the merger agreement, pursuant to which Merger Sub will merge with and into Life Time, and Life Time will become an indirect, wholly owned subsidiary of Parent; |
| To approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement at the time of the special meeting; and |
| To approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger. |
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Q: | What is the proposed merger and what effects will it have on Life Time? |
A: | The proposed merger is the acquisition of Life Time by Parent pursuant to the merger agreement. If the proposal to approve and adopt the merger agreement is approved by the holders of Life Time common stock and the other closing conditions under the merger agreement have been satisfied or waived, Merger Sub will merge with and into Life Time, with Life Time continuing as the surviving company. As a result of the merger, Life Time will become an indirect, wholly owned subsidiary of Parent. Life Time will cooperate with Parent to de-list our common stock from the NYSE and de-register under the Exchange Act as soon as reasonably practicable following the effective time of the merger, and at such time, we will no longer be a publicly traded company and will no longer file periodic reports with the SEC. If the merger is consummated, you will not own any shares of the capital stock of the surviving company. |
Q: | What will I receive if the merger is completed? |
A: | Upon completion of the merger, you will be entitled to receive the per-share merger consideration of $72.10 in cash, without interest and less any applicable withholding taxes, for each share of common stock that you own, unless you have properly perfected and not withdrawn your dissenters rights under the Minnesota Business Corporation Act with respect to such shares. For example, if you own 100 shares of common stock, you will receive $7,210 in cash in exchange for your shares of common stock, less any applicable withholding taxes. In either case, you will not own shares in the surviving company. |
Q: | How does the per-share merger consideration compare to the market price of Life Time common stock prior to the public announcement of the merger agreement? |
A: | The per-share merger consideration represents a premium of (i) approximately 73% to Life Times closing stock price on August 22, 2014, the last trading day prior to Life Times public announcement that the Board and senior management team had initiated a process to explore a potential conversion of Life Times real estate assets into a real estate investment trust, or REIT; (ii) approximately 22% over the volume weighted average share price of the common stock during the 90 days ended March 13, 2015, the last trading day before the merger agreement was signed; (iii) approximately 25% over the closing share price on March 5, 2015, the last trading day before the publication of articles suggesting that Life Time was for sale; and (iv) approximately 7% over the closing share price on March 13, 2015. Life Times common stock has never traded at prices higher than the per-share merger consideration of $72.10 since Life Time went public in 2004. |
Q: | What do I need to do now? |
A: | We encourage you to read this proxy statement, the appendices to this proxy statement, including the merger agreement, and the documents we refer to in this proxy statement carefully and consider how the merger affects you. Then complete, sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying reply envelope or grant your proxy electronically over the Internet or by telephone, so that your shares can be voted at the special meeting. If you hold your shares in street name, please refer to the voting instruction forms provided by your broker, bank or other nominee to vote your shares. |
Q: | Should I send in my stock certificates now? |
A: | No. After the merger is completed, under the terms of the merger agreement, you will receive shortly thereafter a letter of transmittal instructing you to send your stock certificates to the paying agent in order to receive the cash payment of the per-share merger consideration for each share of our common stock represented by the stock certificates. You should use the letter of transmittal to exchange your stock certificates for the cash payment to which you are entitled upon completion of the merger. Please do not send in your stock certificates now. |
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Q: | What happens if I sell or otherwise transfer my shares of Life Time common stock after the record date but before the special meeting? |
A: | The record date for the special meeting is earlier than the date of the special meeting and the date the merger is expected to be completed. If you sell or transfer your shares of our common stock after the record date but before the special meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you sell or otherwise transfer your shares and each of you notifies Life Time in writing of such special arrangements, you will transfer the right to receive the per-share merger consideration, if the merger is completed, to the person to whom you sell or transfer your shares of our common stock, but you will retain your right to vote these shares at the special meeting. Even if you sell or otherwise transfer your shares of common stock after the record date, we encourage you to complete, date, sign and return the enclosed proxy or vote via the Internet or telephone. |
Q | How does Life Times Board of Directors recommend that I vote? |
A: | After consideration of, and based upon, the Special Committees recommendation, our Board of Directors unanimously determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are fair to, advisable and in the best interests of Life Time and its shareholders, declared the merger agreement advisable under Minnesota law and approved, adopted and authorized the merger agreement and the transactions contemplated by the merger agreement, including the merger. |
The Board unanimously recommends that you vote (i) FOR the proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger; (ii) FOR the proposal to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement at the time of the special meeting; and (iii) FOR the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
Q: | What happens if the merger is not completed? |
A: | If the merger agreement is not adopted by Life Time shareholders or if the merger is not consummated for any other reason, Life Time shareholders will not receive any payment for their shares of common stock. Instead, Life Time will remain a public company, the common stock will continue to be listed and traded on the NYSE and registered under the Exchange Act and we will continue to file periodic reports with the SEC. |
Under specified circumstances, Life Time may be required to reimburse certain of Parents expenses incurred in respect of the transactions contemplated by the merger agreement or pay Parent a termination fee, or may be entitled to receive a reverse termination fee from Parent, upon the termination of the merger agreement, as described under The Merger AgreementTermination Fees beginning on page 109 and The Merger AgreementExpense Reimbursement beginning on page 110.
Q: | Do any of Life Times directors or officers have interests in the merger that may differ from those of Life Time shareholders generally? |
A: | In considering the recommendation of the Board with respect to the proposal to approve and adopt the merger agreement, you should be aware that certain of our directors and executive officers may have interests in the merger that are different from, or in addition to, your interests as a shareholder. The Special Committee was aware of these interests and considered them, among other matters, in evaluating and overseeing the negotiation of the merger agreement, and in recommending that the Board approve the merger agreement and the merger. The Board was also aware of these interests in approving the merger agreement and the merger and in recommending that the merger agreement be approved and adopted by the |
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shareholders of Life Time. For a description of the interests of our directors and executive officers in the merger, see The MergerInterests of the Directors and Executive Officers of Life Time in the Merger beginning on page 72. |
Q: | What vote is required to approve and adopt the merger agreement? |
A: | The affirmative vote of the holders of a majority of the voting power of all shares of our common stock entitled to vote at the special meeting is required to approve the proposal to approve and adopt the merger agreement. |
The failure of any shareholder of record to submit a signed proxy card, grant a proxy electronically over the Internet or by telephone or to vote in person by ballot at the special meeting will have the same effect as a vote AGAINST the proposal to approve and adopt the merger agreement. If you hold your shares in street name, the failure to instruct your broker, bank or other nominee on how to vote your shares will result in a broker non-vote and will have the same effect as a vote AGAINST the proposal to approve and adopt the merger agreement. Abstentions will have the same effect as a vote AGAINST the proposal to approve and adopt the merger agreement.
As of April 27, 2015, the record date for determining who is entitled to vote at the special meeting, there were 39,043,889 shares of Life Time common stock issued and outstanding. Each holder of Life Time common stock is entitled to one vote per share of stock owned by such holder as of the record date.
Q: | What vote is required to approve the proposal to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies and the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger? |
A: | Approval of the proposal to approve one or more adjournments of the special meeting, whether or not a quorum is present, requires the affirmative vote of a majority of the voting power of all shares of our common stock represented at the special meeting, either in person or by proxy, and entitled to vote at the special meeting. Approval of the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger requires the affirmative vote of a majority of the voting power of all shares of our common stock represented at the special meeting, in person or by proxy, and entitled to vote at the special meeting. |
The failure of any shareholder of record to submit a signed proxy card, grant a proxy electronically over the Internet or by telephone or to vote in person by ballot at the special meeting will not have any effect on the adjournment proposal or the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger. If you hold your shares in street name, the failure to instruct your broker, bank or other nominee on how to vote your shares will result in a broker non-vote and will not have any effect on the adjournment proposal or the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger. Abstentions will have the same effect as a vote AGAINST the adjournment proposal and the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
Q: | What is a quorum? |
A: | The holders of a majority of the voting power of all shares of our common stock entitled to vote at a special meeting, either present in person or represented by proxy, will constitute a quorum at the special meeting. If a quorum is not present, the affirmative vote of a majority of our shares of common stock represented at the special meeting, either in person or by proxy, and entitled to vote at the meeting may adjourn the meeting until a quorum is present. |
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Q: | What is the difference between holding shares as a shareholder of record and as a beneficial owner? |
A: | If your shares are registered directly in your name with our transfer agent, Wells Fargo Shareowner Services, you are considered, with respect to those shares, to be the shareholder of record. In this case, this proxy statement and your proxy card have been sent directly to you by Life Time. |
If your shares are held through a broker, bank or other nominee, you are considered the beneficial owner of the shares of Life Time common stock held in street name. In that case, this proxy statement has been forwarded to you by your broker, bank or other nominee who is considered, with respect to those shares, to be the shareholder of record. As the beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote your shares by following their instructions for voting. You are also invited to attend the special meeting. However, because you are not the shareholder of record, you may not vote your shares in person at the special meeting unless you request and obtain a valid proxy from your broker, bank or other nominee.
Q: | How may I vote? |
A: | If you are a shareholder of record (that is, if your shares of common stock are registered in your name with Wells Fargo Shareowner Services, our transfer agent), there are four ways to vote: |
| By attending the special meeting and voting in person by ballot; |
| By visiting the Internet at the address on your proxy card; |
| By calling toll-free (within the U.S. or Canada) at the phone number on your proxy card; or |
| By completing, dating, signing and returning the enclosed proxy card in the accompanying prepaid reply envelope. |
A control number, located on your proxy card, is designed to verify your identity and allow you to vote your shares of common stock, and to confirm that your voting instructions have been properly recorded when voting electronically over the Internet or by telephone. Please be aware that, although there is no charge for voting your shares, if you vote electronically over the Internet or by telephone, you may incur costs such as telephone and Internet access charges for which you will be responsible.
Even if you plan to attend the special meeting in person, you are strongly encouraged to vote your shares of common stock by proxy. If you are a record holder or if you obtain a valid proxy to vote shares which you beneficially own, you may still vote your shares of common stock in person at the special meeting if you deliver to our Secretary a written revocation of any proxy you previously submitted.
If your shares are held in street name through a broker, bank or other nominee, you may vote through your broker, bank or other nominee by completing and returning the voting form provided by your broker, bank or other nominee, or electronically over the Internet or by telephone through your broker, bank or other nominee if such a service is provided. To vote via the Internet or via telephone through your broker, bank or other nominee, you should follow the instructions on the voting form provided by your broker, bank or nominee.
Q: | If my broker holds my shares in street name, will my broker vote my shares for me? |
A: | Not without your direction. Your broker, bank or other nominee will only be permitted to vote your shares on any proposal if you instruct your broker, bank or other nominee on how to vote. Under applicable stock exchange rules, brokers, banks or other nominees have the discretion to vote your shares on routine matters if you fail to instruct your broker, bank or other nominee on how to vote your shares with respect to such matters. The proposals in this proxy statement are non-routine matters, and brokers, banks and other nominees therefore cannot vote on these proposals without your instructions. Therefore, it is important that you instruct your broker, bank or nominee on how you wish to vote your shares. |
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You should follow the procedures provided by your broker, bank or other nominee regarding the voting of your shares of Life Time common stock. Without instructions, a broker non-vote will result, and your shares will not be voted. A broker non-vote will have the same effect as if you voted against the proposal to approve and adopt the merger agreement, but will have no effect on the adjournment proposal or the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
Q: | May I change my vote after I have mailed my signed proxy card or otherwise submitted my vote by proxy? |
A: | Yes. If you are a shareholder of record, you may change your vote or revoke your proxy at any time before it is voted at the special meeting by: |
| Submitting a new proxy electronically over the Internet or by telephone after the date of the earlier submitted proxy; |
| Delivering a written notice of revocation to our Secretary; |
| Signing another proxy card with a later date and returning it to us prior to the special meeting; or |
| Attending the special meeting, revoking your proxy by delivering notice of revocation to our Secretary, and voting in person. |
If you hold your shares of common stock in street name, you should contact your broker, bank or other nominee for instructions regarding how to change your vote. You may also vote in person at the special meeting if you obtain a valid proxy from your broker, bank or other nominee.
Q: | What is a proxy? |
A: | A proxy is your legal designation of another person, referred to as a proxy, to vote your shares of Life Time common stock. The written document describing the matters to be considered and voted on at the special meeting is called a proxy statement. The document used to designate a proxy to vote your shares of Life Time common stock is called a proxy card. The Board has designated Bahram Akradi and Eric Buss, and each of them with full power of substitution, as proxies for the special meeting. |
Q: | If a shareholder gives a proxy, how are the shares voted? |
A: | Regardless of the method you choose to vote, the individuals named on the enclosed proxy card, or your proxies, will vote your shares in the way that you indicate. When completing the Internet or telephone process or the proxy card, you may specify whether your shares should be voted for or against or to abstain from voting on all, some or none of the specific items of business to come before the special meeting. |
If you properly sign your proxy card but do not mark the boxes showing how your shares should be voted on a matter, the shares represented by your properly signed proxy will be voted (i) FOR the proposal to approve and adopt the merger agreement; (ii) FOR the proposal to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement at the time of the special meeting; and (iii) FOR the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
Q: | What should I do if I receive more than one set of voting materials? |
A: | You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a shareholder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, date, sign and return (or vote via the Internet or telephone with respect to) each proxy card and voting instruction card that you receive. |
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Q: | Who will count the votes? |
A: | The votes will be counted by the independent inspector of election appointed for the special meeting. |
Q: | Where can I find the voting results of the special meeting? |
A: | Life Time intends to announce preliminary voting results at the special meeting and publish final results in a Current Report on Form 8-K that will be filed with the SEC following the special meeting. All reports that Life Time files with the SEC are publicly available when filed. See Where You Can Find More Information beginning on page 119 of this proxy statement. |
Q: | Will I be subject to U.S. federal income tax upon the exchange of Life Time common stock for cash pursuant to the merger? |
A: | If you are a U.S. Holder (as defined under The MergerU.S. Federal Income Tax Consequences of the Merger beginning on page 86), the exchange of Life Time common stock for cash pursuant to the merger generally will require a U.S. Holder to recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount of cash received by such U.S. Holder pursuant to the merger and such U.S. Holders adjusted tax basis in the shares of our common stock surrendered pursuant to the merger. A Non-U.S. Holder (as defined under The MergerU.S. Federal Income Tax Consequences of the Merger beginning on page 86) generally will not be subject to U.S. federal income tax with respect to the exchange of our common stock for cash in the merger unless such Non-U.S. Holder has certain connections to the United States or holds more than 5% of the outstanding Life Time common stock. Because particular circumstances may differ, we recommend that you consult your own tax advisor to determine the U.S. federal income tax consequences relating to the merger in light of your own particular circumstances and any consequences arising under the laws of any state, local or foreign taxing jurisdiction. A more complete description of the U.S. federal income tax consequences of the merger is provided under The MergerU.S. Federal Income Tax Consequences of the Merger beginning on page 86 of this proxy statement. |
Q: | What will the holders of Life Time stock options and restricted stock and the participants in the ESPP receive in the merger? |
A: | At the effective time of the merger, each then-outstanding option to purchase shares of Life Time common stock, whether or not vested, will be cancelled and converted into the right to receive an amount in cash equal to the product of (i) the total number of shares of Life Time common stock subject to the option and (ii) the amount, if any, by which the per-share merger consideration exceeds the exercise price per share of Life Time common stock underlying the stock option (less any applicable withholding taxes). |
At the effective time of the merger, each then-outstanding share of restricted stock will become fully vested and will be considered to be an outstanding share of Life Time common stock for purposes of the merger agreement that will entitle the holder to receive an amount of cash equal to the per-share merger consideration (less any applicable withholding taxes) in accordance with the same terms and conditions as applied to holders of Life Time common stock generally.
If the effective time of the merger occurs on or before June 30, 2015, which is the end of the current ESPP offering period, Life Time will pay to each participant in the current offering period an amount (not less than zero) in cash equal to the per-share merger consideration multiplied by (i) the result obtained by dividing the amount of the payroll deductions credited to such participants account pursuant to the ESPP as of the last day of the current offering period by (ii) the purchase price (as defined by the ESPP). If the effective time of the merger occurs on or after July 1, 2015, Life Time will issue shares of Life Time common stock to the participants in the ESPP in accordance with its terms as of the end of the current offering period and the participants will receive the per-share merger consideration for each such share the participant holds as of the effective time of the merger.
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Q: | When do you expect the merger to be completed? |
A: | We are working toward completing the merger as quickly as possible and currently expect to consummate the merger in the second quarter of 2015. However, the exact timing of completion of the merger cannot be predicted because the merger is subject to conditions, including adoption of the merger agreement by our shareholders and the receipt of regulatory approvals. |
Q: | Am I entitled to dissenters rights under the Minnesota Business Corporation Act? |
A: | Yes. As a holder of Life Times common stock, you are entitled to exercise dissenters rights under the Minnesota Business Corporation Act in connection with the merger if you take certain actions and meet certain conditions. See The MergerDissenters Rights beginning on page 84. |
Q: | What is householding and how does it affect me? |
A: | The SEC permits companies to send a single set of proxy materials to any household at which two or more stockholders reside, unless contrary instructions have been received, but only if the applicable company provides advance notice and follows certain procedures. In such cases, each shareholder continues to receive a separate notice of the meeting and proxy card. Certain brokerage firms may have instituted householding for beneficial owners of shares of Life Time common stock held through brokerage firms. If your family has multiple accounts holding shares of Life Time common stock, you may have already received householding notification from your broker. Please contact your broker directly if you have any questions or require additional copies of this proxy statement. The broker will arrange for delivery of a separate copy of this proxy statement promptly upon your written or oral request. You may decide at any time to revoke your decision to household, and thereby receive multiple copies. |
Q: | Who can help answer my questions? |
A: | If you have any questions concerning the merger, the special meeting or this proxy statement, would like additional copies of this proxy statement or need help voting your shares of common stock, please contact our proxy solicitor: |
MacKenzie Partners, Inc.
105 Madison Avenue
New York, NY 10016
Email: proxy@mackenziepartners.com
Call collect: (212) 929-5500
Call toll-free: (800) 322-2885
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The enclosed proxy is solicited on behalf of the Board for use at the special meeting of shareholders or at any adjournments or postponements thereof.
Date, Time and Place
We will hold the special meeting on June 4, 2015 at our offices at 2902 Corporate Place, Chanhassen, Minnesota 55317, at 9:00 a.m., Central Time.
Purpose of the Special Meeting
At the special meeting, we will ask our shareholders of record as of the record date to vote on proposals to (i) approve and adopt the merger agreement; (ii) approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement at the time of the special meeting; and (iii) approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
Record Date; Shares Entitled to Vote; Quorum
Only shareholders of record as of the close of business on April 27, 2015 are entitled to notice of the special meeting and to vote at the special meeting or at any adjournments or postponements thereof. A list of shareholders entitled to vote at the special meeting will be available in our offices located at 2902 Corporate Place, Chanhassen, Minnesota 55317, during regular business hours for a period of at least ten days before the special meeting and at the place of the special meeting during the meeting.
As of the record date, there were 39,043,889 shares of our common stock outstanding and entitled to be voted at the special meeting.
A quorum of shareholders is necessary to hold a special meeting. The holders of a majority of the voting power of all shares of our common stock entitled to vote at the special meeting, either present in person or represented by proxy, will constitute a quorum at the special meeting. As a result, 19,521,945 shares must be represented by proxy or by shareholders present and entitled to vote at the special meeting to have a quorum.
In the event that a quorum is not present at the special meeting, it is expected that the meeting would be adjourned to a later date to solicit additional proxies.
Vote Required; Abstentions and Broker Non-Votes
The affirmative vote of the holders of a majority of the voting power of all shares of our common stock entitled to vote at the special meeting is required to approve the proposal to approve and adopt the merger agreement. Approval and adoption of the merger agreement by our shareholders is a condition to the closing of the merger.
Approval of the proposal to approve one or more adjournments of the special meeting, whether or not a quorum is present, requires the affirmative vote of a majority of the voting power of all shares of our common stock represented at the special meeting, either in person or by proxy, and entitled to vote at the special meeting. Approval of the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger requires the affirmative vote of a majority of the voting power of all shares of our common stock represented at the special meeting, in person or by proxy, and entitled to vote at the special meeting.
If a Life Time shareholder abstains from voting, the abstention will have the same effect as if the shareholder voted AGAINST the proposal to approve and adopt the merger agreement. For shareholders who attend the
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meeting or are represented by proxy and abstain from voting, the abstention will have the same effect as if the shareholder voted AGAINST the proposal to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement at the time of the special meeting and AGAINST the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
If you hold your shares in street name the failure to instruct your broker, bank or other nominee on how to vote your shares will result in a broker non-vote, and each broker non-vote will count as a vote AGAINST the proposal to approve and adopt the merger agreement, but will have no effect on the proposal to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement at the time of the special meeting and the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
Shares Held by Life Times Directors and Executive Officers
At the close of business on April 27, 2015, our directors and executive officers beneficially owned and were entitled to vote, in the aggregate, 3,090,119 shares of our common stock (excluding any shares of our common stock that would be delivered upon exercise or conversion of stock options or other equity-based awards), which represented approximately 7.9% of the shares of our outstanding common stock on that date. Upon closing of the merger Mr. Akradi is expected to beneficially own an indirect interest in Life Time of between approximately 7.4% and approximately 7.7%, without giving effect to any grants of restricted common stock of Parent or options to purchase common stock of Parent that Mr. Akradi is expected to receive following the closing of the merger as part of his employment arrangement with Parent. Mr. Akradis indirect beneficial ownership in Life Time after the closing of the merger will be greater than his current beneficial ownership in Life Time due to the higher level of debt that will be included in Life Times capitalization after the closing of the merger. In connection with the merger agreement, Mr. Akradi entered into a voting agreement with Parent, pursuant to which he agreed to, among other things, vote his shares of Life Time common stock (i) in favor of the approval and adoption of the merger agreement; (ii) in favor of any related proposal in furtherance of the merger and the transactions contemplated by the merger agreement; and (iii) against any alternative proposal or any proposal relating to an alternative proposal. Such voting agreement will terminate upon the earlier of (a) the effective time of the merger; (b) the date on which the merger agreement is terminated in accordance with its terms; and (c) the date on which the parties thereto terminate the voting agreement by mutual agreement. Additionally, our other directors and executive officers have informed us that they currently intend to vote all of their shares of Life Time common stock (i) FOR the proposal to approve and adopt the merger agreement; (ii) FOR the proposal to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement at the time of the special meeting; and (iii) FOR the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
Voting of Proxies
If your shares are registered in your name with our transfer agent, Wells Fargo Shareowner Services, you may cause your shares to be voted by returning a signed proxy card, or you may vote in person at the special meeting. Additionally, you may submit electronically over the Internet or by phone a proxy authorizing the voting of your shares by following the instructions on your proxy card. You must have the enclosed proxy card available, and follow the instructions on the proxy card, in order to submit a proxy electronically over the Internet or by telephone. Based on your proxy cards or Internet and telephone proxies, the proxy holders will vote your shares according to your directions.
If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the meeting. If your shares are registered in your name, you are encouraged to vote by proxy even if you plan to attend the
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special meeting in person. If you attend the special meeting and wish to vote in person, you must deliver to our Secretary a written revocation of any proxy you previously submitted, as your vote by ballot will not revoke any proxy previously submitted.
Voting instructions are included on your proxy card. All shares represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in accordance with the instructions of the shareholder. Properly executed proxies that do not contain voting instructions will be voted (i) FOR the proposal to approve and adopt the merger agreement; (ii) FOR the proposal to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement at the time of the special meeting; and (iii) FOR the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger. No proxy that is specifically marked against the proposal to approve and adopt the merger agreement will be voted in favor of the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger, unless it is specifically marked FOR the approval of such proposal.
If your shares are held in street name through a broker, bank or other nominee, you may vote through your broker, bank or other nominee by completing and returning the voting form provided by your broker, bank or other nominee, or by the Internet or telephone through your broker, bank or other nominee if such a service is provided. To vote via the Internet or telephone through your broker, bank or other nominee, you should follow the instructions on the voting form provided by your broker, bank or other nominee. Under applicable stock exchange rules, brokers, banks or other nominees have the discretion to vote your shares on routine matters if you fail to instruct your broker, bank or other nominee on how to vote your shares with respect to such matters. The proposals in this proxy statement are non-routine matters, and brokers, banks and other nominees therefore cannot vote on these proposals without your instructions. If you do not return your brokers, banks or other nominees voting form, do not vote via the Internet or telephone through your broker, bank or other nominee, if applicable, or do not attend the special meeting and vote in person with a proxy from your broker, bank or other nominee, such actions will result in a broker non-vote and will have the same effect as if you voted AGAINST the proposal to approve and adopt the merger agreement but will not have any effect on the adjournment proposal or the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
Revocability of Proxies
If you are a shareholder of record, you may change your vote or revoke your proxy at any time before it is voted at the special meeting by:
| Submitting a new proxy electronically over the Internet or by telephone after the date of the earlier submitted proxy; |
| Delivering a written notice of revocation to our Secretary; |
| Signing another proxy card with a later date and returning it to us prior to the special meeting; or |
| Attending the special meeting, revoking your proxy by delivering notice of revocation to our Secretary, and voting in person. |
Please note that to be effective, your new proxy card, Internet or telephonic voting instructions or written notice of revocation must be received by our Secretary prior to the special meeting and, in the case of Internet or telephonic voting instructions, must be received before 11:59 p.m., Eastern Time on June 3, 2015. If you have submitted a proxy but instead attend the special meeting and wish to vote in person, you must deliver to our Secretary a written revocation of any proxy you previously submitted, as your vote by ballot will not revoke any proxy previously submitted.
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If you hold your shares of common stock in street name, you should contact your broker, bank or other nominee for instructions regarding how to change your vote. You may also vote in person at the special meeting if you obtain a valid proxy from your broker, bank or other nominee. Any adjournment of the special meeting for the purpose of soliciting additional proxies will allow Life Time shareholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting, as adjourned.
Board of Directors Recommendation
The Board, acting upon the recommendation of the Special Committee and after considering various factors described in the section entitled The MergerRecommendation of Our Board of Directors and Reasons for the Merger, unanimously determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are fair to, advisable and in the best interests of Life Time and its shareholders, declared the merger agreement advisable under Minnesota law and approved, adopted and authorized the merger agreement and the transactions contemplated by the merger agreement, including the merger.
The Board unanimously recommends that you vote (i) FOR the proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger; (ii) FOR the proposal to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement at the time of the special meeting; and (iii) FOR the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
Solicitation of Proxies
The expense of soliciting proxies in the enclosed form will be borne by Life Time. We have retained MacKenzie Partners, Inc., a proxy solicitation firm, to solicit proxies in connection with the special meeting at a cost of approximately $30,000 plus expenses. Proxies may also be solicited by some of our directors, officers and employees, personally or by telephone, facsimile or other means of communication. No additional compensation will be paid for such services.
Anticipated Date of Completion of the Merger
Assuming timely satisfaction of necessary closing conditions, including the approval by our shareholders of the proposal to approve and adopt the merger agreement, we anticipate that the merger will be consummated in the second quarter of 2015.
Other Matters
At this time, we know of no other matters to be submitted at the special meeting.
Important Notice Regarding the Availability of Proxy Materials for the Special Meeting to be Held on June 4, 2015
The proxy statement is available at www.proxyvote.com.
Householding of Special Meeting Materials
We may send a single copy of this proxy statement to any household at which two or more shareholders reside in accordance with SEC rules, unless we have received contrary instructions. Each shareholder in the household will continue to receive a separate proxy card. This process, known as householding, reduces the volume of duplicate information received at your household and helps to reduce our expenses.
If, at any time, you no longer wish to participate in householding and would prefer to receive a separate proxy statement, please notify your broker or direct your written request to: Investor Relations, Life Time Fitness, Inc.,
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2902 Corporate Place, Chanhassen, Minnesota 55317, or contact our Investor Relations department at (952) 229-7427. We will promptly deliver upon written or oral request a separate copy of the proxy statement to a shareholder at a shared address to which a single copy of the proxy statement was delivered. Shareholders who currently receive multiple copies of the proxy statement at their addresses and would like to request householding of their communications should contact their broker.
Rights of Shareholders Who Assert Dissenters Rights
If the merger is approved and becomes effective, holders of common stock who do not vote their shares in favor of the merger will be entitled to statutory dissenters rights if they strictly comply with Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act. For a description of the rights of such holders and of the procedures to be followed in order to assert such rights and obtain payment of the fair value of their shares of stock, see Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act, copies of which are attached as Appendix B, as well as the information set forth below.
IN ORDER TO PERFECT DISSENTERS RIGHTS WITH RESPECT TO THE MERGER, A SHAREHOLDER MUST SEND A NOTICE TO LIFE TIME BEFORE THE DATE OF THE SPECIAL MEETING AND MUST NOT VOTE IN FAVOR OF THE PROPOSAL TO APPROVE THE MERGER BY PROXY OR OTHERWISE.
Questions and Additional Information
If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please contact Wells Fargo Shareowner Services toll free at +1 (800) 401-1957 or online at www.shareowneronline.com.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This proxy statement, and the documents to which we refer you in this proxy statement, as well as information included in oral statements or other written statements made or to be made by us or on our behalf, contain forward-looking statements that do not directly or exclusively relate to historical facts. Forward-looking statements can usually be identified by the use of terminology such as anticipate, believe, continue, could, estimate, evolve, expect, forecast, intend, looking ahead, may, opinion, plan, possible, potential, project, should, will and similar words or expression. Shareholders are cautioned that any such forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and that actual results may vary materially from those in the forward-looking statements. These risks and uncertainties include, but are not limited to, the risks detailed in our filings with the SEC, including in our most recent filings on Forms 10-K and 10-Q, factors and matters described or incorporated by reference in this proxy statement, and the following factors:
| The inability to consummate the merger within the anticipated time period, or at all, due to the failure to obtain shareholder approval to adopt the merger agreement or failure to satisfy the other conditions to the completion of the merger; |
| The risk that the merger agreement may be terminated in circumstances requiring us to pay Parent a termination fee of up to $97 million or reimburse certain of Parents expenses of up to $7 million; |
| The failure by Parent to obtain the equity and/or debt financing contemplated in the financing commitments entered into in connection with the merger agreement, or alternative financing, as applicable, or the failure of any such financing to be sufficient to consummate the merger and the other transactions contemplated by the merger agreement; |
| Risks that the proposed merger disrupts our current plans and operations or affects our ability to retain or recruit key employees; |
| The fact that, although Parent must take all actions, and do all things necessary, proper or advisable, to obtain the equity and debt financing contemplated by the equity commitment letters and the debt commitment letter, there is a risk that such financing might not be obtained and that, in certain instances, Life Times only viable recourse could be to pursue payment of the reverse termination fee by Parent; |
| The effect of the announcement or pendency of the merger on Life Times business relationships (including, without limitation, customers and suppliers), operating results and business generally; |
| The amount of the costs, fees, expenses and charges related to the merger agreement or the merger; |
| Risks related to diverting managements or employees attention from ongoing business operations; |
| Risk that our stock price may decline significantly if the merger is not completed; |
| The risk that the merger may not be consummated in a timely manner, if at all; |
| The nature, cost and outcome of pending and future litigation and other legal proceedings, including any such proceedings related to the merger and instituted against us and others; |
| The fact that receipt of the all-cash merger consideration would be taxable to Life Times shareholders that are treated as U.S. persons for United States federal income tax purposes; and |
| The fact that Life Times shareholders would forgo the opportunity to realize the potential long-term value of the successful execution of Life Times current strategy as an independent public company. |
Consequently, all of the forward-looking statements we make in this proxy statement are qualified by the information contained or incorporated by reference herein, including, but not limited to, (a) the information contained under this heading and (b) the information contained under the headings Risk Factors and information in our consolidated financial statements and notes thereto included in our most recent filings on
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Forms 10-K and 10-Q (see Where You Can Find More Information beginning on page 119). No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements.
Except as required by applicable law, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. Life Time shareholders are advised, however, to consult any future disclosures we make on related subjects as may be detailed in our other filings made from time to time with the SEC.
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This discussion of the merger is qualified in its entirety by reference to the merger agreement, which is attached to this proxy statement as Appendix A and incorporated into this proxy statement by reference. You should read the entire merger agreement carefully as it is the legal document that governs the merger.
Parties Involved in the Merger
Life Time Fitness, Inc.
2902 Corporate Place
Chanhassen, Minnesota 55317
(952) 947-0000
Life Time is The Healthy Way of Life Company. We help organizations, communities and individuals achieve their total health objectives, athletic aspirations and fitness goals by engaging in their areas of interest, or discovering new passions, both inside and outside of Life Times distinctive, resort-like sports, professional fitness, family recreation and spa destinations, most of which operate 24 hours a day, seven days a week. Our Healthy Way of Life approach enables our customers to achieve success by providing the best places, people and programs of exceptional quality and value.
For more information about Life Time, please visit our website at www.lifetimefitness.com. Our website address is provided as an inactive textual reference only. The information contained on our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document on file with or furnished to the SEC. See also Where You Can Find More Information beginning on page 119.
Our common stock is currently listed on the NYSE under the symbol LTM.
LTF Holdings, Inc.
c/o Leonard Green & Partners, L.P.
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025
(310) 954-0444
c/o TPG Capital, L.P.
345 California Street, Suite 3300
San Francisco, California 94104
(415) 743-1500
LTF Holdings, Inc., or Parent, is a Delaware corporation that was formed by affiliates of Leonard Green and TPG solely for the purpose of entering into the merger agreement and completing the transactions contemplated by the merger agreement and the related financing transactions. Parent has not engaged in any business except for activities incidental to its formation and as contemplated by the merger agreement. Parent is currently controlled by investment funds affiliated with Leonard Green and TPG. Upon completion of the merger, Life Time will be an indirect, wholly owned subsidiary of Parent.
Leonard Green is one of the nations preeminent private equity firms with over $13 billion in equity capital under active management. Based in Los Angeles, Leonard Green invests in market leading companies across a range of
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industries. Significant current and former investments include The Container Store, Shake Shack, Whole Foods Market, Topshop, J. Crew, Jetro Cash & Carry, Activision, CHG Healthcare and Petco.
TPG is a leading global private investment firm founded in 1992 with over $67 billion of assets under management and offices in San Francisco, Fort Worth, Austin, Dallas, Houston, New York, Beijing, Hong Kong, London, Luxembourg, Melbourne, Moscow, Mumbai, Sao Paulo, Shanghai, Singapore and Tokyo. TPG has extensive experience with global public and private investments executed through leveraged buyouts, recapitalizations, spinouts, growth investments, joint ventures and restructurings. The firm has deep consumer and retail expertise with investments including Beringer Wines, Burger King, Chobani, J. Crew, Lenta, Neiman Marcus, Petco and Savers.
LTF Merger Sub, Inc.
c/o Leonard Green & Partners, L.P.
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025
(310) 954-0444
c/o TPG Capital, L.P.
345 California Street, Suite 3300
San Francisco, California 94104
(415) 743-1500
LTF Merger Sub, Inc., or Merger Sub, is a Minnesota corporation that was formed solely for the purpose of entering into the merger agreement and completing the transactions contemplated by the merger agreement and the related financing transactions. Merger Sub is an indirect, wholly owned subsidiary of Parent and has not engaged in any business except for activities incidental to its formation and as contemplated by the merger agreement and the related financing transactions. Upon the completion of the merger, Merger Sub will cease to exist and Life Time will continue as the surviving corporation.
Certain Effects of the Merger on Life Time
Upon the terms and subject to the conditions of the merger agreement, Merger Sub will merge with and into Life Time, with Life Time continuing as the surviving company. As a result of the merger, Life Time will become an indirect, wholly owned subsidiary of Parent. Life Time will cooperate with Parent to de-list our common stock from the NYSE Market and de-register under the Exchange Act as soon as reasonably practicable following the effective time of the merger, and at such time, we will no longer be a publicly traded company and will no longer file periodic reports with the SEC. If the merger is consummated, you will not own any shares of the capital stock of the surviving company.
The effective time of the merger will occur upon the filing of articles of merger with the Secretary of State of the State of Minnesota (or at such later time as we and Parent may agree and specify in the articles of merger).
Effect on Life Time if the Merger is Not Completed
If the merger agreement is not adopted by Life Time shareholders or if the merger is not completed for any other reason, Life Time shareholders will not receive any payment for their shares of common stock. Instead, Life Time will remain a public company, our common stock will continue to be listed and traded on the NYSE and registered under the Exchange Act and we will continue to file periodic reports with the SEC.
Furthermore, if the merger is not consummated, and depending on the circumstances that would have caused the merger not to be consummated, it is likely that the price of Life Times common stock will decline significantly.
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If that were to occur, it is uncertain when, if ever, the price of Life Times common stock would return to the price at which it trades as of the date of this proxy statement.
Accordingly, if the merger is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares of Life Times common stock. If the merger is not consummated, the Board will continue to evaluate and review Life Times business operations, properties, dividend policy and capitalization, among other things, make such changes as are deemed appropriate and continue to seek to enhance shareholder value. If the merger agreement is not adopted by Life Times shareholders or if the merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to Life Time will be offered or that Life Times business, prospects or results of operation will not be adversely impacted.
In addition, under specified circumstances, Life Time may be required to reimburse certain of Parents expenses incurred in respect of the transactions contemplated by the merger agreement or pay Parent a termination fee, or may be entitled to receive a reverse termination fee from Parent, upon the termination of the merger agreement, as described under The Merger AgreementTermination Fees beginning on page 109.
Merger Consideration
In the merger, each outstanding share of common stock, par value $0.02 per share, of Life Time issued and outstanding immediately prior to the effective time of the merger (other than (i) shares held by Life Time, Parent or Merger Sub or any direct or indirect subsidiary of Life Time or Parent; (ii) shares being contributed to Parent by Mr. Akradi and any other persons pursuant to the contribution and subscription agreement; and (iii) shares held by shareholders who have perfected and not withdrawn a demand for dissenters rights or who have not otherwise lost dissenters rights under Minnesota law with respect to such shares) will be converted automatically into the right to receive the per-share merger consideration of $72.10 in cash, without interest and less any applicable withholding taxes, and without any action by the holders of such shares, will cease to be outstanding, be cancelled and cease to exist, and each certificate formerly representing any of the shares of Life Time common stock will thereafter represent only the right to receive the per-share merger consideration.
After the merger is completed, under the terms of the merger agreement, you will have the right to receive the per-share merger consideration, but you will no longer have any rights as a Life Time shareholder as a result of the merger (except that shareholders who properly perfect their dissenters rights will have the right to receive a payment for the fair value of their shares as determined pursuant to an dissenters proceeding as contemplated by Minnesota law, as described below under Dissenters Rights).
Background of the Merger
The following chronology summarizes certain key events and contacts that led to the signing of the merger agreement. It does not purport to catalogue every conversation among the Board, members of our management or our representatives and other parties.
During the past several years, as part of its ongoing strategic-planning process, the management and Board regularly reviewed and assessed, among other things, Life Times long-term strategic goals and opportunities, competitive environment, and short- and long-term performance in light of Life Times strategic plan, with the goal of maximizing shareholder value. In connection with these activities, Life Times management and Board also considered and evaluated potential strategic alternatives, including business combinations, acquisitions, dispositions, sale-leaseback transactions, and internal restructurings. As part of these assessments, Mr. Akradi had discussions from time to time with certain third parties, including Party A, a private equity firm which invests in industries in which Life Time operates. In 2013, Life Time engaged Wells Fargo Securities to serve as its financial advisor in connection with these assessments. In addition, Life Time engaged Wells Fargo Securities on July 21, 2014 for the purpose of, among other things, proposing and analyzing various financing and strategic
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alternatives available to Life Time to maximize long-term shareholder value, including but not limited to the evaluation of a REIT conversion transaction.
On July 30, 2014, Life Time received an unsolicited letter, and Mr. Akradi received an unsolicited telephone call, from Party A proposing to purchase Life Time for an amount in excess of $60.00 per share in cash (the closing price of Life Times common stock on July 30, 2014 was $40.57).
In advance of a Board meeting on August 21, 2014, the Board received certain materials from its advisors, including a fiduciary duties presentation prepared by its legal counsel.
On August 21, 2014, the Board engaged Guggenheim Securities to act as a financial advisor and investment banker to the Company in connection with its review and assessment of various strategic and/or financial alternatives in order to maximize long-term shareholder value. Also, at a Board meeting on August 21, 2014, the Board carefully considered Party As proposal of July 30, 2014, including by reviewing it with the Boards financial advisors, Wells Fargo Securities and Guggenheim Securities, and legal counsel.
At an additional meeting on August 22, 2014, the Board continued to consider strategic alternatives. The Board unanimously determined that Party As July 30, 2014 proposal was not in the best interests of Life Time and its shareholders. After discussions with representatives of the Boards financial advisors, the Board also determined to explore separating Life Times real estate holdings from the operation of Life Times fitness centers and related products and services into two publicly traded corporations, which we refer to as the REIT Conversion Exploration. Based on a review of several strategic alternatives, the Board believed that a conversion of Life Times real estate assets into a real estate investment trust, or REIT, could provide substantial benefits to Life Time and its shareholders given its significant real estate holdings, while also supporting ongoing efforts to deliver innovative consumer and corporate health and wellness solutions as it executes its long-term growth plans. Also on August 22, 2014, the Board adopted a shareholder rights plan in connection with the REIT Conversion Exploration in order to safeguard Life Times ability to pursue a pro rata dividend in connection with a REIT conversion, and to protect against coercive or abusive takeover tactics and help ensure that Life Times shareholders would not be deprived of the opportunity to realize the full and fair value of their investment.
On August 25, 2014, Life Time publicly announced the REIT Conversion Exploration and the adoption of the shareholder rights plan. Life Time also indicated in a letter to Party A that the Board had unanimously determined that Party As proposal was not in the best interests of Life Time and its shareholders.
On September 5, 2014, Marcato Capital Management LP, which we refer to as Marcato, at the time Life Times largest shareholder, sent a public letter to Life Time stating, among other things, that at the mid-point of Marcatos valuation range, Life Times common stock could reach a price of $70.00 per share upon separation of Life Times real estate assets.
On September 23, 2014, Party A sent Life Time a second unsolicited letter, and again contacted Mr. Akradi via telephone, increasing its proposed price to acquire Life Time to $70.00 per share in cash.
On September 25, 2014, the Board met telephonically with representatives of its financial advisors and legal counsel to discuss the revised proposal from Party A, and at that meeting the Board determined to explore maximizing shareholder value by contacting other potential interested parties to determine whether any such parties might be interested in engaging in a strategic transaction involving Life Time, while continuing to execute on Life Times current strategic plans, including the REIT Conversion Exploration. The Board then discussed with representatives of the Boards financial advisors the nature and scope of a potential sale process designed to identify potential acquirors of Life Time. Following that discussion, the Board authorized the Life Time management, with the assistance of the representatives of the Boards financial advisors, to begin a process of contacting potential acquirors on a confidential basis to assess their interest in Life Time, which we refer to as the Potential Sale Process.
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Life Times management and the representatives of the Boards financial advisors considered approaching a number of potential bidders for Life Time. After careful consideration of these potential bidders, the Board determined to approach a targeted group of these potential bidders, focusing on those whom the Board determined, based in part on advice from Life Times management and representatives of the Boards financial advisors, were best positioned to enter into a transaction with Life Time that would be in the best interests of its shareholders. At the direction of the Board, the representatives of the Boards financial advisors or Mr. Akradi initiated contact with 16 potential bidders, including strategic bidders and financial sponsors (including Leonard Green, Party A and Party B), over the next few months. Mr. Akradi contacted certain of those potential bidders with whom he had a pre-existing relationship and representatives of the Boards financial advisors contacted the remainder of the 16 potential bidders. Eleven of the potential bidders executed a confidentiality agreement (each of which contained customary standstill restrictions that terminated upon Life Times entry into the merger agreement) and then received information related to Life Time. Life Time received requests from several bidders that Life Time approve certain potential debt and equity financing sources under the confidentiality agreements. Upon receipt of each bidders request (including Party As), it was considered on a case-by-case basis and determined whether it would be advisable for, and in the best interests of, Life Time to permit each bidders specific request, including whether there were any potential conflicts with any other existing potential debt and equity financing sources requested by other bidders, in order to maintain a competitive process among bidders as part of the Potential Sale Process.
Life Times management and the representatives of the Boards financial advisors met with several potential bidders (all of whom had entered into confidentiality agreements) to discuss the business, prospects, and financial condition of Life Time, and provided regular updates to the Board.
On September 30, 2014, representatives of Life Time met with representatives of Party A to discuss Party As proposal.
On October 6, 2014, Mr. Akradi had discussions with a representative of Leonard Green concerning Life Time.
At a Board meeting on October 9, 2014, the Board met to continue to consider strategic alternatives. The Board discussed with representatives of its financial advisors and legal counsel, among other matters, the status of the REIT Conversion Exploration and discussions with third parties regarding the Potential Sale Process.
Throughout October, November and December 2014, Life Times management and representatives of the Boards financial advisors continued reaching out to potential bidders pursuant to the Boards authorization regarding the Potential Sale Process, including first contacting LNK Partners, or LNK, on October 20, 2014.
On October 21 and 22, 2014, the Board held its regularly scheduled Board meeting, continuing its discussion of strategic alternatives, including the REIT Conversion Exploration and the Potential Sale Process. The Board also approved formal engagement agreements with each of Wells Fargo Securities and Guggenheim Securities in connection with the REIT Conversion Exploration and the Potential Sale Process. These agreements amended the previous engagement letters between Life Time and each of Wells Fargo Securities and Guggenheim Securities.
On November 10, 2014, Life Time entered into a confidentiality agreement with LNK.
At special meetings on November 13, 2014, November 26, 2014 and December 11, 2014, the Board received additional status updates regarding strategic alternatives, including the REIT Conversion Exploration and the Potential Sale Process.
On December 15, 2014, Mr. Akradi and other representatives of Life Time met with representatives of LNK. On December 16, 2014, Mr. Akradi and other representatives of Life Time had a meeting with LNK representatives at Life Times offices to discuss LNKs offer to serve as a potential equity financing source supporting a prevailing bidder in connection with a transaction involving Life Time.
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On December 17 and 18, 2014, the Board held its regularly scheduled meeting and received a status update on strategic alternatives, including the REIT Conversion Exploration and the Potential Sale Process.
On December 19, 2014, at the direction of the Board, representatives of the Boards financial advisors sent each prospective bidder a first-round process letter requesting that bidders submit by January 16, 2015 a detailed, non-binding indication of interest to purchase 100% of the equity of Life Time. The process letters requested information as to each bidders proposed purchase price, financing, required approvals, closing conditions, required due diligence and other material information.
On January 5, 2015, Leonard Green executed a confidentiality agreement with Life Time.
On January 16, 2015, Party A submitted an indication of interest in response to the first-round process letter reaffirming its proposal of $70.00 per share, and Leonard Green proposed a purchase price of $65.00 to $69.00 per share. Party B, which had executed a confidentiality agreement with Life Time on October 23, 2014, proposed a range of purchase prices and on January 20, 2015 confirmed in writing a proposed purchase price of $60.00 per share. In addition, certain other prospective bidders communicated their high regard for Life Time but noted their inability to pay a price per share as high as the $70.00 valuation suggested in Marcatos publicly disclosed September 5, 2014 letter to Life Time.
At a meeting on January 21, 2015, the Board reviewed the three indications of interest it had received and decided to continue negotiations with Party A and Leonard Green in connection with the Potential Sale Process. After discussion of strategic alternatives, including the REIT Conversion Exploration and the Potential Sale Process, the Board determined that Mr. Akradi was an integral part of maximizing shareholder value throughout the Potential Sale Process. Mr. Akradi indicated that his interests were aligned with the interests of the Board in obtaining the highest price reasonably available and expressed his willingness to enter into discussions with any counterparty after the Potential Sale Process had produced the highest price the Board believed was reasonably obtainable. Based in part on Life Time having only received three written bids, the Board determined that Life Time should encourage additional bids, with assistance from Mr. Akradi. Mr. Akradi approached certain additional potential bidders, none of whom ultimately submitted proposals to acquire Life Time.
The Board also considered establishing a special committee but determined that such a committee was not necessary at such time. The independent members of the Board indicated that the Board would continue to reevaluate the need for any such committee.
On January 22, 2015, a draft of the merger agreement prepared by Life Times legal counsel was sent to Party A, and on January 24, 2015, the same draft merger agreement was sent to Leonard Green. Among other terms and conditions, the draft merger agreement included a go-shop provision that would permit Life Time to actively solicit competing proposals from other bidders for a specified period of time following the entry into definitive transaction agreements.
On January 29, 2015, Party A provided to Life Time a mark-up of the draft merger agreement. The mark-up, among other things, deleted the go-shop, added a private equity style financing structure and included a reverse termination fee equal to 4% of transaction value.
On February 2, 2015, Leonard Green provided an issues list outlining the material changes to the draft merger agreement it proposed to make. Leonard Greens proposal expressly conditioned its indication of interest on reaching an agreement with Mr. Akradi with respect to rolling over certain of his shares of Life Time common stock. Leonard Green proposed to, among other things, delete the go-shop and require Mr. Akradi and certain other unspecified key executives to roll over certain of their shares of Life Time common stock, add a private equity style financing structure and include a reverse termination fee.
On February 3, 2015, during a call with Life Times legal counsel, Party A stated that, while reaching a satisfactory agreement with management with respect to the rollover of management equity would be beneficial
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from Party As perspective, meeting with Life Times Chief Executive Officer and executive management was not a prerequisite for its bid, and, if Life Time was unwilling to allow a meeting until after a definitive agreement was executed, that Party A would abide by any conditions set by the Board and would not discuss rollover of management equity and employment arrangements with executive management at that time. Nevertheless, Party A indicated that meeting with management would enhance its ability to finalize and proceed with, and could maximize the price of, its proposal and assist with securing more certain financing, which could lead to a higher and more certain proposal.
On February 4, 2015, representatives of Life Time, including Messrs. Akradi, Buss and Zwiefel, provided a management due diligence presentation to Leonard Green and certain of its potential debt financing sources at Life Times corporate office.
Following receipt of the proposals from Party A, Leonard Green and Party B, the Board began meeting on a regular basis to discuss the Potential Sale Process and the REIT Conversion Exploration, including regular meetings in executive session of the independent members of the Board. At the first such meeting on February 5, 2015, the Board received a summary of the recent meeting with Leonard Green and the diligence activities of Party A and an update on Leonard Greens and Party As desire to meet with Mr. Akradi and executive management of Life Time.
On February 9, 2015, the independent members of the Board considered and approved a framework for Mr. Akradi to have initial discussions with each of Party A and Leonard Green to facilitate the Potential Sale Process and the availability and terms of financing for each bidder. Among other things, the framework required that one senior representative of the Boards financial advisors attend each such discussion and defined the scope of Mr. Akradis discussions with potential bidders.
On February 11, 2015, pursuant to the framework approved by the independent members of the Board, Messrs. Akradi and Buss, along with a representative of Wells Fargo Securities, had initial discussions with Party A.
On February 18, 2015, the Board held a meeting at which representatives of the Boards financial advisors provided an update on conversations with Leonard Green and Party A and the Potential Sale Process. Mr. Akradi provided an update on his conversations related to the Potential Sale Process, and Life Times legal counsel advised the Board on the Potential Sale Process, the Boards fiduciary duties and next steps in the transaction. The independent members of the Board also held an executive session with legal counsel and representatives of the Boards financial advisors.
On February 19, 2015, Life Time delivered a mark-up of the merger agreement to Party A in response to its mark-up of January 29, 2015. Among other things, the mark-up proposed to reinstate the go-shop and reinstated a number of Life Times other positions.
On February 20, 2015, Mr. Akradi along with a representative of Guggenheim Securities met with Leonard Green in accordance with the framework approved by the independent members of the Board on February 9, 2015. On February 24, 2015, representatives of Life Time provided a management due diligence presentation to Leonard Green and certain of its potential equity co-investors since Leonard Green had previously indicated to representatives of the Special Committees financial advisors that it required equity co-investors to provide sufficient equity commitments to consummate a potential transaction.
On February 24, 2015, at the direction of the Board, representatives of the Boards financial advisors sent letters to Party A and Leonard Green requesting definitive proposals for the acquisition of Life Time by March 11, 2015. The letter requested information as to each bidders proposed purchase price, financing, required internal approvals, closing conditions and other material information. The letter also explicitly stated that the proposals should represent each bidders best offer and that no assurances were thereby given that there would be any contact with any bidder after March 11, 2015, and before signing of a definitive agreement with any party.
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On February 26, 2015, at a meeting of the Board convened to provide updates as to the Potential Sale Process, the independent members of the Board indicated that, from and after such date, if Mr. Akradi wanted to present to any bidder specific terms on which he would participate and invest or the capacity in which he would continue with Life Time after an acquisition, he could do so only after a special committee composed of independent directors, which we refer to as the Special Committee, was formed and after the terms were first reviewed by the Special Committee. Since the Board consisted of all independent directors other than Mr. Akradi, the Board determined that the Special Committee would consist of all members of the Board other than Mr. Akradi. The independent directors advised Mr. Akradi that they would not authorize terms that they concluded would negatively affect the price that any bidder would pay for Life Time. Mr. Akradi indicated that he would first present the terms to the Special Committee when it is formed and that he needed until March 3, 2015 to develop his request. The independent directors indicated that they would meet on March 3, 2015 to consider forming the Special Committee.
Also on February 26, 2015, Life Time issued a press release announcing its quarterly and year-end results that stated that the Board was continuing to review strategic alternatives, including the exploration of a conversion of its real estate assets into a REIT.
On February 27, 2015, Leonard Green provided to Life Time a mark-up of the draft merger agreement provided to potential bidders. Among other items, the mark-up eliminated the go-shop, modified the parameters of the proposed termination fee, included a condition that Mr. Akradi roll over certain of his shares of Life Time common stock, added a private equity style financing structure and included a reverse termination fee.
On March 3, 2015, the Board established the Special Committee to consider and evaluate possible strategic transactions outside of the ordinary course of business with the potential to increase shareholder value and all matters pertaining thereto on behalf of Life Time. Life Times legal counsel advised the members of the Special Committee of their fiduciary duties under applicable law and discussed related materials provided in advance of the meeting. The Special Committee elected Joseph S. Vassalluzzo as its Chairman, whom we refer to in such capacity as the Chairman. The Special Committee fully discussed the status of the process for considering and evaluating strategic transactions for Life Time. The Special Committee discussed various strategies and tactics for seeking to obtain the highest per-share cash bids for Life Time and for evaluating those bids against Life Times prospects as a stand-alone public company and against transaction structures considered in connection with the REIT Conversion Exploration. The Special Committee also adopted a framework governing any discussions between Life Times Chief Executive Officer and any potential bidder, which was similar to the framework approved by the Board on February 9, 2015. The members of the Special Committee discussed their beliefs that potential bidders were more likely to submit the highest bids possible if they were permitted to discuss potential arrangements with senior members of Life Times management team and that such discussions could be helpful in connection with arranging financing for a transaction. The Special Committee determined to permit Mr. Akradi to deliver the proposed term sheet, which he had provided to the Special Committee, to, and to negotiate it with, potential bidders, expressly noting that the Special Committee did not endorse or recommend the term sheet and would not require any bidder to engage in any such negotiations. Additionally, the Special Committee determined the compensation to be paid to its members for their services on the Special Committee, considered adoption of a potential retention payment and severance plan to safeguard against employees leaving based on job security during the pendency of any transaction if the Special Committee determined to accept a proposal to sell Life Time and reviewed with legal counsel certain guidelines for the committee members conduct. The Special Committee also determined that the financial advisors and legal counsel to Life Time were independent of management and could also serve as advisors to both the Board and the Special Committee.
Following the formation of the Special Committee, Life Time and the financial advisors entered into amendments to the respective engagement letters of the financial advisors to provide that the financial advisors would provide financial advisory services both to the Board and to the Special Committee.
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Also on March 3, 2015, with Life Times permission (which had been provided on February 8, 2015), Leonard Green contacted TPG, who was not previously a potential bidder, to act as a possible equity co-investor with Leonard Green.
On March 5, 2015, the Wall Street Journal published an article, which we refer to as the WSJ Report, indicating that Life Time was in talks with two possible bidders. Life Time did not comment on the article.
Also on March 5, 2015, Mr. Akradi met with Party A via teleconference to discuss post-closing matters, pursuant to the framework adopted by the Special Committee on March 3, 2015. The Chairman and the Special Committees legal counsel attended the teleconference as observers. The Chairman stated at the beginning of the meeting that the Special Committees focus in evaluating bids in connection with its review of strategic alternatives for Life Time is to enter into a sale transaction (if it determines to enter into any sale transaction) that provides the highest price for Life Times unaffiliated shareholders with the greatest certainty of closing. The Chairman and the Special Committees legal counsel were copied on certain post-meeting e-mails containing information that each of Party A and Mr. Akradi had agreed to circulate to each other.
On March 6, 2015, the Special Committees legal counsel circulated a revised draft of the merger agreement to Leonard Greens counsel. Also on March 6, 2015, Party A delivered a mark-up of the merger agreement to Life Time in response to its mark-up of February 19, 2015, as well as drafts of certain commitment letters and a form of limited guarantee. Open issues remained, including price, the size of the termination fee and reverse termination fee and the inclusion of the go-shop provision.
Also, on March 6, 2015, TPG executed a joinder to Leonard Greens confidentiality agreement with Life Time, and Life Times management gave a due diligence presentation to Leonard Green and TPG.
On March 8, 2015, Party A and Mr. Akradi met again via teleconference in order to follow up on their March 5, 2015 discussion regarding proposed terms with respect to Mr. Akradis participation, employment and investment in a potential transaction with Party A, which were substantially the same as the terms previously proposed to Leonard Green. The Chairman and the Special Committees legal counsel again attended the teleconference as observers. Party A repeated that its proposal would not be conditioned on reaching agreement with Mr. Akradi or management, as was directed by the framework adopted by the Special Committee on March 3, 2015. After a short discussion, Party A indicated to Mr. Akradi that it had open issues regarding Mr. Akradis participation, employment and investment in a potential transaction and stated that it wished to discontinue any further such discussions until after a definitive merger agreement, if any, is entered into with Life Time. Mr. Akradi indicated that this outcome was acceptable to him and reiterated, per the Special Committees framework, that the Special Committee would choose a potential bidder with whom to enter into a sale transaction (if it determines to enter into any sale transaction) that provides the highest price for Life Times unaffiliated shareholders. Party A indicated that it would be submitting a final proposal on March 11, 2015.
Also on March 8, 2015, the Special Committees legal counsel circulated a revised draft of the merger agreement to Party As counsel.
On March 10, 2015, the Special Committees legal counsel discussed with Leonard Greens legal counsel various issues raised by the revised draft of the merger agreement sent by the Special Committees legal counsel on March 6, 2015. During these discussions, Leonard Greens legal counsel agreed to make certain concessions that would be reflected in Leonard Greens final bid package. In addition, the Special Committees legal counsel provided the bidders legal counsel with email instructions to send their final bids to the Special Committees legal counsel and not to Life Time or any member of Life Times management.
On March 11, 2015, in accordance with the bid submission guidelines established by the Special Committee and communicated to both bidders, Party As counsel sent the Special Committees legal counsel an updated bid package that included a proposal letter reaffirming Party As previously indicated purchase price of $70.00 per
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share, together with further revised drafts of the merger agreement and certain ancillary documents, including debt and equity commitment papers.
Also on March 11, 2015, Leonard Green sent the Special Committees legal counsel an updated bid package that included TPG as its principal co-investor in the transaction and included a proposal letter proposing a purchase price of $70.50 per share, together with a further revised draft of the merger agreement and drafts of certain ancillary documents, including debt and equity commitment papers, the voting agreement and the contribution agreement providing for the rollover of certain of Mr. Akradis equity in Life Time.
The Special Committees legal counsel sent the bid packages of Party A and Leonard Green / TPG to the Special Committee. Pursuant to the procedures established by the Special Committee, the Special Committees legal counsel also sent the bid packages to the financial advisors and instructed representatives of the financial advisors, on behalf of the Special Committee, that the bid packages (and the terms thereof) were not to be circulated or otherwise disclosed to Life Times management.
On March 12, Mr. Akradi met with Leonard Green and TPG via teleconference, with the Chairman and legal counsel to the Special Committee present, to discuss proposed terms with respect to Mr. Akradis participation, employment and investment in a potential transaction with Leonard Green and TPG.
Also on March 12, 2015, at the direction of the Special Committee, representatives of the financial advisors contacted Leonard Green / TPG and Party A to relay the Special Committees positions on key outstanding issues in the draft agreements in an effort to further improve the terms of each bid package prior to the Special Committee meeting scheduled for March 13, 2015. The key outstanding issues included, in the case of both Leonard Green / TPG and Party A, the size of the termination and reverse termination fees, the cap on expense reimbursement payable by Life Time in the event Life Time shareholders do not approve the transaction, the size of a pool for retention payments as proposed by the Special Committee and, in the case of Leonard Green / TPG, whether Leonard Greens and TPGs obligation to close the transaction would be conditioned on the consummation of Mr. Akradis equity rollover. Representatives of the financial advisors also communicated to Leonard Green / TPG and Party A the expected timing for next steps, including that the Special Committee was scheduled to meet on March 13, 2015 and that, if the Special Committee determined to proceed with a transaction, the Special Committee would target signing and announcement of a transaction before market open on March 16, 2015. Later that evening, each of Leonard Greens and TPGs counsel and Party A delivered an issues list to the Special Committees legal counsel and Wells Fargo Securities, respectively, indicating each of their response positions on the issues raised by representatives of the financial advisors on behalf of the Special Committee. In its issues list, Leonard Green / TPG agreed to, among other things, reduce the termination fee from 3.9% of equity value to 3.5% of equity value, reduce the cap on expense reimbursement from $10 million to $7 million and increase the reverse termination fee from 5% of equity value to $167 million, or approximately 6% of equity value. Party A also informed the representatives of the financial advisors that Party As principal co-investor would not fund an acquisition of Life Time at a price higher than $70.00 and Party A would not be in a position to present a higher bid for Life Time within the Special Committees stated timeframe, which timeframe contemplated the entry into definitive agreements for the sale of Life Time, if any, before market open on March 16, 2015.
On March 13, 2015, the Special Committee met at its legal counsels offices in Minneapolis, Minnesota beginning at 9:00 a.m. Central Time. At the meeting, the Special Committee discussed at length with representatives of the Special Committees financial advisors and legal counsel the bid submissions from Leonard Green / TPG and Party A, as well as other strategic alternatives available to Life Time. The Special Committee discussed, among other things, the process to date, including certain steps designed to ensure the confidentiality of each bidder groups proposal from the other bidder group, and the terms of each of the bids submitted. One of the representatives of the financial advisors also informed the Special Committee that Party A stated that its principal co-investor would not fund an acquisition of Life Time at a price higher than $70.00 and Party A would not be in a position to present a higher bid for Life Time before market open on March 16, 2015.
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The Special Committee then directed the representatives of the financial advisors to contact Party A to determine whether any increase in its bid price might be possible within the Special Committees previously stated timeframe. Party A confirmed to representatives of the financial advisors that Party A would not be in a position to do so and noted that Party A had previously sought approval from its principal co-investor for a price of up to $71 per share, which had been declined.
In considering the relative strengths and weaknesses of the proposals received, the Special Committee noted that Leonard Greens and TPGs bid package, as updated by the issues list delivered to the Special Committees legal counsel the prior evening, no longer included a condition to closing relating to the consummation of Mr. Akradis equity rollover.
Also at the meeting, representatives of each of the financial advisors made separate presentations to the Special Committee that included financial analyses of the proposed transaction, and a discussion ensued in respect of these analyses as well as in respect of other strategic options that the Special Committee was considering, including the REIT Conversion Exploration. Among other things, the Special Committee discussed the potential values indicated in certain materials prepared by the financial advisors and discussed certain of the assumptions and values implied by a potential conversion of Life Times real estate assets into a REIT.
For reference purposes only, Guggenheim Securities presented to the Special Committee an illustrative analysis of the value of a hypothetical separation of Life Times operating business from its real estate ownership business. In performing such analysis Guggenheim Securities utilized a 2016 estimated EBITDA amount for each of the operating business and the real estate ownership business and applied selected EV/NTM EBITDA (as defined under Opinions of Financial AdvisorsGuggenheim Securities) multiples. Guggenheim Securities assumed that this transaction would occur at the end of 2015 and thus discounted the reference range to present value based on a discount rate of 11.0% (illustrative cost of equity). Guggenheim Securities analyses resulted in an overall combined present value reference range of $64.50 to $84.50 per share for purposes of valuing Life Times common stock. The foregoing analysis was presented solely for reference purposes as it was not included as part of Guggenheim Securities opinion analysis.
For reference purposes only, Wells Fargo Securities presented to the Special Committee an illustrative analysis of the value of a hypothetical separation of Life Times operating business from its real estate ownership business. Wells Fargo Securities analysis was based on financial data and projections for the two businesses provided by, or approved for the financial advisors use by, the management of Life Time, including (i) estimated existing 2015 and 2016 rent expense of $33 million and $34 million (both of which include $7 million of existing ground lease rent assumed by the real estate ownership business and charged back to the operating business), respectively, (ii) an additional $200 million in rent payable to the real estate ownership business by the operating business, (iii) a 1.5% annual rent escalator and an initial lease term of 15 years and (iv) real estate ownership business general and administrative expenses of $15 million in the first year. Wells Fargo Securities calculated illustrative enterprise values as of December 31, 2015 for the real estate ownership business by applying a range of enterprise value to estimated 2016 EBITDA multiples of 12.0x to 16.0x to the estimated 2016 EBITDA for the real estate ownership business. Wells Fargo Securities then subtracted the estimated net debt of the real estate ownership business as of December 31, 2015 to calculate illustrative equity values for the real estate ownership business. Wells Fargo Securities then divided these illustrative equity values by the estimated, fully-diluted number of shares of common stock outstanding as of December 31, 2015 to calculate the illustrative per share values for the real estate ownership business as of December 31, 2015. Wells Fargo Securities then performed a similar analysis to calculate illustrative per share values for the operating business as of December 31, 2015 utilizing a range of enterprise value to estimated 2016 EBITDA multiples of 6.5x to 9.0x. Wells Fargo Securities then added the illustrative ranges of per share values for the real estate ownership business and the operating business to calculate an illustrative range of combined values for the real estate ownership business and the operating business as of December 31, 2015. Wells Fargo Securities then discounted this range of combined values to March 31, 2015 using an illustrative Life Time cost of equity of 11.3%. This analysis resulted in an illustrative range of combined equity values for the real estate ownership business and the operating business of
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$59.69 to $92.23 per share. The foregoing analysis was presented solely for reference purposes as it was not included as part of Wells Fargo Securities opinion analysis.
The Special Committee fully discussed these illustrative analyses as well as the uncertainties and risks associated with seeking to achieve a combined value through a REIT conversion that was higher than the then-proposed merger consideration, including the likely discount to be applied to a single-tenant REIT compared to other REITs, potential volatility of market price and trading volume of the separated companies securities, the lack of a sufficient track record for comparable precedent REIT conversion transactions, interest rate risk and execution risk for both the REIT and the operating company. The Special Committee also discussed the valuations of selected operating companies in the leisure, retail and healthy living industries and selected net lease REITs, comparing the risk of continuing the REIT Conversion Exploration to proceeding with the Potential Sale Process, concluding that, at that time, the ability to achieve a value for Life Times shareholders through a REIT conversion that was higher than the then-proposed merger consideration was too speculative and that, at that time, the risk of further pursuing a REIT conversion structure was too high. After extensive discussion, the Special Committee decided to cease the REIT Conversion Exploration.
The representatives of the financial advisors also reported on discussions with each of Leonard Green / TPG and Party A as to any potential further increase in price, noting in particular that Party A had indicated that a further price increase was not possible and that even if such an increase were possible, Party A would be unable to deliver a revised proposal on the timeline outlined by the Special Committee because Party As principal co-investor had already refused to fund an acquisition of Life Time at a price higher than $70.00 and Party A would not be in a position to present a higher bid for Life Time before market open on March 16, 2015. The Special Committee then engaged in extensive discussion as to the prices contemplated by each of the two bids under consideration, including the potential for each bidder to further enhance its proposal.
The Special Committee also indicated that it would not accept deal uncertainty and expressed concern that Leonard Greens and TPGs bid package did not include a signed commitment from Mr. Akradi as to the proposed equity rollover given that it was the Special Committees understanding that Leonard Green / TPG would not sign a definitive agreement without a signed contribution agreement. The Special Committee discussed whether the failure of Leonard Green / TPG and Mr. Akradi to reach definitive binding agreement as to terms of the equity rollover could delay or otherwise affect Leonard Greens and TPGs ability to proceed to execution of definitive agreements, if the Special Committee determined to proceed with a transaction and selected Leonard Green / TPG as Life Times counterparty. The Chairman and the Special Committees legal counsel then left the meeting in order to receive an update regarding negotiations between Leonard Green / TPG and Mr. Akradi, and the Chairman advised Mr. Akradi that, if the contribution agreement were not executed by the end of the meeting, the Special Committee would view the Leonard Green / TPG proposal as conditional. The Special Committee then authorized the representatives of the financial advisors to request that, in the interest of reducing potential execution risk, Leonard Green / TPG and Mr. Akradi proceed to finalize and execute a definitive contribution agreement prior to the end of the meeting.
The Special Committee also asked the representatives of the financial advisors to confirm that the Potential Sale Process was designed to identify potential bidders that would be interested in acquiring Life Time. The representatives of the financial advisors confirmed that this was the case and discussed in detail the exploratory sale process to date. The representatives of the financial advisors also noted, among other things, Life Times August 22, 2014 press release announcing the REIT Conversion Exploration, the subsequent February 26, 2015 press release announcing the Boards continuing review of strategic alternatives and the March 5, 2015 Wall Street Journal article as opportunities for any potential acquiror not involved in the Potential Sale Process to express interest in a strategic transaction.
The Special Committees meeting continued into the early evening that day. During the late afternoon, the Special Committees legal counsel made a presentation to the Special Committee regarding its fiduciary duties under applicable law. Later that afternoon, an executed contribution agreement pursuant to which Mr. Akradi
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agreed to an equity rollover of $100 million was delivered by Leonard Greens and TPGs counsel to the Special Committees legal counsel and circulated to the Special Committee. Following receipt of the executed contribution agreement and extensive discussion among the Special Committee, representatives of its financial advisors and legal counsel, the Special Committee authorized the representatives of the Special Committees financial advisors and legal counsel to continue negotiations with Leonard Green / TPG. Representatives of the financial advisors (at the direction of the Special Committee) reached out to Leonard Green / TPG to further enhance their proposal by increasing their price to $71.00 per share. Leonard Green / TPG agreed to raise their bid from $70.50 per share to $71.00 per share. The financial advisors (at the direction of the Special Committee) informed Leonard Green / TPG that with the price of $71.00 per share, Leonard Green / TPG would likely prevail in the auction, subject to finalization of the transaction agreements and the Boards approval of the transaction agreements and the merger. Following an update regarding the increased offer from Leonard Green / TPG, the Special Committee directed its outside counsel to work towards finalizing definitive documentation with Leonard Green / TPG by March 15, 2015. The Special Committee also tentatively agreed to meet telephonically on March 14, 2015 for an update from the advisors and tentatively scheduled a meeting on March 15, 2015 to consider, if appropriate at that time, Life Times entry into definitive transaction agreements with Leonard Green / TPG.
Later that night, the Special Committees legal counsel circulated further revised drafts of all transaction agreements to Leonard Greens and TPGs counsel. During the course of the day on March 14, 2015, the Special Committees legal counsel, Leonard Greens and TPGs counsel engaged in negotiations to finalize the transaction agreements and further exchanged revised drafts of such agreements.
During the afternoon of March 14, 2015, the Special Committee convened a telephonic meeting. The Special Committees legal counsel and the representatives of the financial advisors provided an update to the Special Committee, including as to the progress of negotiations with Leonard Green / TPG. The Special Committee engaged in extensive discussion as to appropriate next steps and instructed the Special Committees legal counsel to continue to work with Leonard Green / TPG to finalize the transaction agreements, and confirmed the meeting for the afternoon of March 15, 2015, with a view to considering approval of a definitive agreement with Leonard Green / TPG.
During the afternoon of March 14, 2015 and into that evening and the early hours of March 15, 2015, the Special Committees legal counsel and Leonard Greens and TPGs counsel further exchanged revised drafts of the transaction agreements.
During the morning of March 15, 2015, the Special Committees legal counsel and Leonard Greens and TPGs counsel continued to negotiate the transaction agreements. During the morning, one of the representatives of the financial advisors was contacted by Party A and informed that Party A would be submitting a revised proposal at or around 11:00 a.m., Central Time. The Special Committee scheduled a telephonic meeting at 12:00 p.m. Central Time to review any proposal submitted by Party A.
Shortly before 12:00 p.m. Central Time, Party A delivered its revised proposal to the Special Committees legal counsel. The proposal provided for an increased offer of $72.00 per share and indicated that Party A would be willing to agree to any non-economic terms proposed by other bidders and viewed as superior by Life Time and its advisors to the terms contained in Party As prior draft of the merger agreement. The proposal also stated that Party A was prepared to finalize definitive documentation that evening.
The Special Committee convened its telephonic meeting at 12:30 p.m. Central Time. The Special Committees legal counsel provided an update to the Special Committee, including the receipt of Party As revised proposal and the terms thereof. Subject to input from the representatives of the financial advisors, the Special Committees legal counsel recommended that the Special Committee conduct a final confidential round of bidding, with each bidder being asked to submit its best and final proposal by 4:30 p.m. Central Time, and that the bidders would
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be instructed that the Special Committee would select the winning bidder and that the winning bidder would be granted a limited period of exclusivity to finalize legal documentation that evening.
The Special Committee engaged in extensive discussions as to appropriate next steps and directed the Special Committees legal counsel to immediately inform Leonard Green / TPG as to the receipt of the unsolicited proposal from Party A, and to send the bidders instructions outlining the final bid process, as presented to, and approved by, the Special Committee. The Special Committee further instructed its legal counsel to ascertain whether setting a 4:30 p.m. Central Time deadline would create undue hardship to any party. The Special Committees legal counsel also stressed the continuing need to keep confidential each bidder groups proposals from the other bidder group.
The Special Committees legal counsel promptly contacted each of Leonard Greens and TPGs legal counsel and Party As counsel and relayed the Special Committees requests. The Special Committees legal counsel contacted Party A and stated that, in light of Party As revised proposal, the Special Committee had determined to seek best and final proposals from both bidders and that the Special Committee intended to make a final decision that evening. The Special Committees legal counsel requested that Party A confirm that it was in a position to execute a transaction that evening and that Party A had all approvals necessary to execute a merger agreement, including all approvals from its principal co-investor and financing sources. The Special Committees legal counsel also indicated that the Special Committee intended to grant exclusivity to the bidder with the highest proposal and highest degree of certainty of completion that evening and that the Special Committee would not contact the losing bidder until after the transaction had been entered into. In addition, the Special Committees legal counsel indicated that if Party A would have any issue meeting the Special Committees 4:30 p.m. Central Time deadline, or if the deadline would create any hardships, to inform the Special Committees legal counsel and the Special Committee would consider any request for additional time. The Special Committees legal counsel then contacted Leonard Greens and TPGs legal counsel, informing them that Life Time had just received an unsolicited higher proposal that the Special Committee would consider and that the Special Committee intended to make a final decision that evening. The Special Committees legal counsel informed Leonard Greens and TPGs legal counsel that the Special Committee desired best and final proposals by 4:30 p.m. Central Time that day, but stated that if Leonard Green and TPG would have any difficulty meeting the Special Committees 4:30 p.m. deadline to inform the Special Committees legal counsel and the Special Committee would consider any request for additional time.
Prior to the bid deadline, each bidders legal counsel communicated to the Special Committees legal counsel that each such bidder expected to submit a revised bid as soon as possible, but such bid may be submitted shortly after the bid deadline. Shortly after 4:30 p.m. Central Time, Party As counsel submitted a revised bid package reaffirming Party As best and final offer of $72.00 per share.
The Special Committee convened another telephonic meeting at 5:00 p.m. Central Time. The Special Committees legal counsel reported that Party A had reaffirmed its best and final bid of $72.00, noting that Party As principal co-investor had confirmed in writing that all necessary internal approvals for the transaction had been obtained.
Shortly following the commencement of the meeting, Leonard Greens and TPGs counsel contacted the Special Committees legal counsel to communicate Leonard Greens and TPGs best and final bid of $72.10 per share, which bid also required (but not as a condition to closing the merger) an increased equity rollover by Mr. Akradi, for a total of $125 million, which had been increased due to the increase in Leonard Greens and TPGs final bid. Leonard Greens and TPGs counsel also stated that the bid would expire by its terms at 6:15 p.m. Central Time if not accepted by the Special Committee prior to that time. Leonard Greens and TPGs counsel also submitted proposed final versions of the transaction agreements, Parents, Leonard Greens and TPGs signed signature pages to be held in escrow and an executed amendment to the contribution agreement reflecting an equity rollover by Mr. Akradi of $125 million.
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Following a discussion of the final bids and extensive discussion among the directors, representatives of the financial advisors and legal counsel, including certain views expressed as to the risk that Party A may not ultimately be in a position to sign by the evening, the potential loss of Leonard Greens and TPGs bid upon its expiration and Party As statement that $72.00 per share was its best and final offer after representatives of the Special Committee told representatives of both Leonard Green / TPG and Party A that they would not be contacted again for another opportunity to bid, the Special Committee determined to pursue entry into a definitive agreement with Leonard Green / TPG. Representatives of the financial advisors and the Special Committees legal counsel then discussed with the Special Committee the process for approving of a definitive agreement.
Representatives of Guggenheim Securities reviewed the financial terms of the proposed transaction. At the conclusion of the discussion, Guggenheim Securities rendered to the Special Committee its opinion, which was confirmed by delivery of a written opinion, dated March 15, 2015, to the effect that, as of that date and based on and subject to various assumptions and limitations described in its opinion, the per-share merger consideration payable pursuant to the Leonard Green proposal was fair, from a financial point of view, to Life Times shareholders (other than the holders of the shares that are being contributed to Parent pursuant to the contribution agreement). Guggenheim Securities financial analysis and written opinion is described below in Opinion of Guggenheim Securities beginning on page 53.
Representatives of Wells Fargo Securities updated the financial analysis of the proposed transaction that they had presented to the Special Committee on March 13, 2015. At the conclusion of the discussion, Wells Fargo Securities rendered to the Special Committee its opinion, which was confirmed by delivery of a written opinion, dated March 15, 2015, to the effect that, as of that date and based on and subject to various assumptions and limitations described in its opinion, the per-share merger consideration payable pursuant to the Leonard Green proposal was fair, from a financial point of view, to Life Times shareholders (other than the holders of excluded shares, as defined in such opinion). Wells Fargo Securities financial analysis and written opinion is described below in Opinion of Wells Fargo Securities beginning on page 62.
Following additional discussion and deliberation of the relative risks and benefits of each bid, the Special Committee unanimously approved the recommendation of the sale of Life Time to Leonard Green / TPG to the Board and to Life Times shareholders.
Following the conclusion of the Special Committees meeting, a full meeting of the Board of Directors was convened and the Chairman of the Special Committee reported to the full Board of Directors (including Mr. Akradi) that it had recommended the proposed merger with Parent. The Board of Directors then unanimously approved the sale.
Following the meeting, Life Time and Parent executed the Merger agreement and the various ancillary agreements. Prior to the opening of the stock market on March 16, 2015, the parties issued a joint press release announcing the transaction.
Recommendation of Our Board of Directors and Reasons for the Merger
Recommendation of Our Board of Directors
The Board unanimously recommends that you vote (i) FOR the proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger; (ii) FOR the proposal to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement at the time of the special meeting; and (iii) FOR the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
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Reasons for the Merger
On March 15, 2015, the Special Committee unanimously approved the merger agreement and the transactions contemplated by the merger agreement, and unanimously recommended that the full Board approve the merger agreement and the transactions contemplated by the merger agreement. Later the same day, the full Board unanimously (i) determined that the merger agreement and the transactions contemplated thereby, including the merger, are fair to and are advisable and in the best interests of Life Time and its shareholders; (ii) approved and declared advisable the execution, delivery and performance by Life Time of the merger agreement and the consummation of the transactions contemplated thereby, including the merger; (iii) resolved to recommend that Life Times shareholders vote in favor of the adoption of the merger agreement; and (iv) directed that the adoption of the merger agreement be submitted to Life Times shareholders.
In evaluating the merger agreement, the merger and the other transactions contemplated by the merger agreement, the Board and Special Committee consulted with Life Times senior management, outside legal counsel and independent financial advisors. In recommending that Life Times shareholders vote their shares of common stock in favor of the proposal to approve and adopt the merger agreement, the Board and Special Committee also considered a number of potentially positive factors, including the following (not necessarily in order of relative importance):
| The belief of the Board and Special Committee, after a thorough review of Life Times current and historical financial condition, results of operations, prospects, business strategy, competitive position, industry, properties and assets, including the potential impact of those factors on the trading price of Life Times common stock (which cannot be quantified numerically), and discussions with Life Times senior management and outside financial advisors and legal counsel, that the value offered to Life Times shareholders pursuant to the merger agreement is more favorable to Life Times shareholders than the potential value that might have resulted from remaining an independent public company or effecting a conversion of Life Times real estate assets into a REIT. |
| The fact that the Board and Life Times senior management sought offers to acquire Life Time from a broad group of 16 potential bidders, including strategic sponsors and strategic bidders, 11 of whom entered into confidentiality agreements with Life Time and received information related to Life Time. |
| The fact that the Board, the Special Committee and Life Times senior management, in coordination with Life Times independent legal and financial advisors, implemented a robust sale process, including requiring Leonard Green / TPG and Party A to submit best and final acquisition proposals at the conclusion of the sale process, resulting in the receipt by Life Time of all-cash proposals (with fully committed financing) at higher values than those proposals that had been previously received by Life Time. |
| Life Times business plan and related financial projections and the ability to execute long-term, high-potential opportunities, the risks and uncertainties in executing on its business strategy and achieving such financial projections and opportunities and the risk factors set forth in Life Times Form 10-K for the fiscal year ended December 31, 2014. |
| The historic trading ranges of Life Times common stock and the potential trading range of the common stock absent announcement of the merger agreement, and the possibility that absent such announcement it could take a considerable period of time before the trading price of the common stock would trade at a level in excess of the per-share merger consideration of $72.10 on a present-value basis. |
| The relationship of the $72.10 per-share merger consideration to the trading price of Life Times common stock, including that the per-share merger consideration constituted a premium of: |
| approximately 73% to Life Times closing stock price on August 22, 2014, the last trading day prior to Life Times public announcement that the Board and senior management team had initiated a process to explore a potential conversion of Life Times real estate assets into a REIT; |
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| approximately 22% over the volume weighted average share price of the common stock during the 90 days ended March 13, 2015, the last trading day before the merger agreement was signed; |
| approximately 25% over the closing share price on March 5, 2015, the last trading day before the publication of articles suggesting that Life Time was for sale; and |
| approximately 7% over the closing share price on March 13, 2015. |
| The fact that the shares of Life Times common stock have never traded at prices higher than the per-share merger consideration of $72.10 since Life Time went public in 2004. |
| The financial analyses of Guggenheim Securities, a financial advisor to Life Time in connection with the merger, and the oral opinion of Guggenheim Securities delivered to the Special Committee and Board on March 15, 2015, confirmed by a written opinion dated as of March 15, 2015 and delivered to the Special Committee and Board, to the effect that, as of March 15, 2015 and based on the matters considered, the procedures followed, the assumptions made and various limitations of and qualifications to the review undertaken, the merger consideration in connection with the merger was fair, from a financial point of view, to the holders of Life Times common stock, other than the holders of the rollover shares. |
| The financial analyses of Wells Fargo Securities, a financial advisor to Life Time in connection with the merger, and the oral opinion of Wells Fargo Securities delivered to the Special Committee and Board on March 15, 2015, confirmed by a written opinion dated as of March 15, 2015 and delivered to the Special Committee, that, as of March 15, 2015, and based upon and subject to the factors and assumptions set forth therein, the $72.10 per share in cash to be paid to the holders of shares of Life Times common stock (other than (i) shares held by Life Time, Parent or Merger Sub or any direct or indirect subsidiary of Life Time or Parent; (ii) shares being contributed to Parent by Mr. Akradi and any other persons pursuant to the contribution and subscription agreement; and (iii) shares held by shareholders who have perfected and not withdrawn a demand for dissenters rights or who have not otherwise lost dissenters rights under Minnesota law with respect to such shares) pursuant to the merger agreement was fair from a financial point of view to the holders of Life Times common stock, as more fully described below under the heading Opinions of Financial Advisors. |
| The fact that the all-cash merger consideration will provide certainty of value and liquidity to Life Times shareholders, while eliminating long-term business and execution risk. |
| The fact that the all-cash merger consideration will provide certainty of value and liquidity to Life Times shareholders as compared to the uncertainties and risks associated with seeking to achieve a combined value through a REIT conversion might be higher than the merger consideration, including: |
| the execution risk for both the REIT and the operating company; |
| the likely discount to be applied to a single-tenant retail REIT compared to other REITs; |
| the potential volatility of market price and trading volume of the separated companies securities; |
| the lack of a sufficient track record for comparable precedent REIT conversion transactions; and |
| interest rate risk. |
| Based on their review and the negotiations conducted, the Board and Special Committee believed that $72.10 per-share merger consideration was the best price reasonably attainable for Life Times shareholders. |
| The Boards and Special Committees view that the terms of the merger agreement would be unlikely to deter third parties from making an unsolicited superior proposal. |
| The Boards right under the merger agreement to respond to third parties (including counterparties to confidentiality agreements with Life Time, given that the standstill provisions in such confidentiality |
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agreements terminated upon the entry into the merger agreement) submitting unsolicited acquisition proposals by providing non-public information subject to an acceptable confidentiality agreement, and to engage in negotiations or substantive discussions with any such person, if the Board, prior to taking any such actions, determines in good faith that (i) the failure to take such action would be inconsistent with the directors fiduciary duties under applicable law and (ii) the competing proposal either constitutes a superior proposal or could reasonably be expected to lead to a superior proposal. |
| The Boards right, under certain circumstances, to withdraw, withhold, qualify or modify its recommendation that Life Times shareholders approve and adopt the merger agreement. |
| Life Times ability to terminate the merger agreement in order to enter into an alternative acquisition agreement that the Board determines to be a superior proposal, subject to certain conditions, provided that we concurrently pay a $97 million termination fee to Parent under circumstances as described in Termination Fees beginning on page 109. |
| The reverse termination fee of $167 million that would become payable by Parent in certain circumstances, as described in Termination Fees beginning on page 109. |
| The fact that each of Green Equity Investors VI, L.P. and Green Equity Investors Side VI, L.P., which are affiliates of Leonard Green, and TPG Partners VII, L.P., which is an affiliate of TPG, provided a guarantee in favor of Life Time, that the equity investors provided the executed equity commitment letters and that the debt financing sources provided the executed debt commitment letters, which commitments will be sufficient for Parent to consummate the transactions contemplated by the merger agreement. |
| The other terms of the merger agreement, including: |
| the fact that the Board believed that the termination fee of $97 million, or approximately 3.5% of the aggregate equity value of the transaction, is reasonable in light of, among other things, the benefits of the merger to Life Times shareholders, the typical size of such fees in similar transactions and the likelihood that a fee of such size would not be preclusive or unreasonably restrictive of other offers; |
| the obligation of Parent to pay Life Time a $167 million reverse termination fee, or approximately 6% of the aggregate equity value of the transaction, if Life Time has terminated the merger agreement as a result of Parents breach of the merger agreement or Parent fails to consummate the merger if the conditions to closing are satisfied or waived; |
| the conditions to the closing, including the Boards belief that while the closing is subject to certain antitrust approvals, there were not likely to be significant antitrust or other regulatory impediments to the closing, as well as the obligations of Parent and Merger Sub to take actions to obtain such approvals; |
| the fact that under specified circumstances, the merger agreement permits Life Time to seek specific performance against Parent and Merger Sub with respect to the financing commitments, as well as against the equity investors with respect to the equity financing under Life Times third-party beneficiary rights pursuant to the equity commitment letters; and |
| the fact that the end date of October 6, 2015 under the merger agreement on which either party, subject to certain exceptions, can terminate the merger agreement, allows for sufficient time to consummate the merger. |
| The belief of the Board and the Special Committee, based on the fact that the merger agreement was the product of arms-length negotiations, that the price to be paid by Parent is the highest price per share that Parent was willing to pay and that the terms and conditions of the merger agreement were, in the Boards and Special Committees view, the most favorable to Life Time and its shareholders to which Parent was willing to agree. |
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| The belief of the Board and the Special Committee that management participation in the transaction will reduce the risk of attrition of key employees, which reduction could increase the likelihood that required financing will be obtained and reduce the risk to Life Time if the merger agreement is terminated. |
| The fact that the merger agreement was unanimously approved by the Special Committee, which is composed of independent directors who are not affiliated with Parent or its affiliates and are not employees of Life Time or any of its subsidiaries, and which received advice from Life Times outside financial advisors and legal counsel in evaluating, negotiating and recommending the terms of the merger agreement. |
| The availability of dissenters rights to Life Times shareholders who comply with specified procedures under Minnesota law. |
The Board and Special Committee also considered and balanced against the potentially positive factors a number of uncertainties, risks and other potentially negative factors in its deliberations concerning the merger and the other transactions contemplated by the merger agreement, including the following (not necessarily in order of relative importance):
| The fact that Life Times shareholders would forgo the opportunity to realize the potential long-term value of the successful execution of Life Times current strategy as an independent public company by participating in any future earnings or growth or in any future appreciation in value of shares of Life Times common stock, including the possibility of converting Life Times real estate assets into a REIT that would, together with the remaining operating company, have a combined value within or exceeding the value ranges set forth in the illustrative analyses presented by Wells Fargo Securities and Guggenheim Securities. |
| The fact that receipt of the all-cash merger consideration would be taxable to Life Times shareholders that are treated as U.S. holders for U.S. federal income tax purposes. |
| The fact that, under specified circumstances, Life Time may be required to pay fees and expenses in the event the merger agreement is terminated and the effect this could have on Life Time, including: |
| the possibility that the $97 million termination fee payable by Life Time to Parent upon the termination of the merger agreement under certain circumstances could discourage other potential acquirers from making a competing proposal, although the Board and Special Committee believed that the termination fee was reasonable in amount and would not unduly deter any other party that might be interested in acquiring Life Time; and |
| if the merger is not consummated, Life Time will generally be required to pay its own expenses associated with the merger agreement and the transactions contemplated thereby. |
| The fact that Parent and Merger Sub are newly formed entities with essentially no assets other than equity and debt commitments, and that, notwithstanding Life Times specific performance remedy under the merger agreement, Life Times remedy in the event of breach of the merger agreement by Parent or Merger Sub may be limited to receipt of the termination fee provided under the merger agreement, which is guaranteed by affiliates of Leonard Green and TPG, and that under certain circumstances we may not be entitled to a termination fee at all. |
| The fact that the reverse termination fee is not available in all instances where the merger agreement may be terminated and may be Life Times only recourse in respect of termination when it is available. |
| The fact that Parents, Merger Subs and the guarantors monetary damages under the merger agreement or guarantee, as applicable, cannot exceed the amount of the reverse termination fee payable by Parent and Merger Sub, other than for specified reimbursement and indemnification obligations under the merger agreement. |
| The significant costs involved in connection with entering into and completing the merger and the substantial time and effort of management required to consummate the merger, which could disrupt Life Times business operations. |
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| The fact that the announcement and pendency of the merger, or the failure to complete the merger, may cause substantial harm to Life Times relationships with its employees (including making it more difficult to attract and retain key personnel and the possible loss of key management and other personnel), vendors and customers. |
| The restrictions in the merger agreement on Life Times ability to actively solicit competing bids to acquire it. |
| The restrictions on Life Times conduct of business prior to completion of the merger, which could delay or prevent Life Time from undertaking business opportunities that may arise or taking other actions with respect to its operations during the pendency of the merger, whether or not the merger is completed. |
| The fact that, while Life Time expects the merger to be consummated if the proposal to approve and adopt the merger agreement is approved by Life Times shareholders, there can be no assurance that all conditions to the parties obligations to consummate the merger will be satisfied. |
| The risk that the debt financing contemplated by the debt commitment letters (or any alternative financing) might not be obtained, resulting in Parent potentially not having sufficient funds to complete the merger. |
| The fact that the market price of Life Times common stock could be affected by many factors, including: (i) if the merger agreement is terminated, the reason or reasons for such termination and whether such termination resulted from factors adversely affecting Life Time; (ii) the possibility that, as a result of the termination of the merger agreement, possible acquirers may consider Life Time to be an unattractive acquisition candidate; and (iii) the possible sale of Life Times common stock by short-term investors following an announcement that the merger agreement was terminated. |
| The fact that certain of Life Times directors and executive officers may have interests in the merger that may be deemed to be different from, or in addition to, those of Life Times shareholders. The Board and Special Committee was made aware of and considered these interests; for more information about such interests, see below under the heading Interests of the Directors and Executive Officers of Life Time in the Merger. |
| The fact that the completion of the merger would require antitrust clearance in the United States. |
After taking into account all of the factors set forth above, as well as others, the Board and Special Committee concluded that the risks, uncertainties, restrictions and potentially negative factors associated with the merger were outweighed by the potential benefits of the merger to Life Times shareholders.
The foregoing discussion of factors considered by the Board and Special Committee is not intended to be exhaustive, but summarizes the material factors considered by the Board and Special Committee. In light of the variety of factors considered in connection with their evaluation of the merger, the Board and Special Committee did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching their determinations and recommendations. Moreover, each member of the Board and Special Committee applied his or her own personal business judgment to the process and may have given different weight to different factors. The Board and Special Committee did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support their ultimate determinations. The Board and Special Committee based their recommendations on the totality of the information presented, including thorough discussions with, and questioning of, Life Times senior management and outside financial advisors and legal counsel. It should be noted that this explanation of the reasoning of the Board and Special Committee and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth in Cautionary Statement Concerning Forward-Looking Statements beginning on page 31.
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Opinions of Financial Advisors
Opinion of Guggenheim Securities
Overview
Pursuant to an engagement letter dated as of August 21, 2014, as amended and supplemented by letter agreements effective as of November 20, 2014 and March 3, 2015, the Board and the Special Committee retained Guggenheim Securities to act as its financial advisor with respect to potential strategic transactions. In selecting Guggenheim Securities as its financial advisor, the Special Committee and the Board considered that, among other things, Guggenheim Securities is an internationally recognized investment banking, financial advisory and securities firm whose senior professionals have substantial experience advising companies in, among other industries, the fitness and retail industries. Guggenheim Securities, as part of its investment banking, financial advisory and capital markets businesses, is regularly engaged in the valuation and financial assessment of businesses and securities in connection with mergers and acquisitions, recapitalizations, spin-offs/split-offs, restructurings, securities offerings in both the private and public capital markets and valuations for corporate and other purposes.
At the March 15, 2015 meeting of the Special Committee and the March 15, 2015 meeting of the Board, Guggenheim Securities delivered its oral opinion, which subsequently was confirmed in writing, to the effect that, as of March 15, 2015 and based on the matters considered, the procedures followed, the assumptions made and various limitations of and qualifications to the review undertaken, the per-share merger consideration in connection with the merger was fair, from a financial point of view, to the holders of Life Times common stock, excluding the holders of the rollover shares.
This description of Guggenheim Securities opinion is qualified in its entirety by the full text of the written opinion, which is attached as Appendix C to this proxy statement and which you should read carefully and in its entirety. Guggenheim Securities written opinion sets forth the matters considered, the procedures followed, the assumptions made and various limitations of and qualifications to the review undertaken by Guggenheim Securities. Guggenheim Securities written opinion, which was authorized for issuance by the Fairness Opinion and Valuation Committee of Guggenheim Securities, is necessarily based on financial, economic, capital markets and other conditions, and the information made available to Guggenheim Securities, as of the date of such opinion. Guggenheim Securities has no responsibility for updating or revising its opinion based on facts, circumstances or events occurring after the date of the rendering of the opinion.
In reading the discussion of Guggenheim Securities opinion set forth below, you should be aware that such opinion:
| was provided to the Special Committee and the Board (in their capacities as such) for their information and assistance in connection with their evaluation of the per-share merger consideration; |
| did not constitute a recommendation to the Special Committee or the Board with respect to the merger; |
| does not constitute advice or a recommendation to any holder of Life Time common stock as to how to vote in connection with the merger or otherwise; |
| did not address Life Times underlying business or financial decision to pursue the merger, the relative merits of the merger as compared to any alternative business or financial strategies that might exist for Life Time, the financing of the merger or the effects of any other transaction in which Life Time might engage; |
| addressed only the fairness, from a financial point of view, to Life Times shareholders (excluding the holders of the rollover shares) of the per-share merger consideration pursuant to the merger agreement; |
| expressed no view or opinion as to any other term or aspect of the merger, the merger agreement or any other agreement, transaction document or instrument contemplated by the merger agreement or to be |
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entered into or amended in connection with the merger or the fairness, financial or otherwise, of the rollover, or the fairness, financial or otherwise, of the merger to, or of any consideration to be paid to or received by, the holders of any class of securities (except as set forth in the immediately preceding bullet point), creditors or other constituencies of Life Time or the holders of the rollover shares; |
| expressed no view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation payable to or to be received by any of Life Times directors, officers or employees, or any class of such persons, in connection with the merger relative to the per-share merger consideration or otherwise; and |
| did not constitute a solvency opinion or a fair value opinion, and Guggenheim Securities did not evaluate the solvency or fair value of Life Time under any relevant laws relating to bankruptcy, insolvency or similar matters. |
In the course of performing its reviews and analyses for rendering its opinion, Guggenheim Securities:
| reviewed a draft of the merger agreement dated as of March 15, 2015; |
| reviewed certain publicly available business and financial information regarding Life Time; |
| reviewed certain non-public business and financial information regarding Life Times business and prospects (including certain financial projections for Life Time) prepared and provided to Guggenheim Securities by Life Times senior management; |
| discussed with Life Times senior management the merger as well as their views of Life Times business, operations, historical and projected financial results and future prospects; |
| performed discounted cash flow analyses based on the financial projections for Life Time furnished to Guggenheim Securities by Life Time; |
| compared the valuation and financial metrics of certain mergers and acquisitions with corresponding data that Guggenheim Securities deemed relevant in evaluating the merger; |
| compared the financial performance of Life Time and the trading multiples and trading activity of the Life Time common stock with corresponding data for certain other publicly traded companies that Guggenheim Securities deemed relevant in evaluating Life Time; |
| reviewed the historical prices, trading multiples and trading volumes of the Life Time common stock; and |
| conducted such other studies, analyses, inquiries and investigations as Guggenheim Securities deemed appropriate. |
With respect to the information used in arriving at its opinion, Guggenheim Securities notes that:
| Guggenheim Securities relied upon and assumed the accuracy, completeness and reasonableness of all industry, business, financial, legal, regulatory, tax, accounting, actuarial and other information (including, without limitation, any financial projections, other estimates and other forward-looking information) furnished by or discussed with Life Time or obtained from reputable public sources, data suppliers and other third parties. |
| Guggenheim Securities (i) did not assume any responsibility, obligation or liability for the accuracy, completeness, reasonableness, achievability or independent verification of, and Guggenheim Securities did not independently verify, any such information (including, without limitation, any financial projections, other estimates and other forward-looking information); (ii) expressed no view, opinion, representation, guaranty or warranty (in each case, express or implied) regarding the reasonableness or achievability of any financial projections, other estimates and other forward-looking information or the assumptions upon which they are based; and (iii) relied upon the assurances of Life Times senior |
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management that they were unaware of any facts or circumstances that would make such information (including, without limitation, any financial projections, other estimates and other forward-looking information) incomplete, inaccurate or misleading. |
| Specifically, with respect to any (i) financial projections, other estimates and other forward-looking information furnished by or discussed with Life Time, (a) Guggenheim Securities was advised by Life Times senior management, and Guggenheim Securities assumed, that such financial projections, other estimates and other forward-looking information utilized in its analyses had been reasonably prepared on bases reflecting the best then-currently available estimates and judgments of Life Times senior management as to the expected future performance of Life Time, and (b) Guggenheim Securities assumed that such financial projections, other estimates and other forward-looking information had been reviewed by the Special Committee and the Board with the understanding that such information would be used and relied upon by Guggenheim Securities in connection with rendering its opinion, and (ii) financial projections, other estimates and/or other forward-looking information obtained by Guggenheim Securities from public sources, data suppliers and other third parties, Guggenheim Securities assumed that such information was reasonable and reliable. |
Guggenheim Securities also notes certain other considerations with respect to its engagement and its opinion:
| During the course of its engagement, Guggenheim Securities was asked by the Board to solicit indications of interest from various third parties regarding a potential transaction with Life Time, and Guggenheim Securities considered the results of such solicitation process in rendering its opinion. |
| Guggenheim Securities did not perform or obtain any independent appraisal of the assets or liabilities (including any contingent, derivative or off-balance sheet assets and liabilities) of Life Time or the solvency or fair value of Life Time, nor was Guggenheim Securities furnished with any such appraisals. |
| Guggenheim Securities did not express any view or render any opinion regarding the tax consequences to Life Time or its shareholders of the merger. Guggenheim Securities professionals are not legal, regulatory, tax, consulting, real estate, accounting, appraisal or actuarial experts and Guggenheim Securities opinion should not be construed as constituting advice with respect to such matters; accordingly, Guggenheim Securities relied on the assessments of Life Time and its advisors with respect to such matters. |
| Guggenheim Securities further assumed that: |
| In all respects material to its analyses: (i) the final executed form of the merger agreement would not differ from the draft that Guggenheim Securities reviewed, (ii) Life Time, Parent and Merger Sub will comply with all terms of the merger agreement, and (iii) the representations and warranties of Life Time, Parent and Merger Sub contained in the merger agreement were true and correct and all conditions to the obligations of each party to the merger agreement to consummate the merger would be satisfied without any waiver thereof; and |
| The merger will be consummated in a timely manner and in accordance with the terms of the merger agreement, without any limitations, restrictions, conditions, amendments or modifications (regulatory, tax-related or otherwise) that would have an adverse effect on Life Time or the merger in any way material to Guggenheim Securities analyses. Guggenheim Securities expressed no view or opinion as to the price or range of prices at which the shares of Life Time common stock or other securities of Life Time may trade at any time, including, without limitation, subsequent to the announcement or consummation of the merger. |
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Summary of Valuation and Financial Analyses
Overview of Valuation and Financial Analyses
This Summary of Valuation and Financial Analyses presents a summary of the principal valuation and financial analyses performed by Guggenheim Securities and presented to the Special Committee and the Board in connection with Guggenheim Securities rendering of its opinion. Such presentation to the Special Committee and the Board was supplemented by Guggenheim Securities oral discussion, the nature and substance of which may not be fully described herein.
Some of the valuation and financial analyses summarized below include summary data and information presented in tabular format. In order to understand fully such valuation and financial analyses, the summary data and tables must be read together with the full text of the summary. Considering the summary data and tables alone could create a misleading or incomplete view of Guggenheim Securities valuation and financial analyses.
The preparation of a fairness opinion is a complex process and involves various judgments and determinations as to the most appropriate and relevant valuation and financial analyses and the application of those methods to the particular circumstances involved. A fairness opinion therefore is not readily susceptible to partial analysis or summary description, and taking portions of the valuation and financial analyses set forth below, without considering such analyses as a whole, would in Guggenheim Securities view create an incomplete and misleading picture of the processes underlying the valuation and financial analyses considered in rendering Guggenheim Securities opinion.
In arriving at its opinion, Guggenheim Securities:
| based its valuation and financial analyses on assumptions that it deemed reasonable, including assumptions concerning general business and economic conditions, capital markets considerations and industry-specific and company-specific factors, all of which are beyond the control of Life Time, Leonard Green, TPG, and Guggenheim Securities; |
| did not form a view or opinion as to whether any individual analysis or factor, whether positive or negative, considered in isolation, supported or failed to support its opinion; |
| considered the results of all of its valuation and financial analyses and did not attribute any particular weight to any one analysis or factor; and |
| ultimately arrived at its opinion based on the results of all of its valuation and financial analyses assessed as a whole and believes that the totality of the factors considered and the various valuation and financial analyses performed by Guggenheim Securities in connection with its opinion operated collectively to support its determination as to the fairness, from a financial point of view, to Life Times shareholders of the per-share merger consideration pursuant to the merger, excluding the holders of the rollover shares. |
With respect to the valuation and financial analyses performed by Guggenheim Securities in connection with rendering its opinion:
| Such valuation and financial analyses, particularly those based on estimates and projections, are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by these analyses. |
| None of the selected publicly traded companies used in the peer group trading valuation analysis and financial benchmarking described below is identical or directly comparable to Life Time, and none of the selected precedent merger and acquisition transactions used in the precedent merger and acquisitions transactions analysis described below is identical or directly comparable to the merger; however, such companies and transactions were selected by Guggenheim Securities, among other reasons, because they represented or involved target companies which may be considered to have some |
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similarities, for purposes of Guggenheim Securities valuation and financial analyses, to Life Time based on Guggenheim Securities familiarity with the healthy living, retail and leisure industries in the United States. |
| In any event, peer group trading valuation analysis and financial benchmarking and precedent merger and acquisition transactions analysis are not mathematical; rather, such analyses involve complex considerations and judgments concerning the differences in business, financial, operating and capital markets-related characteristics and other factors regarding the peer group companies and precedent merger and acquisition transactions to which Life Time and the merger were compared. |
| Such valuation and financial analyses do not purport to be appraisals or to reflect the prices at which any securities may trade at the present time or at any time in the future. |
Certain Definitions
Throughout this Summary of Valuation and Financial Analyses, the following financial terms are used in connection with Guggenheim Securities various valuation and financial analyses:
| Enterprise value, or EV, represents the relevant companys net equity value plus (i) the principal amounts of total debt and preferred stock and (ii) the book value of any non-controlling/minority interests less (iii) cash and equivalents and (iv) the book value of any non-consolidated investments. |
| LTM means latest twelve months. |
| NTM means next twelve months. |
| EBITDA means the relevant companys operating earnings (after deduction of stock-based compensation) before interest, taxes, depreciation and amortization, adjusted for certain non-recurring and unusual expenses and gains. |
| EBITDA multiple represents the relevant companys enterprise value divided by its historical or projected EBITDA. |
| EPS means the relevant companys earnings per share, adjusted for certain non-recurring and unusual expenses and gains. |
| P/E ratio represents the relevant companys stock price divided by its historical or projected EPS. |
| CapEx means capital expenditures. |
| Unlevered free cash flow means the relevant companys after-tax unlevered operating cash flow minus CapEx and changes in working capital. |
| DCF means discounted cash flow. |
| WACC means weighted average cost of capital. |
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Recap of Merger Valuation
Based on the per-share merger consideration, Guggenheim Securities calculated the transaction price premia in relation to various Life Time stock prices that were based on (i) the closing stock price as of March 11, 2015, (ii) the unaffected stock price as of August 22, 2014, the last trading day before the announcement of the REIT Conversion Exploration, (iii) the unaffected stock price as of March 5, 2015, the last trading day before the publication of articles suggesting that Life Time was for sale, including the WSJ Report, (iv) the stock price as of February 11, 2015, one month prior to signing the merger agreement, (v) the past years intraday high stock price as of March 6, 2015, the trading day following the publication of articles suggesting that Life Time was for sale, including the WSJ Report, and (vi) the all-time high stock price before the publication of articles suggesting that Life Time was for sale, including the WSJ Report. Guggenheim Securities also reviewed (i) the implied transaction Enterprise Value as a multiple of (a) LTM revenue, (b) estimated 2015 revenue, as provided by Life Times senior management, (c) estimated 2016 revenue, as provided by Life Times senior management, (d) LTM EBITDA, (e) estimated 2015 EBITDA, as provided by Life Times senior management, (f) estimated 2016 EBITDA, as provided by Life Times senior management; and (ii) the merger price per share as a multiple of (a) estimated 2015 EPS, as provided by Life Times senior management, and (b) estimated 2016 EPS, as provided by Life Times senior management.
Merger Premia and Implied Merger Multiples |
||||||||
Merger Price per Life Time Share |
|
$ | 72.10 | |||||
Statistic ($ in millions, except per share data) |
||||||||
Acquisition Premium Relative to: |
||||||||
Closing Stock Price @ 3/11/15 |
$ | 65.70 | 9.7 | % | ||||
Unaffected Stock Price Before announcement of REIT Conversion Exploration @ 8/22/14 |
$ | 41.60 | 73.3 | % | ||||
Unaffected Stock Price Before WSJ Report @ 3/5/15 |
$ | 57.67 | 25.0 | % | ||||
One Month Prior @ 2/11/15 |
$ | 54.87 | 31.4 | % | ||||
52-Week Intraday High @ 3/6/15 |
$ | 69.13 | 4.3 | % | ||||
All-Time High Pre-WSJ Report @ 10/26/07 |
$ | 64.52 | 11.7 | % | ||||
Implied Transaction Enterprise Value as a Multiple of |
||||||||
LTM Revenue |
$ | 1,313 | 3.09 | x | ||||
2015E Revenue |
$ | 1,404 | 2.89 | x | ||||
2016E Revenue |
$ | 1,516 | 2.68 | x | ||||
LTM EBITDA |
$ | 379 | 10.7 | x | ||||
2015E EBITDA |
$ | 411 | 9.9 | x | ||||
2016E EBITDA |
$ | 447 | 9.1 | x | ||||
Merger Price per Share as a Multiple of: |
||||||||
2015E EPS |
$ | 3.11 | 23.2 | x | ||||
2016E EPS |
$ | 3.39 | 21.3 | x |
Life Time Valuation Analyses
Summary of Life Time Valuation Analyses. In assessing the valuation of Life Time in connection with rendering its opinion, Guggenheim Securities performed various valuation and financial analyses, including peer group trading valuation analysis and financial benchmarking, precedent merger and acquisition transaction analysis and discounted cash flow analyses.
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Discounted Cash Flow Analyses. Guggenheim Securities performed illustrative stand-alone discounted cash flow analyses of Life Time based on projected unlevered free cash flows for Life Time and an estimate of its terminal value at the end of the projection horizon. In performing its illustrative discounted cash flow analyses:
| Guggenheim Securities based its discounted cash flow analyses on the seven-year financial projections for Life Time as provided by Life Times senior management. |
| Guggenheim Securities applied a discount rate of 7.5% to 8.5% based on Guggenheim Securities estimate of Life Times weighted average cost of capital. |
| In calculating Life Times terminal value for purposes of its discounted cash flow analyses, Guggenheim Securities used an illustrative reference range of terminal EV/LTM EBITDA multiple of 8.0x to 10.0x. |
| Guggenheim Securities illustrative discounted cash flow analyses resulted in an overall reference range of $52.50 to $79.50 per share for purposes of valuing Life Times common stock on a stand-alone intrinsic-value basis. |
| Guggenheim Securities noted that the per-share merger consideration was within the previously mentioned valuation reference range based on the illustrative discounted cash flow analyses. |
Precedent Merger and Acquisition Transaction Analysis. The following precedent merger and acquisition transactions were reviewed and considered by Guggenheim Securities for purposes of its valuation analysis:
Selected Precedent M&A Transactions | ||||
Date Announced |
Target Company |
Acquiror | ||
Healthy Living | ||||
12/5/05 |
Equinox Holdings Inc. | The Related Companies, L.P. | ||
Retail | ||||
12/14/14 |
PetSmart, Inc. | BC Partners, Inc. | ||
7/28/14 |
Family Dollar Stores, Inc. | Dollar Tree, Inc. | ||
5/16/14 |
Darden Restaurants, Inc. (Red Lobster) | Golden Gate Capital, Inc. | ||
10/16/13 |
General Parts International, Inc. | Advance Auto Parts, Inc. | ||
6/5/12 |
Party City Holdings Inc. | Thomas H. Lee Partners LP | ||
5/1/12 |
P.F. Changs China Bistro Inc. | Centerbridge Capital Partners II, L.P. | ||
12/23/10 |
Jo-Ann Stores, Inc. | Leonard, Green & Partners, L.P. | ||
Leisure | ||||
8/13/14 |
Sequoia Golf Holdings, LLC | ClubCorp Holdings, Inc. | ||
9/9/13 |
MTR Gaming Group Inc. | Eldorado Resorts LLC | ||
12/21/12 |
Ameristar Casinos, Inc. | Pinnacle Entertainment, Inc. | ||
5/16/12 |
Peninsula Gaming, LLC | Boyd Gaming Corporation |
A summary of Guggenheim Securities analysis of the precedent merger and acquisition transactions is presented in the tables below:
Selected Precedent M&A Transaction Multiples |
||||
EV/LTM EBITDA | ||||
Healthy Living |
12.2x | |||
Retail |
||||
Median |
9.3x | |||
Leisure |
||||
Median |
7.3x | |||
All |
||||
Mean |
9.0x | |||
Median |
9.2x |
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In performing its precedent merger and acquisition transactions analysis, based on the foregoing, Guggenheim Securities selected a range of transaction EV/LTM EBITDA multiples of 8.0x to 10.0x, which resulted in an illustrative reference range of $45.75 to $65.25 per share for purposes of valuing Life Times common stock on a change-of-control basis. Guggenheim Securities noted that the per-share merger consideration was above the previously mentioned valuation reference range based on the precedent merger and acquisition transaction analysis.
Peer Group Trading Valuation Analysis and Financial Benchmarking. Guggenheim Securities reviewed and analyzed Life Times historical stock price performance, trading valuation metrics and historical and projected financial performance compared to such information for certain publicly traded companies in the healthy living, retail and leisure industries that Guggenheim Securities deemed relevant for purposes of its valuation analysis. The following publicly traded healthy living, retail and leisure peer group companies were used by Guggenheim Securities for purposes of its valuation analysis and were selected on the basis of shared characteristics, including industry focus:
Selected Peer Group Companies | ||||
Healthy Living |
Retail |
Leisure | ||
Fresh Market, Inc. |
Cabelas Incorporated |
Boyd Gaming Corporation | ||
GNC Holdings, Inc. |
Dicks Sporting Goods, Inc. |
ClubCorp Holdings, Inc. | ||
Medifast, Inc. |
Hibbett Sports, Inc. |
International Speedway | ||
Nutrisystem, Inc. |
The Home Depot, Inc. |
Corporation | ||
Town Sports International |
Lowes Companies, Inc. |
Penn National Gaming, Inc. | ||
Holdings, Inc. |
Michaels Stores, Inc. |
Pinnacle Entertainment, | ||
Vitamin Shoppe, Inc. |
Pier 1 Imports, Inc. |
Inc. | ||
Weight Watchers |
Tractor Supply Company |
SeaWorld Entertainment, | ||
International, Inc. |
Inc. | |||
Whole Foods Market, Inc. |
Six Flags Entertainment | |||
Corporation | ||||
Speedway Motorsports, Inc. | ||||
Vail Resorts, Inc. |
Guggenheim Securities calculated the following trading multiples for the selected peer group companies based on Wall Street consensus estimates and the most recent publicly available financial filings:
Selected Peer Groups Trading Multiples |
||||||||
2015E P/E | Enterprise Value/ 2015E EBITDA |
|||||||
Healthy Living |
||||||||
Mean |
20.0x | 9.6x | ||||||
Retail |
||||||||
Mean |
19.2x | 10.3x | ||||||
Leisure |
||||||||
Mean |
28.9x | 9.0x |
In performing its peer group trading valuation analysis:
| Guggenheim Securities selected a reference range of trading multiples for purposes of valuing Life Time on a stand-alone public market trading basis as follows: (i) trading enterprise value/2015E EBITDA multiple range of 8.5x-10.5x; and (ii) trading price/2015E EPS multiple range of 17.0x-22.0x. |
| Guggenheim Securities analysis of the selected peer group companies resulted in the following reference ranges for purposes of valuing Life Times common stock on a stand-alone public market trading basis: (i) $57.75 to $78.75 per share using the aforementioned trading enterprise value/2015E EBITDA multiple range, and (ii) $52.75 to $68.50 per share using the aforementioned trading price/2015E EPS multiple range. |
| Guggenheim Securities noted that the per-share merger consideration was within or above the aforementioned valuation reference ranges based on the peer group trading analysis. |
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Other Considerations
Life Time did not provide specific instructions to, or place any limitations on, Guggenheim Securities with respect to the procedures to be followed or factors to be considered in performing its valuation and financial analyses or providing its opinion. The type and amount of consideration payable in the merger were determined through negotiations between Life Time and Leonard Green and TPG and were approved by the Special Committee and the Board. The decision to enter into the merger agreement was solely that of the Board and the Special Committee. Guggenheim Securities opinion was just one of the many factors taken into consideration by the Board. Consequently, Guggenheim Securities valuation and financial analyses should not be viewed as determinative of the decision of the Board with respect to the fairness, from a financial point of view, to Life Times shareholders of the per-share merger consideration pursuant to the merger.
Pursuant to the terms of Guggenheim Securities engagement letter, Life Time has agreed to pay Guggenheim Securities a customary transaction fee of approximately $11.5 million, a substantial portion of which is contingent on successful consummation of the merger. A portion of Guggenheim Securities compensation was payable upon delivery of its fairness opinion and will be credited against the fee payable upon consummation of the merger. In addition, Life Time has agreed to reimburse Guggenheim Securities for certain expenses and to indemnify it against certain liabilities arising out of its engagement.
Aside from its current engagement by Life Time in connection with the merger, Guggenheim Securities has not been previously engaged during the past two years by Life Time. Guggenheim Securities has been previously engaged during the past two years and is currently engaged by portfolio companies of both Leonard Green and TPG to provide certain financial advisory or investment banking services in connection with matters unrelated to the merger, for which Guggenheim Securities has received (or expects to receive) customary fees. Among other matters, during the past two years, Guggenheim Securities has performed the following financial advisory or investment banking services for portfolio companies of Leonard Green: underwriter in Container Store Group, Inc.s initial public offering completed in November 2013; and a participant in a credit facility of a privately-held portfolio company of Leonard Green for which Guggenheim Securities is entitled to receive fees and interest payments. In addition, among other matters, during the past two years, Guggenheim Securities has performed the following financial advisory or investment banking services for portfolio companies of TPG: underwriter in Quintiles Transnational Holdings Inc.s initial public offering completed in May 2013 and a subsequent follow-on offering in May 2014; and underwriter in the initial public offering of Five Prime Therapeutics, Inc. in September 2013 and follow-on offerings in January 2014 and January 2015. Guggenheim Securities is currently engaged as investment banker to the Official Committee of Unsecured Creditors of Energy Future Holdings Corporation, a portfolio company of TPG, for which Guggenheim Securities has received (or expects to receive) customary fees. Guggenheim Securities may seek to provide Life Time, Leonard Green and TPG and their respective affiliates (including, without limitation, Leonard Green and TPG portfolio companies) with certain financial advisory and investment banking services unrelated to the merger in the future.
Guggenheim Securities and its affiliates engage in a wide range of financial services activities for its and their own accounts and the accounts of its and their customers, including: asset, investment and wealth management; investment banking, corporate finance, mergers and acquisitions and restructuring; merchant banking; fixed income and equity sales, trading and research; and derivatives, foreign exchange and futures. In the ordinary course of these activities, Guggenheim Securities or its affiliates may (i) provide such financial services to Life Time, Leonard Green, TPG, other participants in the merger or their respective affiliates, subsidiaries, investment funds and portfolio companies, for which services Guggenheim Securities or its affiliates has received, and may receive, compensation, and (ii) directly or indirectly, hold long or short positions, trade and otherwise conduct such activities in or with respect to certain bank debt, debt or equity securities and derivative products of or relating to Life Time, Leonard Green, TPG, other participants in the merger or their respective affiliates, subsidiaries, investment funds and portfolio companies. Furthermore, Guggenheim Securities or its affiliates and its or their directors, officers, employees, consultants and agents may have investments in Life Time, Leonard Green, TPG, other participants in the merger or their respective affiliates, subsidiaries, investment funds and portfolio companies.
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Consistent with applicable legal and regulatory guidelines, Guggenheim Securities has adopted certain policies and procedures to establish and maintain the independence of its research departments and personnel. As a result, Guggenheim Securities research analysts may hold views, make statements or investment recommendations and publish research reports with respect to Life Time, Leonard Green, TPG, other participants in the merger or their respective affiliates, subsidiaries, investment funds and portfolio companies and the merger that differ from the views of Guggenheim Securities investment banking personnel.
Opinion of Wells Fargo Securities
The Board retained Wells Fargo Securities to act as financial advisor in connection with its consideration of a potential transaction involving Life Time. In connection with this engagement, the Board requested that Wells Fargo Securities provide its opinion to both the Board and the Special Committee as to the fairness, from a financial point of view, of the merger consideration to be received by holders of Life Time common stock (excluding the excluded shares) pursuant to the merger agreement. In selecting Wells Fargo Securities as financial advisor, the Board considered, among other things, the fact that Wells Fargo Securities is a widely recognized investment banking firm with substantial experience advising companies in the healthy living, leisure and retail industries, has familiarity with Life Time and its business and has substantial experience providing strategic advisory services in similar transactions. Wells Fargo Securities, as part of its investment banking business, is continuously engaged in the evaluation of businesses and debt and equity securities in connection with mergers and acquisitions, underwritings, private placements and other securities offerings, senior credit financings, and general corporate advisory services.
On March 15, 2015, at a meeting of the Special Committee, Wells Fargo Securities delivered to the Special Committee its oral opinion, which was subsequently confirmed in writing to the Board and Special Committee, to the effect that, as of March 15, 2015, and based on and subject to various assumptions made, procedures followed, matters considered and limitations on the review undertaken by Wells Fargo Securities in connection with the opinion, the experience of its investment bankers and other factors it deemed relevant, the merger consideration to be received by holders of Life Time common stock (excluding the excluded shares) pursuant to the merger agreement was fair, from a financial point of view, to such holders. In rendering its opinion, Wells Fargo Securities expressed no opinion with respect to any amounts to be received by, or to be paid or not paid to, the holders of the excluded shares. The issuance of the opinion of Wells Fargo Securities was approved by an authorized committee of Wells Fargo Securities.
The full text of Wells Fargo Securities written opinion, dated March 15, 2015, to the Board and the Special Committee is attached as Appendix D to this proxy statement and is incorporated by reference in its entirety into this proxy statement. The written opinion of Wells Fargo Securities sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken by Wells Fargo Securities in rendering its opinion. The following summary is qualified in its entirety by reference to the full text of the opinion. Wells Fargo Securities provided its opinion for the information and use of the Board and the Special Committee (in their capacity as such) in connection with its evaluation of the merger. Wells Fargo Securities opinion did not and does not constitute a recommendation to the Board, the Special Committee or to any other person or entity in respect of the merger or otherwise, including, without limitation, as to how any holder of Life Time common stock should vote or act in connection with any matter relating to the merger, the merger agreement or any other matters.
In arriving at its opinion, Wells Fargo Securities, among other things:
| Reviewed a draft, dated March 15, 2015, of the merger agreement, including the financial terms of the merger; |
| Reviewed certain business, financial and other information regarding Life Time that was publicly available or was furnished to Wells Fargo Securities by Life Time; |
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| Reviewed certain financial projections for Life Time prepared by the management of Life Time, and that were approved for Wells Fargo Securities use by the Board; |
| Discussed with the management of Life Time the operations and prospects of Life Time, including the historical financial performance and trends in the results of operations of Life Time; |
| Participated in discussions among representatives of Life Time, Parent and their respective advisors regarding the proposed merger; |
| Reviewed the historical prices and implied trading multiples of Life Time common stock; |
| Compared certain business, financial and other information regarding Life Time that was publicly available or was furnished to Wells Fargo Securities by Life Time with publicly available business, financial and other information regarding certain publicly-traded companies that Wells Fargo Securities deemed relevant; |
| Compared the proposed financial terms of the merger agreement with the financial terms of certain other business combinations and transactions that Wells Fargo Securities deemed relevant; |
| Prepared a discounted cash flow analysis of Life Time based upon the financial forecasts and estimates referred to above and assumptions relating thereto discussed with and confirmed as reasonable by the management of Life Time; and |
| Considered other information, such as financial studies, analyses, and investigations, as well as financial, economic and market criteria, that Wells Fargo Securities deemed relevant. |
In connection with its review, Wells Fargo Securities assumed and relied upon the accuracy and completeness of the financial and other information provided, discussed with or otherwise made available to it, including all accounting, tax, regulatory and legal information, and Wells Fargo Securities did not make (and did not assume any responsibility for) any independent verification of such information. Wells Fargo Securities assumed, with the consent of the Board, that Life Time is not aware of any facts or circumstances that would make such information inaccurate or misleading in any way meaningful to Wells Fargo Securities analysis. With respect to the financial forecasts, estimates and other information utilized in its analyses, Wells Fargo Securities assumed, with the consent of the Board, that they have been reasonably prepared and reflect the best current estimates, judgments and assumptions of the management of Life Time as to the future financial performance of Life Time. Wells Fargo Securities assumed no responsibility for, and expressed no view as to, such forecasts, estimates or other information utilized in its analyses or the judgments or assumptions upon which they are based. Wells Fargo Securities also assumed that there were no material changes in the condition (financial or otherwise), results of operations, business or prospects of Life Time since the respective dates of the most recent financial statements and other information provided to Wells Fargo Securities. In arriving at its opinion, Wells Fargo Securities did not make or receive any evaluations or appraisals of the properties, assets or liabilities (contingent or otherwise) of Life Time or any other entity.
In rendering its opinion, Wells Fargo Securities assumed, with the consent of the Board, that the final form of the merger agreement, when signed by the parties thereto, would not differ from the draft reviewed by it in any respect meaningful to its analyses or opinion, that the merger would be consummated in accordance with the merger agreement and in compliance with all applicable laws and other requirements, without waiver, modification or amendment of any material terms or conditions, and that in the course of obtaining any necessary legal, regulatory or third party consents or approvals for the merger, no delays, limitations, conditions or restrictions would be imposed or actions would be taken that would have an adverse effect on Life Time or the merger in any way meaningful to Wells Fargo Securities analyses. Wells Fargo Securities opinion was necessarily based on economic, market, financial and other conditions existing, and the information made available to it, as of March 15, 2015. Although subsequent developments may affect the matters set forth in its opinion, Wells Fargo Securities does not have any obligation to update, revise, reaffirm or withdraw its opinion or otherwise comment on or consider any such events occurring or coming to its attention after March 15, 2015.
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Wells Fargo Securities opinion only addressed the fairness, from a financial point of view and as of March 15, 2015, of the merger consideration to be received by holders of Life Time common stock (excluding the excluded shares) in the merger pursuant to the merger agreement to the extent expressly specified therein, and does not address any other terms or aspects of the merger, including, without limitation, the form or structure of the merger, any tax or accounting matters relating to the merger or otherwise, any financing arrangements or any aspect or implication of any other agreement or arrangement entered into in connection with or contemplated by the merger or otherwise. In addition, Wells Fargo Securities opinion does not address the fairness of the amount or nature of, or any other aspects relating to, any compensation to be received by any officers, directors or employees of any parties to the merger, or class of such persons, relative to the merger consideration or otherwise. Wells Fargo Securities opinion also does not address the merits of the underlying decision by Life Time to enter into the merger agreement or the relative merits of the merger compared with other business strategies or transactions available or that have been or might be considered by the management or the Board or the Special Committee or in which Life Time might engage. Wells Fargo Securities also did not express any view or opinion with respect to, and with the consent of Life Time have relied upon the assessments of representatives of Life Time regarding, accounting, tax, regulatory, legal or similar matters as to which Wells Fargo Securities understood that Life Time obtained such advice as it deemed necessary from qualified professionals.
In connection with rendering its opinion, Wells Fargo Securities performed certain financial, comparative and other analyses as summarized below. This summary is not a complete description of the financial analyses performed and factors considered in connection with such opinion. In arriving at its opinion, Wells Fargo Securities made its determinations as to the fairness, from a financial point of view, of the merger consideration to be received by holders of Life Time common stock (excluding the excluded shares) in the merger pursuant to the merger agreement, on the basis of various financial and comparative analyses taken as a whole. The preparation of a financial opinion is a complex process and involves various determinations as to the most appropriate and relevant methods of financial and comparative analyses and the application of those methods to the particular circumstances. Therefore, a financial opinion is not readily susceptible to summary description.
In arriving at its opinion, Wells Fargo Securities did not attribute any particular weight to any single analysis or factor considered but rather made qualitative judgments as to the significance and relevance of each analysis and factor relative to all other analyses and factors performed and considered and in the context of the circumstances of the particular transaction. Accordingly, the analyses must be considered as a whole, as considering any portion of such analyses and factors, without considering all analyses and factors as a whole, could create a misleading or incomplete view of the process underlying such opinion. The fact that any specific analysis has been referred to in the summary below is not meant to indicate that such analysis was given greater weight than any other analysis referred to in the summary. No company, business or transaction reviewed is identical to Life Time or the merger. An evaluation of these analyses is not entirely mathematical; rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading or other values of the companies, business segments or transactions reviewed.
In performing its analyses, Wells Fargo Securities considered industry performance, general business and economic conditions and other matters existing as of March 15, 2015, many of which are beyond the control of Life Time. Neither Life Time nor Wells Fargo Securities or any other person assumes responsibility if future results are different from those discussed whether or not any such difference is material. Any estimates contained in these analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth below. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or necessarily reflect the prices at which businesses or securities may actually be sold or acquired. Accordingly, the assumptions and estimates used in, and the results derived from, the following analyses are inherently subject to substantial uncertainty.
The following is a summary of the material financial analyses provided on March 15, 2015 to the Board and to the Special Committee by Wells Fargo Securities in connection with its opinion. Certain financial analyses
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summarized below include information presented in tabular format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary, as the tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of such financial analyses.
Life Time Financial Analyses
Transaction Multiples Analysis. Wells Fargo Securities reviewed financial data and projections provided by the management of Life Time and calculated, with respect to Life Time:
| enterprise value, as of March 31, 2015, which is the value of outstanding equity securities based on the per-share merger consideration to be paid in connection with the merger of $72.10 (taking into account its options and other outstanding convertible securities) plus the value as of such date of its net debt, which generally is the value of its outstanding indebtedness, preferred stock, and capital lease obligations less the amount of cash on its balance sheet, as a multiple of estimated revenue for the last twelve month period ending March 31, 2015, or LTM revenue and estimated 2015 revenue; |
| enterprise value, as of March 31, 2015, as a multiple of estimated earnings before interest, taxes, depreciation and amortization, or EBITDA, for the last twelve month period ending March 31, 2015, or LTM EBITDA, estimated 2015 EBITDA and estimated 2016 EBITDA; and |
| per-share merger consideration to be paid in connection with the merger of $72.10, or price, as a multiple of estimated 2015 earnings per share, which for purposes of this section, we refer to as EPS, and estimated 2016 EPS. |
The following table presents the results of these analyses:
Multiple | ||||
Enterprise Value/LTM Revenue |
3.1x | |||
Enterprise Value/2015E Revenue |
2.9x | |||
Enterprise Value/LTM EBITDA |
10.7x | |||
Enterprise Value/2015E EBITDA |
9.9x | |||
Enterprise Value/2016E EBITDA |
9.1x | |||
Price/2015 EPS |
23.2x | |||
Price/2016 EPS |
21.3x |
Wells Fargo Securities then used these multiples, in a manner based on its experience and professional judgment, as part of the selected public companies and selected precedent transactions analyses, as described below.
Premium Paid Analysis. Wells Fargo Securities reviewed the historical trading prices for Life Time common stock for the one-year period ended March 13, 2015 (the last trading day prior to the meeting of the Board on March 15, 2015). In addition, Wells Fargo Securities analyzed the consideration of $72.10 per share to be paid to the holders of Life Time common stock in the merger pursuant to the merger agreement in relation to the closing price of Life Time common stock on August 22, 2014 (the last trading day preceding the day of the announcement of the REIT Conversion Exploration, March 5, 2015 (the last trading day before the publication of articles suggesting that Life Time was for sale), March 13, 2015 (the last trading day before the merger agreement was signed), the volume weighted average price of Life Time common stock during the thirty (30) day, sixty (60) day and ninety (90) day periods ended March 13, 2015 and the high and low closing share price of Life Time common stock for the fifty-two (52) week period ended March 13, 2015.
This analysis indicated that the per-share merger consideration of $72.10 to be paid in connection with the merger to the holders of Life Time common stock pursuant to the merger agreement represented:
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| a premium of 73.3% based on the closing price of $41.60 per share on August 22, 2014; |
| a premium of 25.0% based on the closing price of $57.67 per share on March 5, 2015; |
| a premium of 7.3% based on the closing price of $67.20 per share on March 13, 2015; |
| a premium of 16.4% based on the volume weighted average price of $61.93 per share for the thirty (30) day period ended March 13, 2015; |
| a premium of 20.2% based on the volume weighted average price of $59.99 per share for the sixty (60) day period ended March 13, 2015; |
| a premium of 22.2% based on the volume weighted average price of $59.00 per share for the ninety (90) day period ended March 13, 2015; |
| a premium of 7.3% based on the latest fifty-two (52) week high trading price of $67.20 per share on March 13, 2015; and |
| a premium of 88.0% based on the latest fifty-two (52) week low trading price of $38.36 per share on August 7, 2014. |
Selected Public Companies Analysis. Wells Fargo Securities reviewed and compared certain financial information and financial multiples relating to Life Time to corresponding financial information and financial multiples for selected publicly-traded companies operating in the healthy living, specialty retail and leisure sectors. Wells Fargo Securities selected these companies based upon its views as to the comparability of the financial, operating and sector-specific characteristics of these companies to Life Time. No specific numeric or other similar criteria were used to select the selected companies, and all criteria were evaluated in their entirety without application of definitive qualifications or limitations to individual criteria.
The companies included in the selected healthy living companies analysis were:
| The Fresh Market, Inc. |
| GNC Holdings, Inc. |
| Medifast, Inc. |
| Nutrisystem, Inc. |
| Town Sports International Holdings, Inc. |
| Vitamin Shoppe, Inc. |
| Weight Watchers International, Inc. |
| Whole Foods Market, Inc. |
The companies included in the selected specialty retail companies analysis were:
| Cabelas Incorporated |
| Dicks Sporting Goods Inc. |
| Hibbett Sports, Inc. |
| The Home Depot, Inc. |
| Lowes Companies, Inc. |
| The Michaels Companies, Inc. |
| Pier 1 Imports, Inc. |
| Tractor Supply Company |
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The companies included in the selected leisure companies analysis were:
| Boyd Gaming Corp. |
| ClubCorp Holdings, Inc. |
| International Speedway Corp. |
| Penn National Gaming, Inc. |
| Pinnacle Entertainment, Inc. |
| SeaWorld Entertainment, Inc. |
| Six Flags Entertainment Corp. |
| Speedway Motorsports, Inc. |
| Vail Resorts, Inc. |
Wells Fargo Securities calculated and compared financial multiples for the selected companies based on public filings, equity research and common stock closing prices on March 13, 2015 for the selected companies, with the exception of Pinnacle Entertainment, Inc. whose common stock closing price was used as of March 6, 2015 (the last closing price prior to the announcement of an unsolicited proposal from Gaming and Leisure Properties, Inc. to acquire Pinnacle Entertainment, Inc. in a stock transaction subsequent to a spinoff of Pinnacle Entertainment, Inc.s non-real estate assets). With respect to the selected companies, Wells Fargo Securities calculated:
| enterprise value, which generally is the market value of outstanding equity securities (taking into account its options and other outstanding convertible securities) plus the value as of such date of its net debt, as a multiple of estimated 2015 EBITDA and estimated 2016 EBITDA; and |
| share price, as a multiple of estimated 2015 EPS and estimated 2016 EPS. |
Wells Fargo Securities then, based on its analysis of those financial multiples along with its experience and professional judgment, including its assessment of selected company financial and operating metrics that were most comparable to Life Time, selected ranges for the financial multiples for each sector. These ranges were then used to derive implied equity values per share of Life Time common stock based on financial data for Life Time provided to Wells Fargo Securities by the management of Life Time and the closing price of Life Time common stock of $57.67 per share on March 5, 2015.
The following table presents the results of these analyses:
Selected Healthy Living Companies Range |
Implied Life Time Stock Price Range |
Selected Specialty Retail Companies Range |
Implied Life Time Stock Price Range |
Selected Leisure Companies Range |
Implied Life Time Stock Price Range | |||||||
Enterprise Value/ 2015E EBITDA |
7.4x-9.8x | $45.63-$71.15 | 8.4x-10.8x | $56.17-$82.03 | 8.2x-10.1x | $54.72-$74.07 | ||||||
Enterprise Value/ 2016E EBITDA |
5.7x-9.1x | $33.75-$72.17 | 7.3x-9.8x | $51.26-$80.73 | 8.1x-9.8x | $61.03-$80.04 | ||||||
Price/2015E EPS |
14.6x-22.5x | $45.34-$69.94 | 16.8x-22.2x | $52.14-$69.10 | 21.4x-34.0x | $66.44-$105.61 | ||||||
Price/2016E EPS |
13.1x-20.3x | $44.37-$68.96 | 14.7x-19.4x | $49.98-$65.70 | 18.0x-28.5x | $60.98-$96.54 |
Wells Fargo Securities, based on the above analysis of each sector and its experience and professional judgment, derived a range of equity values per share of Life Time common stock based on the financial multiples as follows:
| Enterprise Value/2015E EBITDA $55.00 to $74.00; |
| Enterprise Value/2016E EBITDA $51.00 to $76.00; |
| Price/2015E EPS $52.00 to $70.00; and |
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| Price/2016E EPS $50.00 to $69.00. |
Wells Fargo Securities, based on the above-referenced ranges of equity values per share of Life Time common stock for each multiple, along with its experience and professional judgment, then derived a consolidated range of equity values per share of Life Time common stock of $51.50 to $72.00. Wells Fargo Securities noted that the per-share merger consideration to be paid in connection with the merger is $72.10.
Selected Precedent Transactions Analysis. Wells Fargo Securities analyzed certain information relating to the following selected precedent transactions involving fitness, retail and leisure companies. Although none of the companies involved in the selected transactions is identical to Life Time, nor are any of the selected transactions identical to the merger, Wells Fargo Securities chose the transactions in the selected precedent transactions analysis because the companies that participated in the selected precedent transactions are companies with operations that, for the purposes of analysis, may be considered similar to certain of Life Times results, market size or operations. No specific numeric or other similar criteria were used to select the selected transactions, and all criteria were evaluated in their entirety without application of definitive qualifications or limitations to individual criteria. The financial data for the selected transactions reviewed, based on public filings and other publicly-available information and Wall Street research, included the implied enterprise value (based on the purchase price paid in the transaction) as a multiple of the target companys EBITDA for the most recently completed twelve-month period for which financial information had been made public. The selected transactions and resulting multiples were:
Target |
Acquiror |
Date of Announcement | ||
Fitness | ||||
Crown Sports plc |
LA Fitness/MidOcean Partners | 2/17/06 | ||
Equinox Holdings, Inc. |
The Related Companies L.P. | 12/5/05 | ||
Fitness First Ltd |
BC Partners Ltd. | 9/22/05 | ||
24 Hour Fitness Worldwide Inc. |
Forstmann Little & Co. | 5/3/05 | ||
Retail |
||||
PetSmart, Inc. |
BC Partners Ltd. | 12/14/14 | ||
Family Dollar Stores, Inc. |
Dollar Tree, Inc. | 7/28/14 | ||
Darden Restaurants, Inc./Red Lobster |
Golden Gate Capital | 5/16/14 | ||
General Parts International, Inc. |
Advance Auto Parts, Inc. | 10/16/13 | ||
Savers, Inc. |
Leonard Green and TPG | 6/7/12 | ||
Party City Holdings Inc. |
Thomas H. Lee Partners, L.P. | 6/5/12 | ||
P.F. Changs China Bistro, Inc. |
Centerbridge Capital Partners II, L.P. | 5/1/12 | ||
Academy Sports + Outdoors |
KKR & Co. L.P. | 5/31/11 | ||
Jo-Ann Stores Inc. |
Leonard Green | 12/23/10 | ||
Leisure |
||||
Sequoia Golf Holdings, LLC |
ClubCorp Holdings, Inc. | 8/13/14 | ||
MTR Gaming Group, Inc. |
Eldorado Resorts, Inc. | 9/9/13 | ||
Ameristar Casinos, Inc. |
Pinnacle Entertainment, Inc. | 12/21/12 | ||
Peninsula Gaming, LLC |
Boyd Gaming Corp. | 5/16/12 |
Enterprise Value/LTM EBITDA | ||
High |
12.2x | |
Mean |
9.2x | |
Median |
9.0x | |
Low |
5.9x |
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Wells Fargo Securities then applied a selected range of LTM EBITDA multiples of 8.5x to 10.0x derived from the analyses of the selected precedent transactions, based on its experience and professional judgment, to corresponding financial data for Life Time provided to Wells Fargo Securities by the management of Life Time. Based on its experience and professional judgment, Wells Fargo Securities then derived a selected range of implied equity values per share of Life Time common stock of $50.68 to $65.22, which was then rounded to $51.00 and $65.00, respectively. Wells Fargo Securities noted that the per-share merger consideration to be paid in connection with the merger is $72.10.
Discounted Cash Flow Analysis. Wells Fargo Securities conducted a discounted cash flow analysis of Life Time using the financial forecast for the last nine months of the fiscal year ending December 31, 2015 through the full fiscal year ending December 31, 2021, provided by Life Times management, to determine an implied present value per share of Life Time common stock as of March 31, 2015. In conducting this analysis, Wells Fargo Securities first calculated the net present value of the projected after-tax unlevered free cash flows for Life Time for the last nine months of the fiscal year ending December 31, 2015 through the full fiscal year ending December 31, 2021. Next, Wells Fargo Securities derived implied terminal values for Life Time in the fiscal year 2021 by applying a range of terminal value EBITDA multiples of 8.5x to 9.5x, which were chosen by Wells Fargo Securities based on its experience and professional judgment, to the estimated EBITDA of Life Time for the fiscal year 2021 provided by the management of Life Time. The unlevered, after-tax free cash flows and range of terminal values were discounted to present values using a range of discount rates from 7.75% to 8.75%. Wells Fargo Securities selected the discount range used in this analysis based on its experience and professional judgment taking into account Life Times weighted average cost of capital, which Wells Fargo Securities calculated using standard corporate finance methodologies. Wells Fargo Securities then derived a range of implied enterprise values of Life Time by adding the present value (as of March 31, 2015) of the projected cash flows of Life Time for the last nine months of the fiscal year ending December 31, 2015 through the full fiscal year ending December 31, 2021 to the present value (as of March 31, 2015) of the terminal value for Life Time in fiscal year 2021. For purposes of these present value calculations, Wells Fargo Securities utilized the year-end cash flow convention. Wells Fargo Securities calculated a range of implied per share values for Life Time by subtracting Life Times estimated net debt as of March 31, 2015 (as provided by Life Times management) from the range of implied enterprise values of Life Time and then dividing by the number of fully diluted shares outstanding. These calculations resulted in a range of implied equity values per share of Life Time common stock of $61.93 to $72.55, $59.04 to $69.34 and $56.26 to $66.24 using the discount rates of 7.75%, 8.25% and 8.75%, respectively, and the range of terminal value EBITDA multiples. Based on its experience and professional judgment, Wells Fargo Securities then derived a selected range of implied equity values per share of Life Time common stock of $56.26 to $72.55. Wells Fargo Securities noted that the per-share merger consideration to be paid in connection with the merger is $72.10.
Other Information. Wells Fargo Securities observed certain additional factors that were not considered part of Wells Fargo Securities financial analyses with respect to its opinion but were referenced for informational purposes, including, among other things, publicly-available Wall Street research analysts reports relating to Life Time, which indicated stock price targets ranging from $59.00 to $70.37 per share for Life Time common stock.
Miscellaneous. Wells Fargo Securities prepared the analyses described above for purposes of providing its opinion to the Board and Special Committee as to the fairness, from a financial point of view, of the merger consideration to be received by holders of Life Time common stock (excluding the excluded shares) in the merger pursuant to the merger agreement. The type and amount of consideration payable in the merger were determined through negotiations among the Board and/or Special Committee and management of each of Life Time and Parent and their respective advisors. Wells Fargo Securities did not recommend any specific consideration to the Board or the Special Committee or state that any given consideration constituted the only appropriate consideration for the merger. The decision to enter into the merger agreement was solely that of the Board and Special Committee. As described above, Wells Fargo Securities opinion and analyses were only one of many factors taken into consideration by the Board and Special Committee in evaluating the merger. Wells Fargo Securities analyses summarized above should not be viewed as determinative of the views of the Board,
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the Special Committee or management of Life Time with respect to the merger or the consideration to be received in the merger.
Wells Fargo Securities is the trade name for certain capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including Wells Fargo Securities, LLC. Wells Fargo Securities has been engaged to act as financial advisor to the Board and will receive an aggregate fee of approximately $19 million for such services, a portion of which was payable upon delivery of its opinion and the principal portion of which will be payable upon consummation of the merger. In addition, Life Time has agreed to reimburse certain of Wells Fargo Securities expenses and to indemnify Wells Fargo Securities and certain related parties against certain liabilities that may arise out of the engagement.
Wells Fargo Securities and its affiliates provide a full range of investment banking and financial advisory, securities trading, brokerage and lending services in the ordinary course of business, for which Wells Fargo Securities and such affiliates receive customary fees. In that regard, Wells Fargo Securities or its affiliates in the past have provided, currently are providing and in the future may provide banking and other financial services to Life Time, Parent, Leonard Green, an affiliate of Parent, TPG, an affiliate of Parent, and certain of their respective affiliates, for which Wells Fargo Securities or such affiliates have received and expect to receive fees, including, since March 15, 2013 having acted as (i) financial advisor in connection with strategic advisory and corporate defensive matters and as placement agent in connection with certain capital market offerings for Life Time, (ii) underwriter and joint bookrunner with respect to various capital market offerings of Leonard Green and certain of its affiliates and as syndication agent, documentation agent, joint bookrunner and/or joint lead arranger for, and as lender under, certain credit facilities of Leonard Green and certain of its affiliates and (iii) underwriter, lead left bookrunner, stabilization agent, joint bookrunner and/or co-manager with respect to various capital market offerings of TPG and certain of its affiliates and as syndication agent, documentation agent, joint bookrunner and/or joint lead arranger for, and as lender under, certain credit facilities of TPG and certain of its affiliates. In the ordinary course of business, Wells Fargo Securities and its affiliates may actively trade or otherwise effect transactions in or hold the securities or financial instruments of Life Time, Parent, Leonard Green, TPG and/or certain of their respective affiliates for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities or financial instruments.
Certain Financial Forecasts
Life Time does not, as a matter of course, develop or publicly disclose long-term projections or internal projections of its future financial performance revenues, earnings, financial condition or other results due to, among other reasons, the uncertainty of the underlying assumptions and estimates, though Life Time has in the past provided investors with quarterly and full-year financial guidance which may cover areas such as revenue and earnings per share, among other items, which it may update from time to time during the relevant year. However, in connection with Life Times evaluation of a possible transaction, Life Time provided the Special Committee, the Board, and their advisors, including Wells Fargo Securities and Guggenheim Securities in performing their respective financial analyses summarized under Opinions of Financial Advisors, with certain non-public unaudited prospective financial information prepared by our management. The forecasts were used as the basis for the financial analyses summarized above and presented to the Special Committee and the Board by Guggenheim Securities and Wells Fargo Securities, which we refer to as the Forecasts. The Forecasts were also provided to prospective bidders in connection with their due diligence review of a possible transaction.
The Forecasts were not prepared with a view to public disclosure and are included in this proxy statement only because such information was made available as described above. The Forecasts were not prepared with a view to compliance with generally accepted accounting principles as applied in the United States, which we refer to as GAAP, the published guidelines of the SEC regarding projections and forward-looking statements or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Furthermore, Deloitte & Touche LLP, our independent auditor, has not
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examined, reviewed, compiled or otherwise applied procedures to, the Forecasts and, accordingly, assumes no responsibility for, and expresses no opinion on, them. The Forecasts included in this proxy statement have been prepared by, and are the responsibility of, our management. The Forecasts were prepared solely for internal use of Life Time and its financial advisors and are subjective in many respects.
Although a summary of the Forecasts is presented with numerical specificity, they reflect numerous assumptions and estimates as to future events made by our management that our management believed were reasonable at the time the Forecasts were prepared, taking into account the relevant information available to management at the time. However, this information is not fact and should not be relied upon as being necessarily indicative of actual future results. Important factors that may affect actual results and cause the Forecasts not to be achieved include general economic conditions, accuracy of certain accounting assumptions, changes in actual or projected cash flows, competitive pressures, and changes in tax laws. In addition, the Forecasts do not take into account any circumstances or events occurring after the date that they were prepared and do not give effect to the merger. As a result, there can be no assurance that the Forecasts will be realized, and actual results may be materially better or worse than those contained in the Forecasts. The inclusion of this information should not be regarded as an indication that the Special Committee, the Board, Life Time, our financial advisors or any other recipient of this information considered, or now considers, the Forecasts to be material information of Life Time or predictive of actual future results nor should it be construed as financial guidance, and it should not be relied upon as such. The summary of the Forecasts is not included in this proxy statement in order to induce any shareholder to vote in favor of the proposal to adopt the merger agreement or any of the other proposals to be voted on at the special meeting or to influence any shareholder to make any investment decision with respect to the merger, including whether or not to seek dissenters rights with respect to shares of our common stock.
The Forecasts should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding Life Time contained in our public filings with the SEC. The Forecasts were reviewed by Life Times management with, and considered by, the Special Committee and Board in connection with their evaluation and approval of the merger.
The Forecasts are forward-looking statements. For information on factors that may cause Life Times future results to materially vary, see Cautionary Statement Concerning Forward-Looking Statements beginning on page 31.
Except to the extent required by applicable federal securities laws, we do not intend, and expressly disclaim any responsibility, to update or otherwise revise the Forecasts to reflect circumstances existing after the date when Life Time prepared the Forecasts or to reflect the occurrence of future events or changes in general economic or industry conditions, even in the event that any of the assumptions underlying the Forecasts are shown to be in error.
In light of the foregoing factors and the uncertainties inherent in the Forecasts, shareholders are cautioned not to rely on the Forecasts included in this proxy statement.
Certain of the measures included in the Forecasts may be considered non-GAAP financial measures, as noted below. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by Life Time may not be comparable to similarly titled amounts used by other companies.
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Management Forecasts
Fiscal year ending December 31, ($ in millions, except per share data) |
||||||||||||||||||||||||||||
2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | ||||||||||||||||||||||
New Club Openings |
6 | 6 | 6 | 6 | 6 | 6 | 6 | |||||||||||||||||||||
EBITDA |
410.8 | 446.9 | 492.8 | 540.9 | 588.3 | 637.2 | 687.0 | |||||||||||||||||||||
Depreciation |
(160.4 | ) | (174.7 | ) | (190.5 | ) | (206.0 | ) | (221.6 | ) | (237.3 | ) | (253.1 | ) | ||||||||||||||
EBIT |
250.5 | 272.2 | 302.3 | 334.9 | 366.7 | 399.9 | 433.9 | |||||||||||||||||||||
P&L Interest |
(48.4 | ) | (48.2 | ) | (48.2 | ) | (49.6 | ) | (63.2 | ) | (72.5 | ) | (71.9 | ) | ||||||||||||||
EBT |
202.1 | 224.0 | 254.2 | 285.3 | 303.5 | 327.4 | 362.0 | |||||||||||||||||||||
Income Taxes |
(80.1 | ) | (89.6 | ) | (101.7 | ) | (114.1 | ) | (121.4 | ) | (131.0 | ) | (144.8 | ) | ||||||||||||||
Net Income |
122.0 | 134.4 | 152.5 | 171.2 | 182.1 | 196.5 | 217.2 | |||||||||||||||||||||
Cash Flows |
||||||||||||||||||||||||||||
EBITDA |
410.8 | 446.9 | 492.8 | 540.9 | 588.3 | 637.2 | 687.0 | |||||||||||||||||||||
Total Interest |
(50.9 | ) | (50.7 | ) | (51.7 | ) | (53.1 | ) | (66.7 | ) | (76.5 | ) | (75.9 | ) | ||||||||||||||
Taxes |
(80.1 | ) | (89.6 | ) | (101.7 | ) | (114.1 | ) | (121.4 | ) | (131.0 | ) | (144.8 | ) | ||||||||||||||
Transaction Costs |
0.0 | |||||||||||||||||||||||||||
Maintenance CapEx |
(46.2 | ) | (49.1 | ) | (53.2 | ) | (57.6 | ) | (62.0 | ) | (66.6 | ) | (71.4 | ) | ||||||||||||||
Corporate/Other CapEx |
(30.0 | ) | (30.0 | ) | (33.0 | ) | (36.0 | ) | (40.0 | ) | (40.0 | ) | (40.0 | ) | ||||||||||||||
Growth CapEx |
(260.0 | ) | (270.0 | ) | (270.0 | ) | (270.0 | ) | (270.0 | ) | (270.0 | ) | (270.0 | ) | ||||||||||||||
Principal Payments |
(21.4 | ) | (21.3 | ) | (20.0 | ) | (20.0 | ) | (20.6 | ) | (21.4 | ) | (22.4 | ) | ||||||||||||||
Working capital/other |
(13.4 | ) | (10.2 | ) | (12.9 | ) | (20.5 | ) | (26.1 | ) | (21.5 | ) | (20.0 | ) | ||||||||||||||
Principal Payment/ working capital/other |
(34.8 | ) | (31.5 | ) | (32.9 | ) | (40.5 | ) | (46.7 | ) | (42.9 | ) | (42.4 | ) | ||||||||||||||
Debt Maturity |
0.0 | (61.5 | ) | (89.2 | ) | 0.0 | 0.0 | 0.0 | 0.0 | |||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
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(91.1 | ) | (135.4 | ) | (138.8 | ) | (30.4 | ) | (18.5 | ) | 10.3 | 42.5 | |||||||||||||||||
New Debt (including revolver plus mortgage) |
88.4 | 135.4 | 138.8 | 30.3 | 18.5 | (10.3 | ) | (42.5 | ) | |||||||||||||||||||
Ending Cash |
6.5 | 6.5 | 6.5 | 6.5 | 6.5 | 6.5 | 6.5 | |||||||||||||||||||||
Free Cash Flows |
(52 | ) | (35 | ) | (11 | ) | 8 | 21 | 51 | 84 | ||||||||||||||||||
Unlevered Free Cash Flows(1) |
(22.1 | )(2) | (21.2 | ) | 2.7 | 22.9 | 43.5 | 79.1 | 112.0 | |||||||||||||||||||
Year End Outstanding Share Count |
39.4 | 39.8 | 40.2 | 40.6 | 41.0 | 41.4 | 41.8 |
(1) | Life Times financial advisors calculated unlevered free cash flows based on Life Times projections and such unlevered free cash flows were reviewed and approved by Life Time for the financial advisors use in connection with the merger. |
(2) | Represents unlevered free cash flows for the nine-month period from April 1, 2015 through December 31, 2015. |
Interests of the Directors and Executive Officers of Life Time in the Merger
When considering the recommendation of the Board that you vote for the proposal to approve and adopt the merger agreement, you should be aware that certain of our directors and executive officers may have interests in the merger that are different from, or in addition to, your interests as a shareholder. The Special Committee was aware of these interests and considered them, among other matters, in evaluating and overseeing the negotiation of the merger agreement, and in recommending that the Board approve the merger agreement and the merger. The Board was also aware of these interests in approving the merger agreement and the merger and in recommending that the merger agreement be approved and adopted by the shareholders of Life Time.
For purposes of this proxy statement, our named executive officers consist of (i) Bahram Akradi, our Chairman of the Board, President and Chief Executive Officer, (ii) Eric J. Buss, our Executive Vice President and Chief Financial Officer, (iii) Jeffrey G. Zwiefel, our Executive Vice President and Chief Operating Officer, (iv) Tami A. Kozikowski, our Executive Vice President, LifeSpa and Chief Administrative Officer; (v) Jess R. Elmquist, our Executive Vice President, Human Resources and Life Time University; and (vi) Michael R. Robinson, our former Executive Vice President and Chief Financial Officer. The compensation that may become payable to our
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named executive officers in connection with the merger is subject to a non-binding advisory vote of Life Times shareholders, as described below in Proposal 3: Advisory Vote on Merger-Related Executive Compensation Arrangements beginning on page 114.
This section also includes disclosure with respect to Erik A. Lindseth, our Senior Vice President and General Counsel. Mr. Lindseth is not a named executive officer for purposes of SEC rules and therefore is not subject to a non-binding advisory vote of Life Times shareholders, as described below in Proposal 3: Advisory Vote on Merger-Related Executive Compensation Arrangements beginning on page 114.
Compensation of the Special Committee
The Special Committee consists of seven independent and disinterested members of the Board: (i) Giles H. Bateman, (ii) Jack W. Eugster, (iii) Guy C. Jackson, (iv) John K. Lloyd, (v) Martha A. Morfitt, (vi) John B. Richards and (vii) Joseph S. Vassalluzzo (Chairman). At a meeting of the Special Committee held on March 3, 2015, the Special Committee adopted resolutions providing for a one-time cash retainer fee of $30,000 to the Chairman of the Special Committee and $20,000 to each other member of the Special Committee, along with an additional cash meeting fee of $1,500 per meeting for each member of the Special Committee. In addition, in accordance with Life Times director compensation policy, the members of the Special Committee receive reimbursement by Life Time of all reasonable costs they incur in connection with their service on the Special Committee, including, without limitation, travel expenses.
In recommending and approving the compensation payable to the members of the Special Committee, the Board considered, among other things, the numerous meetings which the Special Committee held and the services provided by its members.
Arrangements with Parent
Agreement with Mr. Akradi
Mr. Akradi and the equity investors entered into a term sheet on March 13, 2015, which we refer to as the CEO term sheet, pursuant to which Mr. Akradi will serve as the Chairman of the Board, Chief Executive Officer, and President of Parent and Life Time for a period commencing on the closing of the merger and ending on December 31, 2020. The term sheet is legally binding, but will be replaced by definitive agreements to be negotiated by the parties in good faith.
Pursuant to the term sheet, Mr. Akradi will receive an annual base salary of $1 million (pro-rated for 2015) and a guaranteed annual cash bonus of $1 million. Mr. Akradi will also have the opportunity to receive an additional annual incentive cash bonus based on Life Times performance.
In addition to his cash compensation, Mr. Akradi will receive annual grants of shares of restricted common stock of Parent on April 1 in each of the first five years of his employment equal to 0.50% of Parents common stock outstanding as of the closing of the merger (maximum of 2.5% in the aggregate over five years). A total of 50% of each grant will vest over five years, generally subject to Mr. Akradis continued employment with Life Time (and accelerated vesting upon a change in control), and the other 50% of each grant will vest if Life Time achieves specified EBITDA targets. Mr. Akradi will also receive options to purchase common stock of Parent equal to 6.0% of Parents common stock outstanding as of the closing of the merger, composed of three equal tranches. The options will vest over five years, generally subject to Mr. Akradis continued employment with Life Time (and accelerated vesting upon a change in control).
If Mr. Akradis employment is terminated either by Life Time without cause or by Mr. Akradi for good reason prior to December 31, 2020, then Mr. Akradi will receive the following payments, subject to his continued compliance with specified non-competition and non-solicitation provisions during the 18 month period following
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his termination: (i) continued payment of his base salary for 18 months, (ii) payment of $1.5 million in respect of his guaranteed bonus and (iii) payment equal to 1.5 times the amount of his target annual incentive cash bonus in effect with respect to the year in which such termination occurs. If Mr. Akradi resigns from his position other than for good reason or is dismissed for cause, then the Leonard Green funds and the TPG fund will have the option to repurchase Mr. Akradis investment in Parent, at cost.
For purposes of the term sheet, cause includes conviction of a serious or violent felony, gross negligence or gross misconduct. The definition of good reason will be included in the definitive agreement.
Arrangements with LNK
Mr. Akradi has invested approximately $1 million in funds managed by LNK, $500,000 of which was committed in 2006 and $500,000 of which was committed in 2012.
Agreements with Other Executive Officers
No executive officer of Life Time other than Mr. Akradi has entered into an agreement with Parent or Merger Sub or any of their respective affiliates regarding employment with, or the right to purchase or participate in the equity of, the surviving company or one or more of its affiliates. Prior to or following the closing of the merger, however, these executive officers may discuss or enter into such agreements with Parent, Merger Sub and/or any of their respective affiliates.
Treatment of Equity Awards; Employee Stock Purchase Plan
Under the merger agreement, the equity-based awards held by Life Times directors and executive officers under the Life Time stock plans, and any right to purchase Life Time common stock under the ESPP, will be treated as follows:
Stock Options. Effective as of the effective time of the merger, each then-outstanding stock option will be cancelled and converted into the right to receive an amount in cash equal to the product of (i) the total number of shares of Life Time common stock subject to the option and (ii) the amount, if any, by which $72.10 exceeds the exercise price per share of Life Time common stock underlying the stock option (less any applicable withholding taxes). All such stock options are fully vested.
Restricted Stock. Effective as of the effective time of the merger, each then-outstanding share of restricted stock, including shares of restricted stock subject to time-based or performance-based vesting, will become fully vested and will be considered to be an outstanding share of Life Time common stock for purposes of the merger agreement that will entitle the holder to receive an amount of cash equal to the per-share merger consideration (less any applicable withholding taxes) in accordance with the same terms and conditions as applied to holders of Life Time common stock generally.
Employee Stock Purchase Plan. Under the ESPP, no new offering period will commence following completion of the offering period in progress as of the date of the merger agreement. Assuming the effective time of the merger occurs after June 30, 2015, which is the end date of the current offering period under the ESPP, (i) Life Time will issue shares of Life Time common stock to the participants in the ESPP in accordance with its terms as of the end of the current offering period and the participants will receive the per-share merger consideration for each such share the participant holds as of the effective time of the merger and (ii) the ESPP will be suspended effective as of June 30, 2015 and continuing until the effective time of the merger, at which time it will be terminated.
For an estimate of the amounts that would be payable to each of Life Times named executive officers and Mr. Lindseth in settlement of their unvested restricted stock awards, see the Equity column in the Golden
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Parachute Compensation table on page 76. The following table sets forth the number of shares of unvested restricted stock held by Life Times non-employee directors as of March 31, 2015, and the amount of merger consideration that would be payable in connection therewith.
Directors |
Shares of Restricted Stock (#) |
Total Payment ($) | ||
Giles H. Bateman |
4,295 | 309,670 | ||
Jack W. Eugster |
4,295 | 309,670 | ||
Guy C. Jackson |
4,295 | 309,670 | ||
John K. Lloyd |
4,295 | 309,670 | ||
Martha A. Morfitt |
4,295 | 309,670 | ||
John B. Richards |
4,295 | 309,670 | ||
Joseph S. Vassalluzzo |
5,368 | 387,033 |
Payments to Life Time Executives Upon Termination Following Change in Control
Executive Employment Agreements
Life Time is a party to executive employment agreements with each of Messrs. Buss and Zwiefel. Life Time does not have employment or severance agreements with Messrs. Akradi, Elmquist or Lindseth or Ms. Kozikowski.
The employment agreements with Messrs. Buss and Zwiefel provide for certain severance payments and benefits upon qualifying terminations of employment that occur within one year after a change in control, the definition of which includes the merger. These agreements also provide for lesser severance payments and similar benefits following qualifying terminations not in connection with a change in control. Qualifying terminations for purposes of these employment agreements consist of either a termination by Life Time (or a successor entity) other than for cause, or a termination by the executive for good reason. For purposes of these employment agreements, (i) cause is generally defined to include willful and deliberate acts of dishonesty or unlawful behavior, conviction of a felony, gross negligence or willful misconduct in the performance of employment duties, refusal to perform or persistent neglect of employment duties and responsibilities, inability to perform duties commensurate with ones position or breach of the employment agreement and (ii) good reason generally involves a material reduction in the executives duties, responsibilities or authority, a reduction in the executives base salary and target bonus of 25% or more, a material change in the location where the executive performs services or a material breach by Life Time (or a successor entity) of the employment agreement.
The employment agreements with Messrs. Buss and Zwiefel provide for the following payments and benefits in connection with a qualifying termination: (i) payment of an amount up to 1.50 times (or, in the case of a qualifying termination within one year of a change in control, 1.75 times) the executives Target Salary (defined as the sum of the executives annual base salary and annual target payout under our annual cash-based incentive plan) in effect as of the termination date (or, if the executive resigns for good reason due to a 25% or greater reduction in officers Target Salary, the Target Salary in effect immediately prior to the reduction); (ii) up to $10,000 in aggregate reasonable outplacement costs associated with the executives search for new employment for a 12 month period; and (iii) continuation of medical plan coverage and life insurance coverage for a period of up to 18 months, at the same level, in the same manner and at the same cost to the executive as in effect on the termination date of employment. The amount payable under clause (i) is to be paid in accordance with Life Times regular payroll schedule over a period of 18 months (or, in the case of a qualifying termination within one year of a change in control, 21 months).
The obligation to provide the severance payments and benefits under the employment agreements with Messrs. Buss and Zwiefel is conditioned upon the executive signing a release of claims, refraining from competing with Life Time for 24 months following the termination of his employment if terminated within one year after a change in control (and for 18 months otherwise), refraining from soliciting Life Time employees, customers or suppliers for 12 months following the termination of his employment and preserving Life Times confidential information.
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Transition Agreement with Mr. Robinson
Life Time entered into a transition agreement with Mr. Robinson in connection with his resignation as an executive officer of Life Time effective March 1, 2014. The transition agreement does not provide for any amounts that may become payable in connection with the merger.
Quantification of Payments and Benefits to Life Time Executives
The table below and its footnotes show the estimated amounts of payments and benefits that each named executive officer and Mr. Lindseth would receive in connection with the merger, based on their compensation levels and outstanding equity awards as of March 31, 2015, and assuming solely for illustrative purposes that each applicable individual experiences a qualifying termination of employment on the closing date of the merger.
The amounts reflected in the table and the footnotes are determined using a per share price for Life Times common stock of $72.10, the per-share merger consideration as specified in the merger agreement. The compensation summarized in the table and footnotes below in respect of the named executive officers is subject to a non-binding advisory vote of Life Times shareholders, as described below in Proposal 3: Advisory Vote on Merger-Related Executive Compensation Arrangements beginning on page 114. Mr. Lindseth is not a named executive officer for purposes of the applicable SEC rules and therefore is not subject to such non-binding advisory vote.
The calculations in the tables below do not include amounts the officers were already entitled to receive or that were vested as of March 31, 2015, or amounts under contracts, agreements, plans or arrangements to the extent they do not discriminate in scope, terms or operation in favor of an officer and that are available generally to all of the salaried employees of Life Time. The estimated amounts below are based on multiple assumptions that may not actually occur, including assumptions described in this proxy statement. In addition, certain amounts will vary depending on the actual date of closing of the merger, which is presently expected to occur in the second quarter of 2015. As a result, the actual amounts, if any, to be received by an applicable individual may differ in material respects from the amounts set forth below.
Golden Parachute Compensation
Named Executive Officers |
Cash ($)(1) |
Equity ($)(2) |
Perquisites/ Benefits ($)(3) |
Total ($) |
||||||||||||
Bahram Akradi (4) |
| 28,082,950 | | 28,082,950 | ||||||||||||
Jeffrey G. Zwiefel |
1,137,500 | 5,977,090 | 27,681 | 7,142,271 | ||||||||||||
Eric J. Buss |
963,375 | 5,760,790 | 27,681 | 6,751,846 | ||||||||||||
Tami A. Kozikowski |
| 3,204,124 | | 3,204,124 | ||||||||||||
Jess R. Elmquist |
| 1,261,750 | | 1,261,750 | ||||||||||||
Michael R. Robinson |
| | | | ||||||||||||
Erik A. Lindseth |
| 609,245 | | 609,245 |
(1) | The amounts shown for Messrs. Zwiefel and Buss represent the cash severance each would be entitled to receive over a period of 21 months under their employment agreements as the result of a qualifying termination of employment within one year of a change in control (a double-trigger arrangement), as described above in The MergerInterests of the Directors and Executive Officers of Life Time in the MergerPayments to Life Time Executives Upon Termination Following Change in ControlExecutive Employment Agreements. The severance amount is equal to 1.75 times the executives Target Salary (defined as the sum of the executives annual base salary and annual target payout under our annual cash-based incentive plan) in effect as of the termination date (or, if the executive resigns for good reason due to a 25% or greater reduction in officers Target Salary, the Target Salary in effect immediately prior to the reduction). |
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The amounts shown in this column are based on the base salary and target bonus levels in effect on March 31, 2015. If these base salary and target bonus levels were to change after such date, the actual payments may be different than those provided for above.
The cash payments described in this column (1) include the following components:
Named Executive Officers |
Base Salary Component($) | Annual Incentive Award Component($) |
Total ($) | |||
Jeffrey G. Zwiefel |
700,000 | 437,500 | 1,137,500 | |||
Eric J. Buss |
642,250 | 321,125 | 963,375 |
(2) | The amounts shown in this column represent the aggregate merger consideration that each executive would receive with respect to shares of restricted stock subject to accelerated vesting in connection with the merger, as described above in The MergerInterests of the Directors and Executive Officers of Life Time in the MergerTreatment of Equity Awards; Employee Stock Purchase Plan (a single trigger arrangement). Each amount shown is based on the number of such restricted shares held by the executive as of March 31, 2015, as set forth in the table below, and the per-share merger consideration of $72.10. Because there were no unvested stock options as of March 31, 2015, no amounts payable in connection with the cancellation of stock option awards are included in the amounts shown in this column. Depending on when the closing date of the merger actually occurs, additional shares of restricted stock that are currently outstanding may vest in accordance with their terms prior to the closing of the merger. |
Named Executive Officers |
Restricted Shares (#) | Total Value of Restricted Shares ($) | ||||||
Bahram Akradi |
389,500 | 28,082,950 | ||||||
Jeffrey G. Zwiefel |
82,900 | 5,977,090 | ||||||
Eric J. Buss |
79,900 | 5,760,790 | ||||||
Tami A. Kozikowski |
44,440 | 3,204,124 | ||||||
Jess R. Elmquist |
17,500 | 1,261,750 | ||||||
Michael R. Robinson |
| | ||||||
Erik A. Lindseth |
8,450 | 609,245 |
(3) | The amounts shown in this column for Messrs. Zwiefel and Buss represent the continued medical plan coverage and life insurance coverage for up to 18 months and outplacement assistance that each would receive under their employment agreements as the result of a qualifying termination of employment within one year of a change in control, (a double- trigger arrangement), as described above in The MergerInterests of the Directors and Executive Officers of Life Time in the MergerPayments to Life Time Executives Upon Termination Following Change in ControlExecutive Employment Agreements. Because Life Times medical plan coverage is self-funded, Life Time assumed that the cost of continued benefits coverage would equal the difference between Life Times net equivalency rate as of March 31, 2015the amount Life Time charges to terminated employees who elect continued coverage under COBRAminus the premiums for the applicable health plan. The actual amount that would be paid to the executive would depend upon whether the executive elected COBRA coverage pursuant to his employment agreement and would equal the amounts actually paid by our company for claims related to the covered period minus the amount the executive actually paid for medical plan coverage. |
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The amounts shown in this column include the following components:
Named Executive Officers |
Continued Medical Plan Coverage ($) |
Continued Life Insurance Coverage ($) |
Outplacement ($) | |||
Jeffrey G. Zwiefel |
17,645 | 36 | 10,000 | |||
Eric J. Buss |
17,645 | 36 | 10,000 |
(4) | Mr. Akradi has entered into the CEO term sheet. For more information, see above under the heading Interests of the Directors and Executive Officers of Life Time in the MergerArrangements with ParentAgreement with Mr. Akradi on page 73. |
Insurance and Indemnification of Directors and Executive Officers
From and after the effective time of the merger, Parent will cause all rights to indemnification, advancement of expenses and exculpation in favor of any current or former directors, officers or employees of Life Time or any of its subsidiaries in effect on the date of the merger agreement to continue in accordance with their terms. From and after the effective time of the merger, Parent will cause the surviving company to indemnify each current director, officer or employee of Life Time or any of its subsidiaries against all acts or omissions arising out of or pertaining to their service as a director, officer or employee of Life Time or any of its subsidiaries at or prior to the effective time of the merger to the fullest extent permitted under applicable law. In the event of any such claim, Parent will cause the surviving company to advance expenses incurred in the defense of any such claim, subject to the surviving companys receipt of an undertaking, if and only to the extent required by applicable law to repay such advances if it is ultimately determined by final adjudication that such person is not entitled to indemnification.
For a period of six years from and after the effective time of the merger, Parent will cause the surviving company to either cause to be maintained in effect the current policies of directors and officers liability insurance and fiduciary liability insurance maintained by Life Time or its subsidiaries or provide substitute policies, in either case, of not less than the existing coverage and having other terms not less favorable to the insured persons than the coverage currently maintained by Life Time with respect to claims arising from facts or events that occurred on or before the effective time of the merger, except that the surviving company will not be required to pay in excess of 300% of the aggregate annual premium most recently paid by Life Time prior to the date of the merger agreement. If the surviving corporation is unable to obtain such insurance coverage, it will obtain as much comparable insurance as possible for an annual premium equal to such maximum premium. In lieu of such insurance, prior to the closing of the merger, Life Time may, at its option (following reasonable consultation with Parent), purchase a tail directors and officers liability insurance policy and fiduciary liability insurance policy to provide coverage in an amount not less than the existing coverage and to have other terms not less favorable to the insured persons than the coverage currently maintained by Life Time with respect to claims arising from facts or events that occurred on or before the effective time of the merger, provided that the cost of such tail may not exceed the maximum premium described in the preceding sentence.
Financing of the Merger
We anticipate that the total funds needed to consummate the merger and the other transactions contemplated by the merger agreement, will be approximately $3,790,788,594, which includes approximately $2,690,788,594 to pay our shareholders the amounts due to them under the merger agreement and make payments in respect of Life Times outstanding equity and equity-based awards pursuant to the merger agreement, approximately $1,100,000,000 to (i) refinance or otherwise discharge certain outstanding indebtedness of Life Time, including indebtedness that will come due or otherwise be repaid or repurchased as a result of the merger (as described below), and (ii) pay all fees and expenses payable by Parent and Merger Sub under the merger agreement and in connection with the debt financing. These payments are expected to be funded through a combination of up to approximately $879 million of equity financing to be provided or secured by the LGP funds and up to
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approximately $879 million of equity financing to be provided or secured by the TPG fund, or other parties to whom the LGP funds or the TPG fund allocates a portion of their respective commitment pursuant to the equity commitment letters described below; debt financing under the debt commitment letter of up to approximately $2.747 billion to be provided by the debt financing parties (defined below); and Life Times cash and cash equivalents on hand.
Substantially contemporaneously with the closing of the merger, Parent and Merger Sub also expect to use the proceeds of the financing to refinance or otherwise discharge certain of our outstanding indebtedness, including indebtedness that will come due or otherwise be repaid or repurchased as a result of the merger.
The funding under the financing letters is subject to certain conditions, including conditions that do not relate directly to the merger agreement. We believe the amounts committed under the financing letters will be sufficient to complete the transactions contemplated by the merger agreement, but we cannot assure you that the full amounts committed under the financing letters will be available or sufficient, together with Life Times cash and cash equivalents on hand, to consummate the merger. Those amounts might be insufficient if, among other things, one or more of the parties to the financing letters fails to fund the committed amounts in breach of such financing letters or if the conditions to the commitments to fund the amounts set forth in such financing letters are not met. Although obtaining the proceeds of any financing, including the financing under the financing letters, is not a condition to the consummation of the merger, the failure of Parent and Merger Sub to obtain any portion of the equity financing or debt financing (or any alternative financing) is likely to result in the failure of the merger to be consummated. In that case, Parent may be obligated to pay Life Time a reverse termination fee of $167 million, as described under The Merger AgreementTermination Fees beginning on page 109.
Equity Financing
Parent has entered into the equity commitment letters with the equity investors, each dated March 15, 2015, pursuant to which the equity investors have committed, on a several (not joint and several) basis, to purchase, and/or through one or more of their affiliated entities or co-investors, cause the purchase of, equity securities of Parent, at or prior to the closing, for an aggregate amount of up to approximately $1.75 billion. Each equity investor may assign all or a portion of its equity commitment to other investors. However, the assignment by any equity investor of any equity financing commitment to other investors will reduce such equity investors commitment to make or secure capital contributions pursuant to the equity commitment letters only by the amount actually contributed to Parent by such other investor at or prior to the closing of the merger for the purpose of funding a portion of the merger consideration and that is so applied.
The obligation to fund the commitment of each equity investor under each equity commitment letter is subject to the following conditions:
| The satisfaction or waiver of each of the conditions to Parents and Merger Subs obligations to effect the closing of the merger set forth in the merger agreement (other than any conditions that by their nature are to be satisfied at the closing, but subject to the prior or substantially concurrent satisfaction or waiver of such conditions); |
| The substantially simultaneous closing of the equity financing contemplated by each of the LGP and TPG equity commitment letters, respectively; |
| The debt financing has been funded in accordance with the terms thereof or will be funded in accordance with the terms thereof at the closing of the merger if the equity financing is funded at the closing; and |
| The substantially simultaneous consummation of the merger in accordance with the terms of the merger agreement. |
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Life Time is an express third-party beneficiary of the equity commitment letters and has the right to seek specific performance of Parents obligation to cause an equity investor to fund its equity financing commitment upon the satisfaction of the conditions set forth therein and on the terms described in The Merger AgreementSpecific Performance beginning on page 110.
The obligation of each equity investor to fund its respective equity commitment will terminate upon the earliest to occur of:
| The closing and funding in full of the equity commitment under its equity commitment letter; |
| The valid termination of the merger agreement by Parent pursuant to its terms; |
| The valid termination of the merger agreement by Life Time pursuant to its terms (unless Life Time shall have previously commenced an action seeking specific performance of the equity investors obligations to fund its equity commitment); |
| Life Time, or any person claiming by, through or for the benefit of Life Time, receiving payment in full of the reverse termination fee pursuant to the merger agreement or the guarantee in respect of such obligations; and |
| Life Time or any of its affiliates, or any person claiming by, through or for the benefit of Life Time, asserting a claim against any party expressly excluded by the guarantee or asserting a claim against any of the equity investors or certain of their affiliates under or in connection with the merger agreement other than claims expressly permitted by the guarantee; |
and, in the case of the third bullet point above, if Life Time shall have previously commenced an action under the equity commitment letters prior to such date, the equity commitment letters will terminate upon the final, non-appealable resolution of such action and satisfaction by the equity investors of any obligations finally determined or agreed to be owed by the equity investors.
Debt Financing
Parent has received the debt commitment letter, dated March 15, 2015, as amended and restated on April 3, 2015, from the debt financing parties pursuant to which the debt financing parties have severally committed to provide an aggregate of up to $2.747 billion in debt financing to Parent consisting of (i) an up to $1.697 billion first lien term loan facility; (ii) an up to $250 million first lien revolving facility; and (iii) an up to $800 million senior unsecured bridge facility (to the extent that senior unsecured notes, which we refer to as the unsecured notes, are not issued on or prior to the closing of the merger), in each case on the terms and subject to the conditions set forth in the debt commitment letter. The first lien term loan facility, the first lien revolving facility and the bridge facility are referred to herein collectively as the debt facilities.
The commitment of the debt financing parties under the debt commitment letter expires upon the earliest of: (i) after execution of the merger agreement and prior to the consummation of the merger, the date on which Parent notifies the debt financing sources in writing that the merger agreement has been validly terminated in accordance with its terms; (ii) the consummation of the merger with or without the use of the debt financing; and (iii) October 6, 2015, if the conditions to the financing are not satisfied on or before such date. The documentation governing the debt financing is expected to contain customary affirmative and negative covenants, and with respect to the revolving credit facility, a springing financial covenant. These covenants will be subject to customary thresholds and baskets, certain of which may include a growing concept based on adjusted EBITDA (which may be calculated with further adjustments from previously reported EBITDA) and/or consolidated total assets. The documentation governing the debt financing has not been finalized and, accordingly, the actual terms of the debt financing may differ from those described in this proxy statement.
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The debt facilities contemplated by the debt commitment letter are subject to the following closing conditions:
| That (i) from January 1, 2015 to the date of the debt commitment letter, there has not occurred any fact, circumstance, effect, change, event or development that, individually or in the aggregate, has had or would reasonably be expected to have a Company Material Adverse Effect (as defined in the merger agreement) and (ii) during the period from the date of the debt commitment letter to the date of the closing, there has not occurred any fact, circumstance, effect, change, event or development that, individually or in the aggregate, has had or would reasonably be expected to have a Company Material Adverse Effect, in the case of each of (i) and (ii) above that would result in the failure of a condition precedent to Parents obligation to consummate the merger under the merger agreement; |
| Subject in each case to the Certain Funds Provision (as defined in the debt commitment letter), (i) the execution and delivery by LTF Intermediate Holdings, Inc., a wholly owned subsidiary of Parent, which we refer to as Intermediate Co and the borrower under the debt facilities of credit agreements, guarantee agreements and a security agreement with respect to the debt facilities (as applicable) consistent with the applicable provisions of the debt commitment letter and the Documentation Principles (as defined in the debt commitment letter) and (ii) the delivery of any certificated securities representing equity of Merger Sub with customary stock powers executed in blank; |
| The accuracy in all material respects of certain representations with respect to Life Time and its subsidiaries made in the merger agreement referred to as the Merger Agreement Representations and certain representations to be made by Intermediate Co and the borrower in the definitive documentation for the debt facilities referred to as the Specified Representations; |
| Confirmation from Merger Sub that (i) the merger and the repayment of certain debt of Life Time and its subsidiaries with respect to which the merger agreement requires the delivery of a payoff letter, in each case, has been or will be consummated substantially concurrent with the initial funding of the debt facilities contemplated by the debt commitment letter and (ii) the merger agreement has not been subject to any amendments or waivers that are materially adverse to the debt financing parties, in their capacity as such (without the consent of the debt financing parties); |
| Confirmation from Merger Sub that the funding of the equity commitment by each equity investor and/or its affiliates pursuant to the equity commitment letters and by other investors has been or will be consummated substantially concurrently with the initial funding of the debt facilities contemplated by the debt commitment letter; |
| The receipt of (i) unaudited quarterly financial statements of Life Time as of the end of each fiscal quarter (other than the fourth fiscal quarter of any fiscal year) ended after December 31, 2014 and at least 45 days prior to the closing and (ii) the Financing Information (as defined in the merger agreement), in each case to the extent such financial statements and information has been delivered pursuant to the merger agreement or otherwise and promptly upon request following delivery thereof; |
| The receipt of the following closing documents: a solvency certificate, customary legal opinions, customary officers certificate, customary incumbency certificate, good standing certificates (to the extent applicable), customary lien searches requested by the debt financing parties no less than 30 days prior to the date the merger is required to be consummated pursuant to the terms of the merger agreement and a customary borrowing request; |
| With respect to the first lien term loan facility and the first lien revolving facility, the use by Merger Sub of its commercially reasonable efforts to have (i) made senior management of Life Time available at mutually agreeable times and locations, to participate in meetings with prospective lenders for a period of at least 15 consecutive business days (subject to customary blackout dates) following delivery of the information described in the following clause (ii) and prior to the closing and (ii) delivered to the applicable debt financing parties information customarily delivered by a borrower and necessary for the preparation of a customary public side and private side bank book and lender presentation for a |
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syndicated bank loan financing requested by the applicable debt financing parties in writing no more than 14 calendar days after the date of the debt commitment letter; |
| With respect to the bridge facility, the use by Merger Sub of its commercially reasonable efforts, upon request to have (i) made senior management of Life Time available, at mutually agreeable times and locations, to participate in a customary road show for a period of at least 15 consecutive business days (subject to customary blackout dates) following the delivery of the information described in the following clause (ii) and prior to the closing and (ii) delivered a customary preliminary offering memorandum suitable for use in a customary high yield road show relating to the bridge facility; |
| the receipt at least three business days prior to the closing of all documentation and other information about the borrower and the guarantors under the debt facilities required under applicable know your customer and anti-money laundering rules and regulations, including the Patriot Act, that in each case has been requested in writing at least 10 business days prior to the closing of the merger; and |
| The payment of fees and expenses due to the debt financing parties under the debt commitment letter and required to be paid thereunder to the extent invoiced in reasonable detail at least two business days prior to the closing (except as otherwise reasonably agreed by Merger Sub). |
The debt financing parties under the debt commitment letter have agreed that upon satisfaction of the debt financing conditions they will execute the applicable financing documentation and the debt financing will occur. The debt commitment letter is not subject to due diligence or a market out condition, which would allow the lenders not to fund their respective commitments if the financial markets are materially adversely affected. There is a risk that the conditions to the debt financing will not be satisfied and the debt financing may not be funded when required or that the lenders will default on their commitments. As of the date of this proxy statement, no alternative financing arrangements or alternative financing plans have been made in the event the debt financing described in this proxy statement is not available as anticipated.
Subject to the terms and conditions of the merger agreement, each of Parent and Merger Sub has agreed in the merger agreement to use reasonable best efforts to obtain the debt financing on the terms and conditions described in the debt commitment letter (including any applicable market flex provisions). Further, if any portion of the financing becomes unavailable on the terms and conditions contemplated in the financing commitments or Parent or Merger Sub become aware of any material adverse change with respect to the availability of the debt financing, (i) Parent must promptly so notify Life Time and (ii) Parent and Merger Sub must use their reasonable best efforts to obtain, and enter into, definitive agreements with respect to an alternative financing, subject to the terms described in the Merger Agreement. See The Merger AgreementFinancing Efforts beginning on page 103.
The debt commitment letter contemplates the possibility that certain existing debt of Life Time and its subsidiaries may remain outstanding, as well as the entry into certain sale-leaseback transactions prior to or substantially contemporaneously with the closing of the merger. The aggregate principal amount of any such existing debt that remains outstanding and a portion of the net proceeds of any such sale-leaseback financing are expected to reduce the debt financing contemplated to be funded pursuant to the terms of the debt commitment letter, but not the commitments for such financing.
Life Time and Parent are currently in the process of pursuing one or more sale-leaseback transactions of certain properties owned by Life Time and its subsidiaries with potential proceeds of up to $1 billion. If these transactions are completed, it is expected that these transactions would be consummated substantially contemporaneously with the closing of the merger. The net proceeds of any such sale-leaseback financings will be used to reduce (i) Mr. Akradis contribution to Parent of $125 million of his shares of Life Time common stock to $100 million; (ii) a portion of the debt financing contemplated to be funded by the debt commitment letter; and (iii) a portion of the equity financing to be funded by the equity investors pursuant to the equity commitment letters. In the event the contemplated proceeds of the sale-leaseback transactions are received,
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Mr. Akradi is expected to beneficially own an indirect interest in Life Time of approximately 7.7% (without giving effect to any grants of restricted common stock of Parent or options to purchase common stock of Parent that Mr. Akradi is expected to receive following the closing of the merger as of part of his employment arrangement with Parent). Mr. Akradis indirect beneficial ownership in Life Time after the closing of the merger will be greater than his current beneficial ownership in Life Time due to the higher level of debt that will be included in Life Times capitalization after the closing of the merger.
In addition to entering into the debt commitment letter, Parent has also entered into an engagement letter with affiliates of the debt financing parties to engage them for the issuance and sale of the unsecured notes.
In consideration for their services with respect to the debt financing, Parent has agreed to pay the debt commitment parties and their respective affiliates customary commitment, arrangement and underwriting fees.
The definitive documentation for the debt financing, and the marketing materials relating thereto, may contain certain covenants that are based on an adjusted EBITDA calculation. Such adjusted EBITDA calculation (or the components thereof) may differ from previously reported EBITDA and/or the amounts described in this proxy statement.
Limited Guarantee
Pursuant to the limited guarantee delivered by the equity investors in favor of Life Time, dated as of March 15, 2015, which we refer to as the guarantee, the guarantors agreed to, severally but not jointly, guarantee their respective percentages, which we refer to as the guaranteed percentages, of the following payment obligations of Parent and, where applicable, Merger Sub:
| Parents obligations to reimburse Life Time for all reasonable out-of-pocket costs incurred in connection with the debt financing and obtaining payoff letters in respect of certain of Life Times existing company debt and liens; |
| Parents and Merger Subs obligation to indemnify Life Time, its affiliates, and representatives from and against all liabilities, obligations, losses, damages, claims, costs, expenses, interest, awards, judgments and penalties incurred by them in connection with the equity and debt financings and delivery of the payoff letters for Life Times existing debt and liens; |
| Parents obligation to pay a reverse termination fee of $167 million to Life Time under certain circumstances; and |
| Reimbursement to Life Time for all reasonable and documented out-of-pocket costs and expenses (including attorneys fees and expenses) in connection with any action against Parent to enforce its right to receive the reverse termination fee. |
We refer to the amounts in the previous bullets as the guaranteed obligations. Each guarantors aggregate liability under the guarantee is subject to a cap equal to such guarantors guaranteed percentage of $169 million. Subject to specified exceptions, the guarantee will terminate upon the earliest of:
| The effective time of the merger if the closing occurs and the merger consideration is paid; |
| The valid termination of the merger agreement in accordance with its terms under circumstances in which Parent would not be obligated to make any payments with respect to any guaranteed obligations; |
| Eighteen months following the date of the guarantee unless a claim for payment of the guarantors liability with respect to any of their obligations is brought pursuant to and in accordance with the guarantee prior to such termination, in which case the guarantee shall terminate upon the final, non- |
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appealable resolution of such action and satisfaction by the guarantors of any obligations finally determined or agreed to be owed by the guarantors; and |
| Receipt by Life Time of the payment in full of the guaranteed obligations. |
Closing and Effective Time of the Merger; Marketing Period
Unless another date is agreed by the parties, the closing of the merger will take place no later than the second business day following the satisfaction or, to the extent permitted by law, waiver of all conditions to closing (described below under The Merger AgreementConditions to the Closing of the Merger beginning on page 107) (other than those conditions to be satisfied at the closing, but subject to the satisfaction or waiver of those conditions). However, if the marketing period has not ended at the time of the satisfaction or waiver of such closing conditions, the closing will occur on the earlier of (i) a date during the marketing period specified by Parent on no fewer than three business days notice to Life Time and (ii) the final day of the marketing period, subject in each case to the satisfaction or waiver of all conditions to closing.
Concurrently with the closing, the parties will file articles of merger with the Secretary of State for the State of Minnesota as provided under the Minnesota Business Corporation Act. The merger will become effective upon the filing of the articles of merger, or at such later time as is agreed by Parent and Life Time and specified in the articles of merger.
Dissenters Rights
Section 302A.471 of the Minnesota Business Corporation Act entitles any shareholder of Life Time who is entitled to vote and who objects to a merger to dissent from such action and obtain payment for the fair value of his or her shares of common stock. Any shareholder of Life Time contemplating an attempt to assert and exercise dissenters rights in connection with the proposed merger described in this proxy statement should review carefully the provisions of Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act (copies of which are provided in Appendix B), particularly the specific procedural steps required to perfect such rights. DISSENTERS RIGHTS ARE LOST IF THE PROCEDURAL REQUIREMENTS OF SECTION 302A.473 ARE NOT FULLY AND PRECISELY SATISFIED.
Set forth below (to be read in conjunction with the full text of Section 302A.473 appearing in Appendix B) is a brief description of the procedures relating to the exercise of dissenters rights applicable to the proposed merger. The following description does not purport to be a complete statement of the provisions of Section 302A.473 and is qualified in its entirety by reference thereto.
Under Section 302A.473, Subd. 3, a shareholder who wishes to exercise dissenters rights, which we refer to as a dissenter, must file with Life Time, before the shareholder vote on the proposed merger, a written notice of intent to demand the fair value of Life Times shares owned by the shareholder. Under Section 302A.471, Subd. 2, beneficial owners of shares who desire to exercise statutory dissenters rights must obtain and submit the registered owners written consent at or before the time the notice of intent to demand fair value is due. IN ADDITION, THE SHAREHOLDER MUST NOT VOTE HIS OR HER SHARES IN FAVOR OF THE PROPOSED MERGER. A VOTE AGAINST THE PROPOSED MERGER DOES NOT IN ITSELF CONSTITUTE SUCH A WRITTEN NOTICE AND A FAILURE TO VOTE DOES NOT AFFECT THE VALIDITY OF A TIMELY WRITTEN NOTICE.
If the proposed merger is approved by the shareholders of Life Time, Life Time must send to all dissenters who filed the necessary notice of intent to demand the fair value of their shares (and who did not vote their shares in favor of such proposal) a notice containing certain information required by Section 302A.473, Subd. 4, including without limitation the address to which a dissenter must send a demand for payment and certificates representing shares in order to obtain payment for such shares and the date by which they must be received. In order to receive
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the fair value of the shares under Section 302A.473, a dissenter must demand payment and deposit certificates representing shares within 30 days after such notice from Life Time is given. Under Minnesota law, notice by mail is given by a corporation when deposited in the United States mail. A SHAREHOLDER WHO FAILS TO MAKE DEMAND FOR PAYMENT AND TO DEPOSIT CERTIFICATES AS REQUIRED BY SECTION 302A.473, SUBD. 4, LOSES THE RIGHT TO RECEIVE THE FAIR VALUE OF HIS OR HER SHARES UNDER SUCH SECTION NOTWITHSTANDING THE TIMELY FILING OF NOTICE OF INTENT TO DEMAND PAYMENT UNDER SECTION 302A.473, SUBD. 3.
Except as provided below, if demand for payment and deposit of stock certificates is duly made by a dissenter with Life Time as required by the notice, then after Life Times receipt of such demand or the effective date of the merger, whichever is later, Life Time must pay the dissenter an amount which Life Time estimates to be the fair value of the dissenters shares of stock, with interest, if any. For the purpose of a dissenters appraisal rights under Sections 302A.471 and 302A.473, fair value means the value of the shares of stock immediately before the effective date of such merger and interest means interest commencing five days after the effective date of such merger until the date of payment, calculated at the rate provided in Minnesota Statutes Section 549.09, which is currently 4%. If a dissenter believes the payment received from Life Time is less than the fair value of the shares of stock, with interest, if any, such dissenter must give written notice to Life Time of his or her own estimate of the fair value of the shares of stock, with interest, if any, within 30 days after the date of Life Times remittance, and must demand payment of the difference between his or her estimate and Life Times remittance. If such dissenter fails to give written notice of such estimate to Life Time within the 30-day time period, such dissenter is entitled only to the amount remitted by Life Time.
Life Time may withhold such remittance with respect to shares of stock for which a dissenter demanding payment (or persons on whose behalf such dissenter acts) was not the beneficial owner as of the first public announcement date of the proposed merger, or the public announcement date. As to each such dissenter who has validly demanded payment, following the effective date of such merger or the receipt of demand, whichever is later, Life Time must mail its estimate of the fair value of such dissenters shares of stock and offer to pay this amount with interest, if any, to the dissenter upon receipt of such dissenters agreement to accept this amount in full satisfaction. If such dissenter believes that Life Times offer is for less than the fair value of the shares of stock, with interest, if any, such dissenter must give written notice to Life Time of his or her own estimate of the fair value of the shares of stock, with interest, if any, and demand payment of this amount. This demand must be mailed to Life Time within 30 days after the mailing of Life Times offer. If the dissenter fails to make this demand within the 30-day time period, such dissenter is entitled only to the amount offered by Life Time.
If Life Time and a dissenter (including both a dissenter who purchased shares of stock on or prior to March 16, 2015, which was the date the merger was publicly announced, and a dissenter who purchased shares of stock after such date who have complied with their respective demand requirements) do not settle the dissenters demand within 60 days after Life Time receives the dissenters estimate of the fair value of his or her shares of stock, then Life Time must file a petition in a court of competent jurisdiction in the county in which the registered office of Life Time is located, requesting that the court determine the statutory fair value of stock with interest, if any. All dissenters whose demands are not settled within the applicable 60-day settlement period must be made parties to this proceeding.
The court will then determine whether each dissenter in question has fully complied with the provisions of Section 302A.473, and for all dissenters who have fully complied and not forfeited statutory dissenters rights, will determine the fair value of the shares, taking into account any and all factors the court finds relevant (including, without limitation, the recommendation of any appraisers which may have been appointed by the court), computed by any method that the court, in its discretion, sees fit to use, whether or not used by Life Time or a dissenter. The fair value of the shares as determined by the court is binding on all shareholders. However, under the statute, dissenters are not liable to Life Time for the amount, if any, by which payments remitted to the dissenters exceed the fair value of such shares determined by a court, with interest. The costs and expenses of such a court proceeding are assessed against Life Time, except that the court may assess part or all of those costs
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and expenses against a dissenter whose action in demanding payment is found to be arbitrary, vexatious or not in good faith.
Under Section 302A.471, Subd. 2, a shareholder of Life Time may not assert dissenters rights with respect to less than all of the shares of stock registered in such shareholders name, unless the shareholder dissents with respect to all shares beneficially owned by another person and discloses the name and address of such other person.
Under Section 302A.471, Subd. 4, a shareholder of Life Time has no right at law or equity to set aside the approval of a merger, except if such approval or consummation is fraudulent with respect to such shareholder or Life Time.
In view of the complexity of Section 471 of the Minnesota Business Corporation Act, Life Times shareholders who may wish to pursue dissenters rights should consult their legal and financial advisors.
Accounting Treatment
The merger will be accounted for as a purchase transaction for financial accounting purposes.
U.S. Federal Income Tax Consequences of the Merger
The following discussion is a summary of the U.S. federal income tax consequences of the merger that are relevant to holders of shares of Life Time common stock whose shares are converted into the right to receive cash pursuant to the merger. This discussion is based upon the Internal Revenue Code of 1986, as amended, which we refer to as the Code, Treasury Regulations promulgated under the Code, court decisions, published positions of the Internal Revenue Service, which we refer to as the IRS, and other applicable authorities, all as in effect on the date of this proxy statement and all of which are subject to change or differing interpretations, possibly with retroactive effect. This discussion is limited to holders who hold their shares of Life Time common stock as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment purposes). This summary does not describe any of the tax consequences arising under the laws of any state, local or foreign tax jurisdiction and does not consider any aspects of U.S. federal tax law other than income taxation (e.g., estate, gift or alternative minimum tax or the Medicare net investment income surtax). In addition, this summary does not address the U.S. federal income tax consequences to holders of shares who exercise dissenters rights under Minnesota law. For purposes of this discussion, a holder means either a U.S. Holder or a Non-U.S. Holder (each as defined below) or both, as the context may require.
This discussion is for general information only and does not address all of the tax consequences that may be relevant to holders in light of their particular circumstances, including:
| Holders who may be subject to special treatment under U.S. federal income tax laws, such as: financial institutions, tax-exempt organizations, S corporations or any other entities or arrangements treated as partnerships or pass-through entities for U.S. federal income tax purposes, insurance companies, mutual funds, dealers in stocks and securities, traders in securities that elect to use the mark-to-market method of accounting for their securities, regulated investment companies, real estate investment trusts, or certain expatriates or former long-term residents of the United States; |
| Holders holding the shares as part of a hedging, constructive sale or conversion, straddle or other risk reducing transaction; |
| Holders that received their shares of Life Time common stock in a compensatory transaction; |
| Holders who own an equity interest, actually or constructively, in Parent or the surviving company; or |
| U.S. Holders whose functional currency is not the U.S. dollar. |
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If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of shares of Life Time common stock, the tax treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding the shares of Life Time common stock and partners therein should consult their tax advisors regarding the consequences of the merger.
We have not sought, and do not intend to seek, any ruling from the IRS with respect to the statements made and the conclusions reached in the following summary. No assurance can be given that the IRS will agree with the views expressed in this summary, or that a court will not sustain any challenge by the IRS in the event of litigation.
THIS DISCUSSION IS PROVIDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE TO ANY HOLDER. A HOLDER SHOULD CONSULT ITS OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE MERGER IN LIGHT OF ITS PARTICULAR CIRCUMSTANCES AND ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION.
U.S. Holders
For purposes of this discussion, a U.S. Holder is a beneficial owner of shares of Life Time common stock who or that is for U.S. federal income tax purposes:
| An individual who is a citizen or resident of the United States; |
| A corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any state thereof or the District of Columbia; |
| An estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
| A trust (i) that is subject to the primary supervision of a court within the United States and the control of one or more United States persons as defined in section 7701(a)(30) of the Code or (ii) that has a valid election in effect under applicable Treasury regulations to be treated as a United States person. |
The receipt of cash by a U.S. Holder in exchange for shares of Life Time common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. Gain or loss must be calculated separately for each block of Life Time common stock (that is, Life Time common stock acquired at the same cost in a single transaction). In general, such U.S. Holders gain or loss will be equal to the difference, if any, between the amount of cash received and the U.S. Holders adjusted tax basis in the shares surrendered pursuant to the merger. A U.S. Holders adjusted tax basis generally will equal the amount that such U.S. Holder paid for the shares. Such gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if such U.S. Holders holding period in such shares is more than one year at the time of the completion of the merger. A reduced tax rate on capital gain generally will apply to long-term capital gain of a non-corporate U.S. Holder. There are limitations on the deductibility of capital losses.
Non-U.S. Holders
For purposes of this discussion, the term Non-U.S. Holder means a beneficial owner of shares of Life Time common stock who or that is not a U.S. Holder for U.S. federal income tax purposes.
Special rules not discussed below may apply to certain Non-U.S. Holders subject to special tax treatment such as controlled foreign corporations or passive foreign investment companies. Non-U.S. Holders should consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them in light of their particular circumstances.
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Any gain realized by a Non-U.S. Holder pursuant to the merger generally will not be subject to U.S. federal income tax unless:
| The gain is effectively connected with the conduct of a trade or business by such Non-U.S. Holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment maintained by such Non-U.S. Holder in the United States), in which case such gain generally will be subject to U.S. federal income tax on a net income basis at rates generally applicable to U.S. persons, and, if the Non-U.S. Holder is a corporation, such gain may also be subject to the branch profits tax at a rate of 30% (or a lower rate under an applicable tax treaty); |
| Such Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other specified conditions are met, in which case such gain will be subject to U.S. federal income tax at a rate of 30% (or a lower rate under an applicable tax treaty); or |
| We are or have been a United States real property holding corporation, which we refer to as USRPHC, at some point during the applicable statutory period, and the Non-U.S. Holders shares of Life Time common stock represent a U.S. real property interest, which we refer to as USRPI, under the Foreign Investment in Real Property Act, which we refer to as FIRPTA. |
Under FIRPTA, dispositions of a USRPI by a foreign person are generally subject to U.S. federal income taxation. Shares in a USRPHC with at least one class of stock that is regularly traded on an established securities market generally will only be considered a USRPI with respect to a foreign person if such foreign person holds more than 5% of the value of the regularly traded class of stock.
We believe that we are a USRPHC and that the shares of Life Time common stock are regularly traded on an established securities market under the applicable sections of the Code. Therefore, any shares of Life Time common stock held by a Non-U.S. Holder will be deemed to be a USRPI if such Non-U.S. Holder held, directly or indirectly, at any time during the five-year period preceding the date of completion of the merger more than 5% of the shares of Life Time common stock.
Regulatory Approvals Required for the Merger
General
Life Time and Parent have agreed to use their reasonable best efforts to comply with all regulatory notification requirements and obtain all regulatory approvals required to consummate the merger and the other transactions contemplated by the merger agreement. These approvals include the expiration or termination of the applicable waiting period under the HSR Act. Although we expect that all required regulatory clearances and approvals will be obtained, we cannot assure you that these regulatory clearances and approvals will be timely obtained, obtained at all or that the granting of these regulatory clearances and approvals will not involve the imposition of additional conditions on the completion of the merger, including the requirement to divest assets, or require changes to the terms of the merger agreement.
HSR Act and U.S. Antitrust Matters
Under the HSR Act and the rules promulgated thereunder by the Federal Trade Commission, or FTC, the merger cannot be completed until Life Time and Parent each file a notification and report form with the FTC and the Antitrust Division of the Department of Justice under the HSR Act and the applicable waiting period thereunder has expired or been terminated. A transaction notifiable under the HSR Act may not be completed until the expiration of a 30 calendar day waiting period following the parties filing of their respective HSR Act notification forms or the early termination of that waiting period. Life Time and Parent and its affiliates filed their respective HSR Act notifications on March 27, 2015. On April 14, 2015, Life Time announced that it received early termination of the required waiting period under the HSR Act.
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At any time before or after consummation of the merger, notwithstanding the expiration or termination of the waiting period under the HSR Act, the Antitrust Division of the Department of Justice or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger, seeking divestiture of substantial assets of the parties or requiring the parties to license, or hold separate, assets or terminate existing relationships and contractual rights. At any time before or after the completion of the merger, and notwithstanding the expiration or termination of the waiting period under the HSR Act, any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the completion of the merger or seeking divestiture of substantial assets of the parties. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.
Contribution and Subscription Agreement
In connection with the merger agreement, Mr. Akradi entered into a contribution and subscription agreement with Parent (as amended), which we refer to as the contribution and subscription agreement, pursuant to which at the closing of the merger, Mr. Akradi will contribute to Parent a number of shares of Life Time common stock with an aggregate value of up to $125 million, based on the per-share merger consideration, in exchange for shares of Parent. Upon closing of the merger Mr. Akradi is expected to beneficially own an indirect interest in Life Time of between approximately 7.4% and approximately 7.7%, without giving effect to any grants of restricted common stock of Parent or options to purchase common stock of Parent that Mr. Akradi is expected to receive following the closing of the merger as part of his employment arrangement with Parent. Mr. Akradis indirect beneficial ownership in Life Time after the closing of the merger will be greater than his current beneficial ownership in Life Time due to the higher level of debt that will be included in Life Times capitalization after the closing of the merger. The contribution and subscription agreement will terminate upon the earlier of (a) the date the merger agreement is terminated in accordance with its terms; (b) the date on which the parties thereto terminate the contribution and subscription agreement by mutual agreement; or (c) the date on which the Board decides to proceed with a merger with any party other than Parent. Pursuant to the contribution and subscription agreement, at any time and from time to time prior to the closing of the merger, additional persons, including any of our executive officers, may be made parties to the contribution and subscription agreement and, immediately prior to the closing of the merger, such persons will contribute to Parent a number of shares of Life Time common stock with an agreed upon aggregate value, based on the per-share merger consideration, in exchange for shares of Parent.
Company Shareholder Voting Agreement
In connection with the merger agreement, Mr. Akradi also entered into a voting agreement with Parent, pursuant to which he agreed to, among other things, vote his shares of Life Time common stock in favor of (i) the adoption of the merger agreement and approval of the merger and (ii) any proposal or action in respect of which approval of Life Times shareholders is requested that could reasonably be expected to facilitate the merger and the other transactions contemplated by the merger agreement. Pursuant to such voting agreement, Mr. Akradi has also agreed to vote his shares of Life Time common stock against any alternative proposal or any proposal relating to an alternative proposal. Such voting agreement will terminate upon the earlier of (a) the effective time of the merger; (b) the date on which the merger agreement is terminated in accordance with its terms; and (c) the date on which the parties thereto terminate the voting agreement by mutual agreement.
Legal Proceedings Regarding the Merger
Following the announcement of the merger, a putative class and derivative action was filed on March 30, 2015 by a purported Life Time shareholder in the First Judicial District Court of the State of Minnesota, County of Carver, captioned St. Clair County Employees Retirement System v. Life Time Fitness, Inc., et al., Case No. 10-CV-15-358. On April 22, 2015 plaintiff filed a First Amended Shareholder Derivative and Direct Class
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Action Complaint for Breach of Fiduciary Duties, Waste of Corporate Assets, and Abuse of Control, which we refer to as the Amended St. Clair Complaint.
Plaintiff purports to bring the litigation as a class action on behalf of the public shareholders of Life Time, and as a derivative action on behalf of nominal defendant Life Time. The Amended St. Clair Complaint names as defendants the members of the Board, Parent, Merger Sub, Leonard Green, TPG and LNK. The Amended St. Clair Complaint names Life Time as a nominal defendant. The Amended St. Clair Complaint generally alleges that the Board breached its fiduciary duties to Life Time shareholders in connection with the merger because, among other reasons, the Board failed to fully inform itself of the market value of Life Time; the Board failed to maximize shareholder value; the Board failed to promptly form a committee of disinterested directors under Minnesota Statute section 302A.673; certain individual defendants are interested in the merger; and certain provisions in the merger agreement unfairly preclude a third party from making an offer for Life Time. The Amended St. Clair Complaint alleges that Mr. Akradi, Leonard Green, TPG and LNK aided and abetted the Boards alleged breaches of fiduciary duty. The Amended St. Clair Complaint also alleges that Life Time and the Board failed to disclose material information to stockholders in connection with the merger. In particular, among other things, the Amended St. Clair Complaint alleges that Life Time and the Board failed to disclose material information in the Preliminary Proxy regarding the background of the merger and financial information that shareholders need to fully consider the merits of the merger. The Amended St. Clair Complaint seeks, among other things, equitable relief under Minnesota Statute section 302A.467, including to enjoin the closing of the merger, to direct disclosure of all material information concerning the merger prior to the shareholder vote, and to award plaintiffs costs and disbursements, including attorneys fees. Life Time and the Board believe that the action is without merit, and intend to vigorously defend against all claims asserted.
On April 8, 2015, a second putative class action was filed by a purported Life Time shareholder in the First Judicial District Court of the State of Minnesota, County of Carver, captioned Bell v. Akradi, et al., Case No. 10-CV-15-392.
Plaintiff purports to bring the litigation as a class action on behalf of the public shareholders of Life Time. The complaint names as defendants Life Time, the members of the Board, Parent, Merger Sub, Leonard Green, TPG and LNK. The complaint generally alleges that the Board breached its fiduciary duties to Life Time shareholders in connection with the merger because, among other reasons, the terms of the merger are not entirely fair to Life Time shareholders in terms of price or process; the Board retained conflicted financial advisors in connection with the merger; certain individual defendants are interested in the merger; and certain provisions in the merger agreement unfairly preclude a third party from making an offer for Life Time. The complaint also alleges that Life Time and the Board failed to disclose material information to stockholders in connection with the merger. In particular, among other things, the complaint alleges that Life Time and the Board failed to disclose material information in the Preliminary Proxy regarding the background of the merger and financial information that shareholders need to fully consider the merits of the merger. The complaint also alleges that Parent, Merger Sub, Leonard Green, TPG and LNK aided and abetted the Boards alleged breaches of fiduciary duty. The complaint further alleges violations of Minnesota Business Corporation Act sections 302A.467 and 302A.255, as well as violations of the Minnesota Securities Act section 80A.68, section 80A.69, and section 80A.76. The complaint seeks, among other things, to enjoin the closing of the merger, to award unspecified damages, and to award plaintiffs costs and disbursements, including attorneys fees. Life Time and the Board believe that the action is without merit, and intend to vigorously defend against all claims asserted.
On April 10, 2015, a third putative class action was filed by a purported Life Time shareholder in the United States District Court for the District of Minnesota, captioned Lusk v. Life Time, et al., Case No. 0:15-cv-01911.
Plaintiff purports to bring the litigation as a class action on behalf of the shareholders of Life Time. The complaint names as defendants Life Time and the members of the Board. The complaint alleges that Life Time and the Board violated Section 14(a) of Exchange Act and Rule 14a-9 promulgated thereunder, and that the Board violated Section 20(a) of the Exchange Act because the Preliminary Proxy is allegedly false and materially
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misleading. In particular, the complaint alleges that Life Time and the Board failed to disclose material information in the Preliminary Proxy regarding the background of the merger and financial information that shareholders need to fully consider the merits of the merger. The complaint seeks, among other things, to enjoin the closing of the merger, unspecified damages, and to award plaintiffs costs, including attorneys fees. Life Time and the Board believe that the action is without merit, and intend to vigorously defend against all claims asserted.
These shareholder actions are in their early stages, and thus Life Time is unable to reasonably estimate any potential material loss in the event of an unfavorable outcome in one or more of these actions. While they could impact consummation of the transactions contemplated by the merger agreement, Life Time and the Board intend to vigorously defend the actions, denying any violations of state or federal law alleged therein.
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The following summary describes certain material provisions of the merger agreement. This summary is not complete and is qualified in its entirety by reference to the merger agreement, which is attached to this proxy statement as Appendix A and incorporated into this proxy statement by reference. We encourage you to read the merger agreement carefully in its entirety because this summary may not contain all the information about the merger agreement that is important to you. The rights and obligations of the parties are governed by the express terms of the merger agreement and not by this summary or any other information contained in this proxy statement.
The representations, warranties, covenants and agreements described below and included in the merger agreement were made only for purposes of the merger agreement and as of specific dates, were solely for the benefit of the parties to the merger agreement except as expressly stated therein and may be subject to important qualifications, limitations and supplemental information agreed to by Life Time, Parent and Merger Sub in connection with negotiating the terms of the merger agreement. In addition, the representations and warranties were included in the merger agreement for the purpose of allocating contractual risk between Life Time, Parent and Merger Sub rather than to establish matters as facts, and may be subject to standards of materiality applicable to such parties that differ from those applicable to investors. Investors and security holders are not third-party beneficiaries under the merger agreement and should not rely on the representations, warranties, covenants and agreements or any descriptions thereof as characterizations of the actual state of facts or condition of Life Time, Parent or Merger Sub or any of their respective affiliates or businesses. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the merger agreement. The merger agreement is described below, and attached as Appendix A hereto, only to provide you with information regarding its terms and conditions, and not to provide any other factual information regarding Life Time or our business. Accordingly, the representations, warranties, covenants and other agreements in the merger agreement should not be read alone, and you should read the information provided elsewhere in this document and in our filings with the SEC regarding Life Time and our business. Please see Where You Can Find More Information beginning on page 119.
Effects of the Merger; Directors and Officers; Articles of Incorporation; By-Laws
The merger agreement provides that, subject to the terms and conditions of the merger agreement, and in accordance with the Minnesota Business Corporation Act, at the effective time of the merger, Merger Sub will be merged with and into Life Time, with Life Time continuing as an indirect, wholly owned subsidiary of Parent from and after the effective time of the merger.
Effective as of, and immediately following, the effective time of the merger, the board of directors of the surviving company will consist of the directors of Merger Sub, each to hold office in accordance with the articles of incorporation and by-laws of the surviving company until the earlier of their death, resignation or removal or until their successors are duly elected, designated or qualified, as the case may be. From and after the effective time of the merger, the officers of Life Time at the effective time of the merger will be the officers of the surviving company, until the earlier of their death, resignation or removal or until their successors have been duly elected or appointed and qualified, as the case may be. At the effective time of the merger, the articles of incorporation of Life Time as the surviving company will be amended to be identical to the certificate set forth in Exhibit B to the merger agreement until amended in accordance with applicable law and the applicable provisions of such certificate (subject to Parents and the surviving companys obligations described in The MergerInterests of the Directors and Executive Officers of Life Time in the MergerInsurance and Indemnification of Directors and Executive Officers beginning on page 78), and the by-laws of the surviving company, without any further action on the part of Life Time or Merger Sub, will be the by-laws of Merger Sub (except references to Merger Subs name will be replaced by references to Life Time Fitness, Inc.).
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Closing and Effective Time of the Merger; Marketing Period
Unless another date is agreed by the parties, the closing of the merger will take place no later than the second business day following the satisfaction or, to the extent permitted by law, waiver of all conditions to closing (described below under Conditions to the Closing of the Merger) (other than those conditions to be satisfied at the closing, but subject to the satisfaction or waiver of those conditions). However, if the marketing period (as summarized below) has not ended at the time of the satisfaction or waiver of such closing conditions, the closing will occur on the earlier of (i) a date during the marketing period specified by Parent on no fewer than three business days notice to Life Time and (ii) the final day of the marketing period, subject in each case to the satisfaction or waiver of all conditions to closing.
Concurrently with the closing, the parties will file articles of merger with the Secretary of State for the State of Minnesota as provided under the Minnesota Business Corporation Act. The merger will become effective upon the filing of the articles of merger, or at such later time as is agreed by Parent and Life Time and specified in the articles of merger.
The marketing period refers to the first period of 15 consecutive business days following the date on which Life Time shall have delivered to Parent certain financial information and other customary business and financial data requested by Parent to market and consummate the debt financing, which information we refer to as the financing information, and throughout and at the end of which: (i) such financial information remains compliant (as defined below) and (ii) the closing conditions to the obligations of Parent and Merger Sub (described below under Conditions to the Closing of the Merger) are satisfied (other than the conditions related to shareholder approval and the termination or expiration of the waiting period under the HSR Act, provided that these are satisfied no later than the final day of the marketing period (and such period shall be extended until satisfaction of such conditions so long as the requirements of the marketing period are otherwise satisfied)) and nothing shall have occurred and no condition shall exist that would cause any of such conditions to closing to fail to be satisfied during such period. In addition, the following provisos apply in respect of the marketing period: (i) the marketing period shall not commence prior to the later of the day this proxy statement is mailed to Life Time shareholders and April 29, 2015; (ii) July 3, 2015 through July 7, 2015 will not be business days for purposes of the marketing period; (iii) the marketing period must end on or prior to August 16, 2015, or if such period has not ended on or prior to August 16, 2015, then the marketing period may not commence until September 8, 2015; (iv) the marketing period shall end on any earlier date that is the date on which the debt financing is consummated, in which case the closing shall occur no later than the second business day after such date; and (v) the financing information must remain compliant for no less than four business days after the closing condition related to shareholder approval is satisfied (and the marketing period shall be deemed extended, if applicable, until the end of such period).
With respect to the financing information, the term compliant means such financing information that (i) does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make such financing information not misleading in light of the circumstances in which they were made and the auditors have not withdrawn any audit opinion with respect to any financial statement containing in the financing information; (ii) includes financial statements which are (and remain throughout the marketing period) sufficiently current to permit a registration statement on Form S-1 to be declared effective on any date falling within the marketing period; and (iii) meets certain other specified requirements, including that Life Times auditors would be able to provide customary comfort letters with respect to the financing information.
Merger Consideration
Common Stock
At the effective time of the merger, each share of Life Time common stock issued and outstanding immediately prior to such time, other than (i) shares owned by Parent, Merger Sub, or any other direct or indirect wholly owned subsidiary of Parent; (ii) shares owned by Mr. Akradi and any other persons that are being contributed to Parent pursuant to the contribution and subscription agreement; (iii) shares owned by direct or indirect wholly
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owned subsidiaries of Life Time; or (iv) shares held by shareholders who have perfected and not withdrawn a demand for dissenters rights under Minnesota law, will be converted automatically into the right to receive $72.10 per share in cash, without interest and less any applicable withholding taxes. All shares converted into the right to receive the per-share merger consideration will automatically be cancelled at the effective time of the merger, and each certificate formerly representing shares of Life Time common stock will thereafter represent only the right to receive the per-share merger consideration.
Outstanding Equity Awards and Other Awards
The merger agreement provides for the following treatment with respect to equity awards relating to Life Time common stock:
| Options. Effective as of the effective time of the merger, each then-outstanding option to purchase shares of Life Time common stock, whether or not vested, will be cancelled and converted into the right to receive an amount in cash equal to the product of (i) the total number of shares of Life Time common stock subject to the option and (ii) the amount, if any, by which the per-share merger consideration exceeds the exercise price per share of Life Time common stock underlying the stock option (less any applicable withholding taxes). |
| Restricted Stock. Effective as of the effective time of the merger, each then-outstanding share of restricted Life Time common stock, including shares of restricted stock subject to time-based or performance-based vesting, will become fully vested and will be considered to be an outstanding share of Life Time common stock for purposes of the merger agreement that will entitle the holder to receive an amount of cash equal to the per-share merger consideration (less any applicable withholding taxes) in accordance with the same terms and conditions as applied to holders of Life Time common stock generally. |
| Employee Stock Purchase Plan. No new offering period will commence under Life Times Employee Stock Purchase Plan, which we refer to as the ESPP, following completion of the offering period in progress as of the date of the merger agreement. The ESPP will be terminated as of the effective time of the merger, provided that if the effective time of the merger has not occurred by the end of the current offering period, the ESPP will then be suspended until the effective time of the merger, at which time it will be terminated. If the effective time of the merger occurs on or before June 30, 2015, which is the end of the current ESPP offering period, Life Time will pay to each participant in the current offering period an amount (not less than zero) in cash equal to the per-share merger consideration multiplied by (i) the result obtained by dividing the amount of the payroll deductions credited to such participants account pursuant to the ESPP as of the last day of the current offering period by (ii) the purchase price (as defined by the ESPP). If the effective time of the merger occurs on or after July 1, 2015, Life Time will issue shares of Life Time common stock to the participants in the ESPP in accordance with its terms as of the end of the current offering period and the participants will receive the per-share merger consideration for each such share the participant holds as of the effective time of the merger. |
Exchange and Payment Procedures
Prior to the effective time of the merger, Parent will appoint a bank or trust company reasonably acceptable to Life Time, which institution we refer to as the paying agent, to make payments of the per-share merger consideration to shareholders. Immediately prior to the effective time of the merger, Parent will deposit or cause to be deposited with the paying agent, cash sufficient to pay the aggregate per-share merger consideration to shareholders.
As reasonably promptly as practicable (but no later than the third business day) after the effective time of the merger, Parent will cause the paying agent to mail to each holder of record of Life Time common stock (other than the surviving company, its subsidiaries, and Parent and its subsidiaries) a letter of transmittal together with
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instructions thereto. Upon receipt of (i) in the case of shares of Life Time common stock represented by a stock certificate, a surrendered certificate or certificates in respect of such shares together with the signed letter of transmittal and (ii) in the case of shares of Life Time common stock held in book-entry form, the receipt of an agents message by the paying agent, and in each case, together with such other documents as may be reasonably required by the paying agent, the holder of such shares will be entitled to receive the per-share merger consideration in exchange therefor. The amount of any per-share merger consideration paid to the shareholders may be reduced by any applicable withholding taxes.
If any cash deposited with the paying agent remains undistributed to holders of Life Time common stock one year following the effective time of the merger, such cash (including any interest received in respect thereto) will be delivered to Parent and any holders of Life Time common stock who have not complied with the exchange procedures in the merger agreement will thereafter look only to Parent for payment of its claim for the per-share merger consideration, without any interest thereon.
If any stock certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such stock certificate to be lost, stolen or destroyed (and if required by Parent, the posting by such Person of a bond, in such reasonable amount as Parent may direct, as indemnity against any claim that may be made against it with respect to such stock certificate), the paying agent will, in exchange for such lost, stolen or destroyed stock certificate, pay the per-share merger consideration deliverable in respect thereof pursuant to the merger agreement.
Representations and Warranties
The merger agreement contains representations and warranties of Life Time, Parent and Merger Sub.
Life Time
Certain of the representations and warranties in the merger agreement made by Life Time are qualified as to materiality or Company material adverse effect. For purposes of the merger agreement, Company material adverse effect means any fact, circumstance, occurrence, effect, change, event or development that, individually or in the aggregate, is or would reasonably be expected to be materially adverse to the business, assets, financial condition or results of operations of Life Time and its subsidiaries, taken as a whole. The foregoing notwithstanding, none of the following will constitute, or be taken into account in determining whether such Company material adverse effect has occurred or would reasonably be expected to occur, a Company material adverse effect:
| Conditions affecting the United States economy, or any other national or regional economy or the global economy generally; |
| Political conditions (or changes in such conditions) in the United States or any other country or region in the world, acts of war, sabotage or terrorism or epidemics or pandemics (including any escalation or general worsening of any of the foregoing) in the United States or any other country or region of the world occurring after the date of the merger agreement; |
| Changes in the financial, credit, banking or securities markets in the United States or any other country or region in the world (including any disruption thereof and any decline in the price of any security or any market index); |
| Changes required by generally acceptable accounting principles, or GAAP, or other accounting standards (or interpretations thereof); |
| Changes in any laws or other binding directives issued by any governmental entity (or interpretations thereof); |
| Changes that are generally applicable to the industries in which Life Time and its subsidiaries operate; |
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| Any failure by Life Time to meet any internal or published projections, forecasts or revenue or earnings predictions for any period ending on or after the date of the merger agreement or any decline in the market price or trading volume of Life Times common stock (provided that the underlying causes of any such failure or decline may be considered in determining whether a Company material adverse effect has occurred to the extent not otherwise excluded by another exception); |
| The negotiation, execution or delivery of the merger agreement, the performance by any party thereto of its obligations hereunder (other than its obligations set forth in the first sentence of Section 5.01 of the merger agreement to conduct and to cause each of its subsidiaries to conduct its and their business in the ordinary course consistent with past practice in all material respects) or the public announcement (including as to the identity of the parties hereto) or pendency of the merger or any of the other transactions contemplated by the merger agreement; |
| The termination of employment of or by any of Life Times executive officers or other employees after the public announcement of the merger agreement; |
| Changes in Life Times credit rating (provided that the underlying causes of such decline may be considered in determining whether a Company material adverse effect has occurred to the extent not otherwise excluded by another exception); |
| The occurrence of natural disasters; |
| Shareholder litigation arising from or relating to the merger agreement, the merger or any strategic alternatives considered by Life Time; or |
| Any action taken with the prior written consent or at the written direction of Parent. |
However, in the case of the first through sixth and eleventh exclusions set forth immediately above, to the extent any fact, circumstance, occurrence, effect, change, event or development arising from or related to such exclusions materially disproportionately affects Life Time and its subsidiaries relative to other companies of a similar size in the industries in which Life Time and its subsidiaries operate, the incremental disproportionate affect may be taken into account in determining whether a Company material adverse effect has occurred or would reasonably be expected to occur.
In the merger agreement, Life Time has made customary representations and warranties to Parent and Merger Sub that are subject, in some cases, to specified exceptions and qualifications contained in the merger agreement. These representations and warranties relate to, among other things:
| Due organization, good standing and authority and qualification to conduct business with respect to Life Time and its subsidiaries; |
| The capital structure of Life Time or Life Times ownership of its subsidiaries; |
| Authority to enter into and perform the merger agreement, the enforceability of the merger agreement and the absence of conflicts with laws, Life Times organizational documents and Life Times material contracts; |
| Required consents and regulatory filings in connection with the merger agreement; |
| The accuracy of Life Times SEC filings and financial statements and the absence of certain specified undisclosed liabilities; |
| Life Times disclosure controls and procedures; |
| The accuracy of the information supplied by or on behalf of Life Time for inclusion in this proxy statement; |
| Tax matters; |
| The conduct of the business of Life Time and its subsidiaries in the ordinary course consistent with past practice in all material respects; |
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| The absence of any fact, change, event, effect, development or circumstance that individually or in the aggregate, has had or would reasonably be expected to have a Company material adverse effect; |
| The absence of certain actions that, if taken in the period from the date of the merger agreement through the effective time of the merger, would have required Parents written consent under the merger agreement, since January 1, 2015 through the date of the merger agreement; |
| Employee benefit plans; |
| Litigation and investigation matters; |
| Life Times compliance with laws and Life Times possession of material permits; |
| Environmental matters; |
| The existence and enforceability of specified categories of Life Times material contracts; |
| Real property matters; |
| Intellectual property rights; |
| Labor matters; |
| The inapplicability of anti-takeover statutes; |
| Payment of fees to brokers, investment bankers or other advisors in connection with the merger agreement; |
| Financial advisors fairness opinions to the Board; |
| Insurance matters; and |
| Interested party transactions. |
Parent and Merger Sub
Certain of the representations and warranties in the merger agreement made by Parent and Merger Sub are qualified as to a Parent material adverse effect. For purposes of the merger agreement, Parent material adverse effect means with respect to Parent, Intermediate Co or Merger Sub, any fact, circumstance, occurrence, effect, change, event or development that, individually or taken together with other facts, circumstances, occurrences, effects, changes, events or developments, is or would be reasonably likely to prevent or materially impair, interfere with, hinder or delay the consummation of the merger or the other transactions contemplated by the merger agreement.
In the merger agreement, Parent and Merger Sub have made customary representations and warranties to Life Time that are subject, in some cases, to specified exceptions and qualifications contained in the merger agreement. These representations and warranties relate to, among other things:
| Due organization, good standing and authority and qualification to conduct business with respect to Parent and Merger Sub; |
| Authority to enter into and perform the merger agreement and enforceability of the merger agreement; |
| The absence of conflicts with laws, Parents or Merger Subs organizational documents and Parents or Merger Subs contracts; |
| Required consents and regulatory filings in connection with the merger agreement; |
| The accuracy of the information supplied by or on behalf of Parent for inclusion in this proxy statement; |
| The absence of litigation; |
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| Payment of fees to brokers, investment bankers or other advisors in connection with the merger agreement; |
| Ownership of Merger Sub and the capital structure of Merger Sub; |
| Parent and its affiliates absence of ownership interest in Life Time; |
| Matters with respect to Parents financing and sufficiency of funds; |
| Solvency of Parent and the surviving company following the consummation of the merger and the transactions contemplated by the merger agreement; |
| Enforceability of the guarantee provided by the guarantors; |
| The absence of certain other agreements relating to the merger; and |
| The absence of agreements between Parent and members of the Board or management. |
None of the representations and warranties contained in the merger agreement survive the consummation of the merger.
Conduct of Business Pending the Merger
The merger agreement provides that, except as may be (i) required by law; (ii) agreed in writing by Parent (such consent not to be unreasonably withheld, delayed or conditioned); (iii) expressly permitted, contemplated or required pursuant to the merger agreement; or (iv) set forth in Life Times disclosure letter, between the date of the merger agreement and the earlier of the effective time of the merger and the date, if any, the merger agreement is terminated as described in Termination of the Merger Agreement below, (a) Life Time will, and will cause its subsidiaries to, conduct its and their business in the ordinary course of business and in a manner consistent with past practice in all material respects; and (b) Life Time will not, and will not permit any of its subsidiaries to, subject in each case to certain specified exceptions:
| Declare, set aside or pay any dividend on or make any other distribution (whether in cash, shares or property) in respect of any shares of its capital stock, except dividends and distributions by a direct or indirect wholly owned subsidiary of Life Time to its parent company; |
| Split, combine, subdivide or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of, or in substitution for shares of its capital stock; |
| Repurchase, redeem or otherwise acquire any shares of its capital stock or any other voting securities thereof or any warrants, calls, options or other rights to acquire any such shares or securities; |
| Issue, deliver, sell, grant, pledge or otherwise encumber or subject to any lien any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities, or any phantom stock, phantom stock rights, stock appreciation rights or stock based performance units (other than with respect to obligations of Life Time to take any such actions as in effect as of the date of the merger agreement); |
| Amend its articles of incorporation, by-laws or similar organizational documents of any subsidiary or adopt or implement any shareholder rights plan or similar arrangement; |
| Allow for the commencement of any new offering periods under the ESPP; |
| Make any change in accounting methods, principles or practices, other than as required by GAAP or applicable law; |
| Directly or indirectly acquire or agree to acquire in any transaction any equity interest in any person or business or division thereof or any properties or assets, in each case with an aggregate purchase price in excess of $10 million in any transaction or series of related transactions or $25 million in the aggregate, except (i) acquisitions in the ordinary course or as contemplated in Life Times capital expenditures |
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plan, (ii) acquisitions pursuant to contracts in existence on the date of the merger agreement or (iii) acquisitions with respect to transactions between Life Time, on the one hand, and any wholly owned subsidiary of Life Time, on the other hand, or between wholly owned subsidiaries of Life Time; |
| Except in relation to liens to secure indebtedness for borrowed money permitted to be incurred under the merger agreement, sell, lease (as lessor), license, mortgage, sell and leaseback or otherwise subject to any lien (other than liens permitted under the merger agreement), or otherwise dispose of any properties or assets (including owned real property) or any interests therein, in each case with an aggregate value or purchase price in excess of $10 million in any transaction or series of related transactions or $25 million in the aggregate, other than (i) in the ordinary course of business, (ii) pursuant to contracts in existence on the date of this Agreement or (iii) with respect to transactions between Life Time, on the one hand, and any wholly owned subsidiary of Life Time, on the other hand, or between wholly owned subsidiaries of Life Time; |
| Cancel, fail to renew, or assign any material real property lease, except in the ordinary course of business; |
| Incur, issue, modify, renew, syndicate or refinance any indebtedness, except as specifically permitted by the merger agreement; |
| Enter into, amend or extend any collective bargaining agreement or other labor union contract; |
| Enter into any new employee or independent contractor contracts which provide for annualized compensation payable by Life Time or any of its subsidiaries to any single individual employee or individual independent contractor in excess of $250,000 for annualized compensation other than in the ordinary course of business; |
| Accelerate the vesting or payment of the compensation payable or the benefits provided or to become payable or provided to any of its current or former directors, officers, employees, consultants or service providers, or otherwise pay any material severance (other than in the ordinary course of business) or any material retention, change-in-control bonus or similar payment to any such individual; |
| Adopt, materially amend or terminate any benefit plan or adopt or enter into any other material benefit arrangement, except as specifically contemplated by the merger agreement, other than in the ordinary course of business; |
| Terminate the employment of any officer other than for cause in the ordinary course of business; |
| Make any deposits or contributions of cash or other property to or take any action to fund or in any other way secure the payment of compensation or benefits under any benefit plan or agreement, other than in the ordinary course of business; |
| Assign, transfer, lease, cancel, fail to renew or fail to extend any material permit of Life Time; |
| Except as permitted by the terms of the merger agreement, settle, compromise or agree to settle any action or claim (including any action or claim relating to the merger agreement or the transactions contemplated thereby), or release, dismiss or otherwise dispose of any claim, liability, obligation or arbitration, other than settlements or compromises of litigation or releases, dismissals or dispositions of claims, liabilities, obligations or arbitration (i) that involve the payment of monetary damages (excluding monetary damages that are fully covered by Life Times insurance policies) in an amount not in excess of $2 million individually or $7.5 million in the aggregate by Life Times or any of its subsidiaries, (ii) that do not involve any material injunctive or other non-monetary relief or impose material restrictions on the business or operations of Life Time and its subsidiaries, taken as whole, (iii) that do not relate to the transactions contemplated by the merger agreement, and (iv) that do not involve the issuance of any equity or voting interests; |
| Abandon, encumber, convey title (in whole or in part), transfer, exclusively license or grant any material right or other licenses to Life Times owned intellectual property other than in the ordinary course of business; |
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| Make, change or revoke any material election with respect to taxes, change any material tax accounting method, file any amended material tax return, settle or compromise any material tax liability, enter into any closing agreement with respect to any material tax or surrender any right to claim a material tax refund; |
| Adopt or implement any shareholder rights plan or similar arrangement other than Life Times current rights agreement; |
| Make or authorize capital expenditures except as specifically permitted by the merger agreement; |
| Enter into a material joint venture or partnership or similar third party business enterprise; |
| Other than in the ordinary course of business, (i) materially modify, amend or waive any material right under or renew any material contract (other than as otherwise permitted by any of the foregoing covenants), (ii) enter into or extend the term or scope of any contract or agreement that purports to materially restrict Life Time, or any of its subsidiaries, from engaging or competing in any line of business or in any geographic area, or (iii) enter into any material contract that would be breached by, or require the consent of any other person in order to continue such contract or agreement in full force following, consummation of the transactions contemplated by merger agreement; or |
| Agree to take any of the foregoing actions. |
No Solicitation of Other Offers
Life Time will generally not be permitted to solicit or discuss alternative proposals with third parties, subject to certain exceptions. For purposes of the merger agreement:
| alternative proposal means any bona fide proposal or offer (whether or not in writing), with respect to any (i) merger, consolidation, share exchange, other business combination or similar transaction involving Life Time which would result in any person or Group beneficially owning 20% or more of the outstanding equity interests of Life Time or any successor or parent company thereto; (ii) sale, contribution or other disposition, directly or indirectly (including by way of merger, consolidation, share exchange, other business combination, partnership, joint venture, sale of capital stock of or other equity interests in a Life Time subsidiary or otherwise) of any business or assets of Life Time or Life Times subsidiaries representing 20% or more of the consolidated revenues, net income or assets of Life Time and Life Times subsidiaries, taken as a whole; (iii) issuance, sale or other disposition, directly or indirectly, to any person (or the shareholders of any person) or Group of securities (or options, rights or warrants to purchase, or securities convertible into or exchangeable for, such securities) representing 20% or more of the voting power of Life Time; (iv) transaction in which any person (or the shareholders of any person) shall acquire, directly or indirectly, beneficial ownership, or the right to acquire beneficial ownership, or formation of any group which beneficially owns or has the right to acquire beneficial ownership of, 20% or more of Life Times common stock or securities (or options, rights or warrants to purchase, or securities convertible into or exchangeable for, such securities) representing 20% or more of the voting power of Life Time; or (v) any combination of the foregoing (in each case, other than the merger or the other transactions contemplated by the merger agreement); |
| superior proposal means any bona fide written proposal or offer made by a third party or Group pursuant to which such third party (or, in a parent-to-parent merger involving such third party, the shareholders of such third party) or Group would acquire, directly or indirectly, more than 50% of Life Times common stock or assets of Life Time and Life Times subsidiaries, taken as a whole; (i) on terms which the Board determines in good faith (after consultation with outside counsel and a financial advisor of nationally recognized reputation) to be more favorable from a financial point of view to the holders of Life Times common stock than the merger, taking into account all the terms and conditions of such proposal and the merger agreement (including any changes proposed by Parent to the terms of the merger agreement) and (ii) that the Board determines in good faith (after consultation with outside |
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counsel and a financial advisor of nationally recognized reputation) to be reasonably likely to be consummated on the terms proposed, taking into account all financial, regulatory, legal and other aspects (including certainty of closing) of such proposal; |
| acceptable confidentiality agreement means a confidentiality agreement containing terms not materially less favorable in the aggregate to Life Time than the terms set forth in the previously entered into confidentiality agreement with Leonard Green and the related joinder agreement between Life Time, Leonard Green and TPG Global, LLC (it being understood and hereby agreed that such confidentiality agreement need not contain a standstill or similar provision that prohibits the counterparty thereto or any of its affiliates or representatives from making any alternative proposal, acquiring Life Time or taking any other similar action); provided, however, that such confidentiality agreement shall not prohibit compliance by Life Time with any of the no-shop provisions or the provisions described below in Adverse Recommendation Changes; Alternative Acquisition Agreements; and |
| intervening event means any material event, change, effect, condition, occurrence or development relating to Life Time that (i) is unknown and not reasonably foreseeable (or if known or reasonably foreseeable, the probability or magnitude of consequences of which were not known or reasonably foreseeable) to Life Times Board as of the date of the merger agreement; and (ii) does not relate to any alternative proposal by a third party. |
Except as otherwise provided in the merger agreement Life Time will, and will cause each of its subsidiaries and its and their officers and directors, managers or equivalent and will use its reasonable best efforts to cause any other representatives of it or its subsidiaries to:
| Cease any existing solicitations, discussion, or negotiations with any persons that may be ongoing with respect to any inquiry, discussion, offer or requests that constitutes, or could reasonably be expected to lead to an alternative proposal, which we refer to as an inquiry; |
| Request the return or destruction of confidential information provided to certain persons and cease access of certain persons to any electronic data room maintained by Life Time; and |
| From the date of the merger agreement until the effective time of the merger or, if earlier, the termination of the merger agreement in accordance with its terms not, and not to publicly announce any intention to, directly or indirectly, among other things: |
| Solicit, initiate or knowingly encourage or facilitate any inquiry or the making of an alternative proposal; |
| Furnish non-public information to or afford access to the business, employees, officers, contracts, properties, assets, books and records of Life Time and its subsidiaries to any person that would reasonably be expected to lead to, or in connection with, an inquiry or an alternative proposal; |
| Enter into, continue or maintain negotiations or discussions with any person with respect to an inquiry or an alternative proposal; |
| Cooperate with or assist or participate in or facilitate any discussions or negotiations regarding, or furnish or cause to be furnished to any person or Group any non-public information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or could be reasonably be expected to result in, an alternative proposal; |
| Approve, agree to, accept, endorse or recommend, or submit to a vote of its shareholders, any alternative proposal; |
| Grant any waiver, amendment or release under any confidentiality or standstill agreement (or terminate or fail to use reasonable best efforts to enforce such agreement) provided that Life Time shall not be required to enforce, and shall be permitted to waive, any provision that prohibits or purports to prohibit a confidential proposal being made to the Board; |
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| Effect any adverse recommendation change (as summarized below); or |
| Enter into any letter of intent or agreement in principle or any agreement providing for any alternative proposal (except for acceptable confidentiality agreements). |
Notwithstanding these restrictions, which we refer to as the no-shop restrictions, if at any time prior to the special meeting, Life Time receives an alternative proposal from a third party and such alternative proposal does not result from any willful breach by Life Time of the no-shop restrictions described above, then Life Time may, among other things and at any time prior to the special meeting, enter into and maintain discussions or negotiations with any person with respect to such alternative proposal, and pursuant to the prior execution of an acceptable confidentiality agreement, furnish any information and afford access to Life Time and its subsidiaries business, employees and properties, to any person in response to such alternative proposal, subject to the Board first determining in good faith (after consultation with Life Times financial advisors and legal counsel) that (i) the failure to take such action would be inconsistent with the directors exercise of their fiduciary duties under applicable law and (ii) such proposal either constitutes, or would reasonably be expected to lead to, a superior proposal.
Life Time will, reasonably promptly, and in any event within 48 hours of receiving any alternative proposal or any inquiry, advise Parent of such alternative proposal or inquiry, the identity of the person or group making such proposal or inquiry, and its terms and conditions and as reasonably promptly as practicable deliver to Parent a copy of such alternative proposal or inquiry (or a written summary of the material terms of such alternative proposal, if oral). Life Time will provide Parent any non-public information concerning Life Time and/or any of its subsidiaries that is provided to any other person or group in connection with any such alterative proposal that has not previously been provided to Parent. In addition, Life Time will provide Parent, as reasonably promptly as practicable, a notice setting forth all such information as is reasonably necessary to keep Parent informed on a current basis in all material respects of all communications (including material amendments or proposed material amendments to) such alternative proposal or inquiry.
Adverse Recommendation Changes; Alternative Acquisition Agreements
As described in the The MergerRecommendation of Our Board of Directors and Reasons for the Merger beginning on page 47, and subject to the provisions described below, the Board has made the recommendation that the holders of shares of our common stock vote FOR the proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger, which recommendation we refer to as the merger recommendation. The merger agreement provides that the Board may not withdraw, qualify or modify, or propose publicly to withdraw, qualify or modify, in a manner adverse to Parent, its merger recommendation or take any action, or make any public statement, filing or release inconsistent with its merger recommendation including recommending against the merger recommendation or approving, endorsing or recommending any alternatively proposal (any of the foregoing we refer to as an adverse recommendation change) except as described below.
Prior to the special meeting, and notwithstanding the restrictions described above in No Solicitation of Other Offers, the Board is permitted in certain circumstances and subject to Life Times compliance with certain obligations (as summarized below), to (i) make an adverse recommendation change, and (ii) terminate the merger agreement and enter into a definitive written agreement providing for a superior proposal.
The Board is permitted to (i) make an adverse recommendation change in the event of an intervening event or in the case of a superior proposal, and (ii) terminate the merger agreement to enter into a definitive written agreement providing for a superior proposal if such superior proposal does not result from a willful breach of the no-shop restrictions, if, in each case, the Board determines in good faith (after consultation with its financial advisors and legal counsel) that the failure to take such action would be inconsistent with the directors exercise of their fiduciary duties under applicable law and it has complied with the procedure and its obligations as summarized in the following paragraph.
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Prior to taking any of the actions described in (i) or (ii) of the foregoing paragraph, Life Time is required, at least three business days prior to taking such action, which we refer to as the notice period, to provide Parent with written notice that, in the case of (i) in the paragraph above, the Board intends to make an adverse recommendation change and advises Parent of the circumstances giving rise to such change, or in the case of (i) with respect to a superior proposal or (ii) in the paragraph above, the Board has received a superior proposal (and such notice shall include copies of the superior proposal and all other material documents relating to such proposal, or where no such copy is available, a description of the material terms and conditions of such superior proposal). During the notice period, Life Time will, if requested by Parent, negotiate in good faith to make such adjustments to the merger agreement and other transaction documents so that, in the case of a superior proposal, such superior proposal ceases to constitute a superior proposal (in the judgment of the Board) or, in cases not involving a superior proposal, the failure to make an adverse recommendation change (in the judgment of the Board after consultation with its financial advisors and legal counsel) would no longer be inconsistent with the directors exercise of their fiduciary duties under applicable law (and in determining whether to make an adverse recommendation change or terminate the merger agreement, Life Time must take into account any such proposed changes to the terms of the merger agreement). If during the notice period, any revisions are made to the superior proposal, Life Time is required to deliver a new written notice to Parent and comply with the obligations described above, except that such notice period with respect to the changes will be a two business day notice period instead of three business days.
Notwithstanding the no-shop and other restrictions described above, the merger agreement does not prohibit Life Time or the Board from (i) complying with its obligations under Rules 14d-9 and 14e-2 promulgated under the Exchange Act with respect to an alternative proposal or (ii) making any disclosure to its shareholders if the Board (after consultation with legal counsel) concludes that failure to do so would be inconsistent with its fiduciary duties under applicable law; provided that in no event may the Board effect an adverse recommendation change except as summarized above. In addition, the merger agreement provides that any public disclosure relating to any determination or other action by the Board or Life Time with respect to any alternative proposal (other than a stop, look and listen statement in compliance with Rule 14d-9 under the Exchange Act) shall be deemed an adverse recommendation change unless the Board publicly reaffirms its merger recommendation in such disclosure.
Financing Efforts
Equity Financing
Parent and Merger Sub have agreed to take all actions, and do all things, necessary, proper or advisable to obtain the equity financing described in the equity commitment letters, including (i) maintaining in effect the equity commitment letters; (ii) using reasonable best efforts to ensure the accuracy of all representations and warranties of Parent or Merger Sub set forth therein; (iii) complying with all covenants and agreements of Parent or Merger Sub set forth therein; (iv) satisfying on a timely basis all conditions applicable to Parent or Merger Sub set forth therein that are within their control (other than the consummation of the debt financing described in the debt commitment letter); (v) consummating the equity financing contemplated thereby (subject to the conditions set forth therein) at or prior to the closing of the merger; and (vi) fully enforcing the obligations of the investors thereunder and their respective investment affiliates (and the rights of Parent and Merger Sub) under the equity commitment letters.
Neither Parent nor Merger Sub may amend, alter, or waive any term of the equity commitment letters without the prior written consent of Life Time, and each of Parent and Merger Sub have agreed to notify Life Time promptly, and in any event within one business day, if at any time prior to the closing date (i) any equity commitment letter expires or is terminated for any reason or (ii) any investor thereunder refuses to provide the full equity financing on the terms set forth in its equity commitment letter.
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Debt Financing
Parent and Merger Sub agreed to use their reasonable best efforts to consummate the debt financing no later than the closing date of the merger, including using reasonable best efforts to (i) maintain in effect the debt commitment letter; (ii) negotiate and enter into debt financing documents consistent with the terms and conditions contained in the debt commitment letter or such other terms that would not be prohibited by the merger agreement; (iii) comply with all covenants and agreements set forth in the debt commitment letter to the extent a breach would result in a failure of a condition precedent to the debt financing or otherwise make the debt financing less likely to occur; (iv) satisfy on a timely basis all conditions applicable to each of them as set forth in the debt commitment letter that are within their control; and (v) consummate the debt financing upon the satisfaction of the conditions set forth in the debt commitment letter. Further, in the event that all conditions in the debt commitment letter (other than the availability of funding under the equity commitment letters) have been satisfied, or upon funding will be satisfied, Parent and Merger Sub have agreed to use their reasonable best efforts to cause the debt financing sources to fund on the closing date of the merger, the debt financing required to consummate the merger and otherwise enforce their rights under the debt commitment letter.
Life Time has also agreed to use its reasonable best efforts to provide such cooperation that is reasonably necessary and customary to assist Parent in connection with the debt financing as may be reasonably requested by Parent, including: (i) participation in, and assistance with, as applicable, the marketing efforts related to the debt financing; (ii) delivery to Parent, Merger Sub and their debt financing sources of certain financial information and deliverables as promptly as reasonably practicable following Parents request; (iii) assistance to Parent in the negotiation of the debt financing documents and sale-leaseback documents, and (subject to the provisions below) execution and delivery of sale-leaseback documents; (iv) taking such actions as are reasonably requested by Parent or Merger Sub to facilitate the satisfaction on a timely basis of all conditions precedent to obtaining the debt financing that are within Life Times control; (v) causing its independent auditors to cooperate with the debt financing, including by using reasonable best efforts to provide the certain auditor assistance; (vi) providing Parent, Merger Sub and the debt financing sources, or their respective representatives access to any real property at agreed upon times and following reasonable advance notice to Life Time in order to take all actions reasonably necessary or advisable in connection with the receipt of commitments with respect to sale-leaseback transactions and the completion of sale-leaseback documents; (vii) providing the required bank information; (viii) identifying any material non-public information contained in the marketing material and comply with Regulation FD to the extent applicable to such material non-public information; and (ix) delivering such due diligence materials as is reasonably available to it and as is reasonably requested by Parent and customarily delivered in connection with the marketing materials.
Employee Benefits
For one year following the effective time of the merger, Parent has agreed to provide, or cause the surviving company to provide, the continuing employees with (i) at least the same base salary and the same annual bonus opportunity as provided to such individuals by Life Time immediately prior to the effective time of the merger and (ii) other employee benefits that, with respect to each continuing employee, are substantially comparable in the aggregate to the benefits provided to such individual under Life Times benefit plans immediately prior to the closing date of the merger, provided that nothing requires Parent to provide such benefits in the form of equity or equity-based compensation.
Parent has also agreed to provide each continuing employee who incurs a termination of employment during the one-year period following the closing of the merger with severance benefits that are no less favorable than the severance benefits the continuing employee would have received upon such termination under Life Times severance policies and practices in effect immediately prior to the closing date of the merger.
Parent has further agreed that continuing employees will receive full credit for their service with Life Time for purposes of eligibility, vesting, and determination of the level of benefits (including, for purposes of vacation and
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severance, but not for purposes of benefit accruals under defined benefit pension plans) under the employee benefit plans of Parent and the surviving company to the same extent recognized by Life Time immediately prior to the effective time of the merger and without duplication of benefits.
In addition, Parent has agreed to (i) waive any preexisting condition limitations applicable to continuing employees and their eligible dependents under any Parent health benefit plans in which continuing employees may be eligible to participate following the closing of the merger; (ii) honor any deductible, co-payment and out-of-pocket maximums incurred by the continuing employees and their eligible dependents under the health plans in which they participated immediately prior to the closing date for purposes of satisfying any such amounts under any health plans of Parent or the surviving company in which they are eligible to participate following the closing; and (iii) waive any waiting period limitation or evidence of insurability requirement that would otherwise be applicable to a continuing employee and his or her eligible dependents on or after the closing date of the merger, subject to certain limitations.
Certain Indebtedness Matters
Life Time has agreed to (i) use its reasonable best efforts to deliver to Parent, no later than the third business day prior to the closing date of the merger, customary pay-off letters relating to the repayment on the closing date of certain specified debt obligations of Life Time and its subsidiaries and the release of related liens and (ii) deliver to Parent no later than the third business day prior to the closing date any documentation and other information about Life Time and its subsidiaries required under applicable know your customer and anti-money laundering rules and regulations, including the Patriot Act, that in each case has been requested in writing by Parent at least five business days prior to the closing date.
Life Time has agreed to use reasonable best efforts to obtain, or to cause its applicable subsidiary to obtain, consent to the merger under that certain Loan Agreement, dated as of January 28, 2014, by and between LTF Real Estate CMBS II, LLC and Wells Fargo Bank, National Association.
At Parents request, Life Time will use reasonable best efforts to obtain, or to cause its applicable subsidiary to use reasonable best efforts to obtain, consent to the merger under that certain Reimbursement Agreement, dated as of June 1, 2008, by and among General Electric Capital Corporation, GE Governmental Finance, Inc. and LTF Real Estate VRDN I, LLC and the other documents related thereto.
At Parents request (so long as such request is made at least 15 business days prior to the closing date), Life Time or its applicable subsidiary will, in accordance with that Certain Indenture of Trust, dated as of June 1, 2008, by and between LTF Real Estate VRDN I, LLC and Manufacturers and Traders Trust Company, as trustee, send a notice of redemption to the trustee (conditioned upon the consummation of the closing).
Efforts to Close the Merger
Parent and Merger Sub agreed to use their respective reasonable best efforts to reasonably promptly take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under the merger agreement and applicable laws to consummate and make effective as reasonably promptly as practicable the transactions contemplated by the merger agreement.
Parent and Life Time have agreed to use reasonable best efforts to take any and all steps not prohibited by law to (i) avoid any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that would restrain, prevent or delay the closing, including defending claims asserted by the Federal Trade Commission or the United States Department of Justice or any other applicable governmental entity or any private party in respect of regulatory laws, and (ii) avoid or eliminate impediments under any regulatory law so as to enable the closing to occur as soon as possible, including (A) proposing, negotiating, committing to and effecting, by consent decree, hold separate order, or otherwise, the sale, divestiture or disposition of such businesses, product lines or assets of Parent, Life Time and their respective subsidiaries or (B) otherwise taking
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or committing to take actions that after the closing would limit Parents and/or its subsidiaries freedom of action with respect to, or its or their ability to operate and/or retain, one or more of the businesses, product lines or assets of Parent, Life Time and/or their respective subsidiaries, provided that any action contemplated by clauses (A) and (B) is conditioned upon the consummation of the transactions contemplated by this Agreement.
Indemnification and Insurance
From and after the effective time of the merger, Parent will cause all rights to indemnification, advancement of expenses and exculpation in favor of any current or former directors, officers or employees of Life Time or any of its subsidiaries in effect on the date of the merger agreement to continue in accordance with their terms. From and after the effective time of the merger, Parent will cause the surviving company to indemnify each current director, officer or employee of Life Time or any of its subsidiaries against all acts or omissions arising out of or pertaining to their service as a director, officer or employee of Life Time or any of its subsidiaries at or prior to the effective time of the merger to the fullest extent permitted under applicable law. In the event of any such claim, Parent will cause the surviving company to advance expenses incurred in the defense of any such claim, subject to the surviving companys receipt of an undertaking, if and only to the extent required by applicable law to repay such advances if it is ultimately determined by final adjudication that such person is not entitled to indemnification.
For a period of six years from and after the effective time of the merger, Parent will cause the surviving company to either cause to be maintained in effect the current policies of directors and officers liability insurance and fiduciary liability insurance maintained by Life Time or its subsidiaries or provide substitute policies, in either case, of not less than the existing coverage and having other terms not less favorable to the insured persons than the coverage currently maintained by Life Time with respect to claims arising from facts or events that occurred on or before the effective time of the merger, except that the surviving company will not be required to pay in excess of 300% of the aggregate annual premium most recently paid by Life Time prior to the date of the merger agreement. If the surviving corporation is unable to obtain such insurance coverage, it will obtain as much comparable insurance as possible for an annual premium equal to such maximum premium. In lieu of such insurance, prior to the closing of the merger, Life Time may, at its option (following reasonable consultation with Parent), purchase a tail directors and officers liability insurance policy and fiduciary liability insurance policy to provide coverage in an amount not less than the existing coverage and to have other terms not less favorable to the insured persons than the coverage currently maintained by Life Time with respect to claims arising from facts or events that occurred on or before the effective time of the merger, provided that the cost of such tail may not exceed the maximum premium described in the preceding sentence.
Special Meeting
Life Time has agreed to duly call, give notice, convene and hold a meeting of shareholders as reasonably promptly as practicable after the date of the merger agreement following the clearance of this proxy statement by the SEC for the purpose of (i) seeking the approval and adoption of the merger agreement and (ii) in accordance with Section 14A of the Exchange Act and the applicable SEC rules issued thereunder, seeking advisory approval of a proposal to Life Times shareholders for a non-binding, advisory vote to approve certain compensation that may become payable to Life Times named executive officers in connection with the completion of the merger.
Transaction Litigation
The merger agreement requires Life Time to give Parent the opportunity to reasonably participate in the defense or settlement of any shareholder litigation against it and/or its directors relating to the merger and the other transactions contemplated by the merger agreement. Neither Life Time nor any of its representatives may compromise, settle or come to an arrangement regarding any such shareholder litigation, in each case unless Parent shall have consented in writing (which consent shall not be unreasonably withheld, conditioned or delayed).
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Conditions to the Closing of the Merger
The respective obligations of each party to consummate the merger are subject to the satisfaction or (to the extent permitted by law) waiver by Life Time and Parent of the following conditions:
| The approval of the proposal to approve and adopt the merger agreement by a majority of the voting power of all shares of Life Times common stock entitled to vote at the special meeting, which we refer to as the shareholder approval, having been obtained; |
| Any waiting periods (including any extensions thereof) applicable to the consummation of the merger under the HSR Act having expired or early termination having been granted (Life Time and Parent and its affiliates filed their respective HSR Act notifications on March 27, 2015 and have received early termination of the required waiting period under the HSR Act); and |
| The consummation of the merger not being restrained, enjoined, rendered illegal or otherwise prohibited by any law or order of any governmental authority. |
The obligations of Parent and Merger Sub to effect the merger are also subject to the satisfaction or (to the extent permitted by applicable law) waiver by Parent of the following conditions:
| The representations and warranties of Life Time: |
| Regarding the absence from January 1, 2015 of any fact, circumstance, effect, change, event or development that, individually or in the aggregate, has had or would reasonably be expected to have a Company material adverse effect, being true and correct in all respects at and as of the closing date of the merger as if made at and as of such time; |
| Regarding Life Times capitalization, corporate authority and votes required in connection with the merger agreement, the inapplicability of any anti-takeover statute, and the absence of any undisclosed brokers fees being true and correct in all material respects at and as of the closing date of the merger as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such earlier date); and |
| Other than the representations and warranties in respect of the matters described in the two bullets above, without giving effect to any limitation as to materiality, Company material adverse effect or similar materiality qualifiers set forth in the merger agreement, at and as of the closing date of the merger as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such earlier date), being true and correct (without giving effect to any limitation as to materiality, Company material adverse effect or similar materiality qualifiers set forth in the merger agreement), except where the failure of such representations and warranties to be true and correct (without giving effect to any limitation as to materiality, Company material adverse effect or similar materiality qualifiers set forth therein), individually or in the aggregate, has not had and would not reasonably be expected to have a Company material adverse effect; |
| Life Time having performed in all material respects all its obligations required to be performed by it under the merger agreement at or before the closing date of the merger; |
| Parents receipt of a certificate of Life Time signed by an executive officer certifying the matters in the foregoing five bullets; and |
| Since the date of the merger agreement, there not having occurred any fact, circumstance, effect, change, event or development that, individually or in the aggregate, has had or would reasonably be expected to have a Company material adverse effect. |
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The obligations of Life Time to effect the merger are also subject to the satisfaction or (to the extent permitted by applicable law) waiver by Life Time of the following conditions:
| The representations of Parent and Merger Sub: |
| Regarding Parents and Merger Subs organization, standing, and power, corporate authority, and the absence of any undisclosed brokers fees, being true and correct in all material respects at and as of the closing date of the merger as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such earlier date); |
| Other than the representations and warranties in respect of the matters described in the bullet above, without giving effect to any limitation as to materiality, Parent material adverse effect or similar materiality qualifiers set forth in the merger agreement) at and as of the closing date of the merger as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such earlier date), except where the failure of such representations and warranties to be true and correct (without giving effect to any limitation as to materiality, Parent material adverse effect or similar materiality qualifiers set forth in the merger agreement), individually or in the aggregate, has not had and would not reasonably be expected to have a Parent material adverse effect; |
| Parent and Merger Sub having performed in all material respects all their obligations required to be performed by them under the merger agreement on or before the closing date of the merger; and |
| Life Times receipt of a certificate signed by an executive officer of Parent certifying the matters in the foregoing three bullets. |
Termination of the Merger Agreement
In general, the merger agreement may be terminated at any time prior to the effective time of the merger, whether before or after approval of the proposal to approve and adopt the merger agreement by the shareholders of Life Time, in the following ways:
| By mutual written consent of Parent and Life Time; |
| By either Parent or Life Time: |
| If the merger has not been consummated on or before October 6, 2015, which date we refer to as the termination date (which termination date may be extended by Parent by up to five business days if the marketing period has not expired by such date); |
| If any governmental authority has, by law or order, permanently restrained, enjoined, rendered illegal or otherwise prohibited the transactions contemplated by the merger agreement and such law or order has become final or nonappealable; or |
| If Life Times shareholders fail to approve the proposal to approve and adopt the merger agreement at the special meeting of shareholders, or any adjournment or postponement thereof, at which a vote on such proposal is taken; or |
| By Life Time: |
| If Parent or Merger Sub has breached any of their respective representations, warranties, covenants or other agreements in the merger agreement, which (i) would result in the failure of a related closing condition and (ii) is not capable of being cured, or is not cured, before the earlier of the termination date or the date that is 30 calendar days following Life Times delivery of written notice of such breach or failure to perform; we refer to Life Times right to terminate under this bullet as the Life Time satisfaction termination right; |
| Prior to receiving the shareholder approval, if (i) the Board has, after complying with its obligations under the merger agreement relating to the solicitation of competing proposals, authorized Life Time to enter into a definitive written agreement with respect to such superior |
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proposal, (ii) Life Time enters into such an alternative acquisition agreement, and (iii) Life Time pays to Parent the termination fee of $97 million under the merger agreement; we refer to Life Times right to terminate under this bullet as the Life Time alternative acquisition termination right; or |
| If (i) the marketing period has ended and all of the conditions to Parents and Merger Subs obligation to consummate the merger are satisfied (other than those conditions that by their terms are to be satisfied at the closing, each of which are then capable of being satisfied at the closing) or, to the extent permitted by law, waived; (ii) Life Time has notified Parent in writing that it is ready and willing to consummate the merger and (iii) Parent and Merger Sub have failed to consummate the merger within three business days following Life Times delivery of such notice; or |
| By Parent: |
| If Life Time has breached any of its representations, warranties, covenants or other agreements in the merger agreement such that specified conditions in the merger agreement are not satisfied and such breach or failure to perform is not capable of being cured, or is not cured, before the earlier of the termination date or the date that is 30 calendar days following Parents delivery of written notice of such breach or failure to perform; or |
| If at any time before receiving the shareholder approval, the Board makes an adverse recommendation change. |
In the event that the merger agreement is terminated pursuant to the termination rights above, the merger agreement will become void and of no effect without liability or obligation on the part of any party thereto. However, certain related documents, including the guarantee under certain circumstances, and the reimbursement obligations of Parent in relation to the financing, and the provisions of the merger agreement relating to certain confidentiality obligations, certain indemnification and reimbursement obligations, the effect of termination of the merger agreement, termination fees, expenses, and certain general provisions will survive any termination of the merger agreement.
Termination Fees
If the merger agreement is terminated in specified circumstances, the terminating party may be required to pay a termination fee. Parent would be entitled to receive a termination fee equal to $97 million from Life Time under the following circumstances:
| If the merger agreement is terminated by Life Time in order for it to enter into a definitive written agreement with respect to a superior proposal following Life Times compliance with certain obligations or by Parent in connection with an adverse recommendation change by the Board prior to having obtained shareholder approval of the merger; or |
| If the merger agreement is terminated (i) by Parent because Life Time has breached its representations, warranties, covenants or other agreements in the merger agreement in certain circumstances and has failed to cure such breach within a certain period, or (ii) by either Parent or Life Time in connection with passing the termination date or not having obtained shareholder approval of the merger, in each case, in circumstances where Life Time had previously received an alternative proposal from a third party (after the date of the merger agreement) that was not publicly withdrawn at least five business days prior to the special meeting and within 12 months of such termination, Life Time enters into a definitive agreement to consummate such alternative proposal and such alternative proposal is consummated. |
Life Time would be entitled to receive a reverse termination fee equal to $167 million from Parent if the merger agreement is terminated by Life Time (i) because Parent or Merger Sub have breached their respective representations, warranties, covenants or other agreements in the merger agreement in certain circumstances and
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have failed to cure such breach within a certain period or (ii) because, at the end of the marketing period, Parent has failed to consummate the merger pursuant to the merger agreement notwithstanding the satisfaction or waiver of the conditions to Parents and Merger Subs obligations to do so and certain notice of such failure from Life Time to Parent.
Expense Reimbursement
If the merger agreement is terminated because Life Times shareholders fail to approve the proposal to approve and adopt the merger agreement at the special meeting of shareholders, Life Time would be required to reimburse Parent up to $7 million in respect of certain costs and expenses reasonably incurred by Parent and Merger Sub in connection with the merger agreement and the transactions contemplated thereby. The amount of any termination fee by Life Time to Parent would be reduced by any such expense reimbursement amount paid.
Specific Performance
Parent, Merger Sub and Life Time are entitled to an injunction or injunctions to prevent breaches of threatened breaches of the merger agreement and to enforce specifically the terms of the merger agreement in addition to any other remedy to which they are entitled at law or in equity. Life Time is entitled to obtain specific performance or other equitable relief to cause the full proceeds of the equity financing contemplated by the equity commitment letters to be drawn down on the terms and subject to the conditions set forth in the equity commitment letters and the merger agreement and/or to cause Parent and/or Merger Sub to consummate the transactions contemplated by the merger agreement if and only in the event (i) all conditions to Parent and Merger Subs obligation to consummate the merger (other than conditions to be satisfied at the closing, each of which is capable of being satisfied at that time) have been satisfied at the time when the closing was contemplated to occur under the merger agreement; (ii) the debt financing provided for by the debt commitment letter (or by alternative financing, if applicable) has been funded or the financing sources have confirmed in writing that the debt financing will be funded at the closing if the equity financing is funded at the closing; and (iii) Life Time has irrevocably confirmed that if specific performance is granted and the equity financing and the debt financing are funded, then it would take such actions required of it by this agreement to cause the closing to occur.
Limitations of Liability
The maximum aggregate liability of Parent and Merger Sub under the merger agreement is limited to the amount of the reverse termination fee plus specified reimbursement and indemnification obligations of Parent and Merger Sub under the merger agreement. The reverse termination fee plus specified reimbursement and indemnification obligations of Parent, Merger Sub, and the guarantors, in any case, when payable, are the sole and exclusive remedy of Life Time and its affiliates against Parent, Merger Sub, the guarantors, the equity investors and the debt financing parties or any of their respective affiliates in respect of losses or damages under the merger agreement and/or Parent and Merger Subs failure to effect the closing or otherwise breach or fail to perform thereunder. Except for Parents right to specific performance as described above, the termination fee and the expense reimbursement described above, when payable, are the sole and exclusive remedy of Parent and its affiliates against Life Time or its affiliates in respect of losses or damages under the merger agreement. However, such liability limitations in no way limit the rights of any party to an injunction to prevent breaches of the merger agreement and to enforce specifically the terms of the merger agreement as described in the immediately preceding section.
Fees and Expenses
Except for the provisions described above in the section Expense Reimbursement plus specified reimbursement and indemnification obligations of Parent and Merger Sub, all fees and expenses incurred in connection with the transactions contemplated by the merger agreement will be paid by the party incurring such fees or expenses.
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Amendment
Generally, the merger agreement may be amended in writing at any time before or after approval of the proposal to approve and adopt the merger agreement by the shareholders of Life Time. However, no amendment that requires further approval by Life Times shareholders pursuant to law or the rules of any stock exchange may be made without further shareholder approval nor any change not permitted by law. Moreover, certain provisions related to remedies may not be amended without the prior written consent of the debt financing sources.
Governing Law
The merger agreement is governed by Minnesota law.
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PROPOSAL 1: APPROVAL OF THE MERGER AGREEMENT
The Merger Agreement Proposal
We are asking you to approve a proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger. For a detailed discussion of the terms and conditions of the merger agreement, see the section entitled The Merger Agreement. A copy of the merger agreement is attached to this proxy statement as Appendix A.
Vote Required and Board Recommendation
As discussed in the section entitled The MergerRecommendation of Our Board of Directors and Reasons for the Merger, acting upon the recommendation of the Special Committee and after considering various factors described in such section, the Board has determined that the merger agreement and the transactions contemplated thereby, including the merger, are fair to and advisable and in the best interests of Life Time and its shareholders. The Board has unanimously approved and declared advisable the merger agreement and the transactions contemplated thereby, and the Board unanimously recommends that you vote FOR the proposal to approve and adopt the merger agreement.
Under Minnesota law, approval of the merger agreement requires the affirmative vote of at least a majority of the voting power of all shares of Life Time common stock entitled to vote at the special meeting. Abstentions and broker non-votes, if any, will have the same effect as a vote AGAINST the proposal.
The Board unanimously recommends that you vote FOR the proposal to approve and adopt the merger agreement.
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PROPOSAL 2: ADJOURNMENT OF THE SPECIAL MEETING
The Adjournment Proposal
We are asking you to approve a proposal to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement at the time of the special meeting. If our shareholders approve the adjournment proposal, we could adjourn the special meeting and any adjourned session of the special meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from shareholders that have previously returned properly executed proxies voting against adoption of the merger agreement. Among other things, approval of the adjournment proposal could mean that, even if we had received proxies representing a sufficient number of votes against adoption of the merger agreement such that the proposal to approve and adopt the merger agreement would be defeated, we could adjourn the special meeting without a vote on the adoption of the merger agreement and seek to convince the holders of those shares to change their votes to votes in favor of adoption of the merger agreement. Additionally, we may seek to adjourn the special meeting if a quorum is not present at the special meeting.
Vote Required and Board Recommendation
Approval of the proposal to approve one or more adjournments of the special meeting, whether or not a quorum is present, requires the affirmative vote of a majority of the voting power of all shares of our common stock represented at the special meeting, either in person or by proxy, and entitled to vote at the special meeting.
The Board believes that it is in the best interests of Life Time and its shareholders to be able to adjourn the special meeting to a later date or dates if necessary or appropriate for the purpose of soliciting additional proxies in respect of the proposal to approve and adopt the merger agreement if there are insufficient votes to approve and adopt the merger agreement at the time of the special meeting.
The Board unanimously recommends that you vote FOR the proposal to approve one or more adjournments of the special meeting.
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PROPOSAL 3: ADVISORY VOTE ON MERGER-RELATED NAMED EXECUTIVE OFFICER COMPENSATION
The Non-Binding Advisory Proposal
In accordance with Section 14A of the Exchange Act, Life Time is providing its shareholders with the opportunity to cast an advisory (non-binding) vote on the compensation that may be paid or become payable to the named executive officers of Life Time in connection with the merger, including the agreements and understandings pursuant to which such compensation may be paid or become payable, the value of which is set forth under The MergerInterests of the Directors and Executive Officers of Life Time in the MergerGolden Parachute Compensation beginning on page 76.
For purposes of this proxy statement, our named executive officers consist of (i) Bahram Akradi, our Chairman of the Board, President and Chief Executive Officer; (ii) Eric J. Buss, our Executive Vice President and Chief Financial Officer; (iii) Jeffrey G. Zwiefel, our Executive Vice President and Chief Operating Officer; (iv) Tami A. Kozikowski, our Executive Vice President, LifeSpa and Chief Administrative Officer; (v) Jess R. Elmquist, our Executive Vice President, Human Resources and Life Time University; and (vi) Michael R. Robinson, our former Executive Vice President and Chief Financial Officer.
The Board encourages you to carefully review the named executive officer merger-related compensation information disclosed in this proxy statement. As required by Section 14A of the Exchange Act, Life Time is asking its shareholders to vote on the adoption of the following resolution:
RESOLVED, that the shareholders approve, on a nonbinding, advisory basis, the compensation that may be paid or become payable to Life Times named executive officers in connection with the merger, including the agreements and understandings pursuant to which such compensation may be paid or become payable, as disclosed under The MergerInterests of the Directors and Executive Officers of Life Time in the MergerGolden Parachute Compensation, in Life Times proxy statement for the special meeting.
Shareholders should note that this proposal is separate and apart from Proposal 1 above and is not a condition to completion of the merger, and as an advisory vote, the result will not be binding on Life Time, the Board or Parent. Further, the underlying plans and arrangements are contractual in nature and not, by their terms, subject to shareholder approval. Accordingly, regardless of the outcome of the advisory vote, if the merger is consummated our named executive officers will be eligible to receive the compensation that is based on or otherwise relates to the merger in accordance with the terms and conditions applicable to those payments.
Vote Required and Board Recommendation
Approval of the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger requires the affirmative vote of a majority of the voting power of all shares of common stock present or represented by proxy at the special meeting and entitled to vote at the special meeting.
The Board unanimously recommends that you vote FOR the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Life Time to its named executive officers in connection with the merger.
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MARKET PRICES AND DIVIDEND DATA
Life Times common stock is listed on the NYSE under the symbol LTM As of April 27, 2015, there were 39,043,889 shares of our common stock outstanding, held by 462 shareholders of record.
The following table sets forth, for the indicated periods, the high and low sales prices of Life Times common stock for the periods shown as reported by the NYSE:
Common Stock Prices | ||||||||
High | Low | |||||||
FY 2015Quarter Ended |
||||||||
June 30 (through April 27, 2015) |
$ | 71.65 | $ | 70.92 | ||||
March 31 |
$ | 71.64 | $ | 53.23 | ||||
FY 2014Quarter Ended |
||||||||
December 31 |
$ | 57.60 | $ | 46.70 | ||||
September 30 |
51.47 | 38.01 | ||||||
June 30 |
56.78 | 44.64 | ||||||
March 31 |
49.88 | 40.15 | ||||||
FY 2013Quarter Ended |
||||||||
December 31 |
$ | 52.50 | $ | 43.88 | ||||
September 30 |
56.94 | 47.92 | ||||||
June 30 |
52.17 | 40.85 | ||||||
March 31 |
52.43 | 39.10 | ||||||
FY 2012Quarter Ended |
||||||||
December 31 |
$ | 50.84 | $ | 42.09 | ||||
September 30 |
50.00 | 41.79 | ||||||
June 30 |
51.03 | 40.40 | ||||||
March 31 |
52.68 | 44.18 |
Under our current dividend policy, we have never declared or paid any cash dividends on our common stock and have retained any future earnings to support operations and to finance the growth and development of our business. Under the terms of the merger agreement, from the date of the merger agreement until the earlier of the effective time of the merger or the termination of the merger agreement, we may not declare or pay quarterly cash dividends to our common shareholders without Parents written consent.
The closing price of our common stock on the NYSE on March 13, 2015, the last trading day prior to the public announcement of the merger agreement, was $67.20 per share. On April 27, 2015, the latest practicable trading day before the printing of this proxy statement, the closing price of our common stock on the NYSE was $71.56 per share. You are encouraged to obtain current market quotations for our common stock.
Following the merger, there will be no further market for our common stock and our stock will be delisted from the NYSE and deregistered under the Exchange Act. As a result, following the merger and such deregistration, we will no longer file periodic reports with the SEC.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information regarding the beneficial ownership of our common stock as of April 27, 2015 (except as otherwise noted below), by (i) each person known by us to be the beneficial owner of more than five percent of the outstanding shares of our common stock; (ii) each of our directors; (iii) each of our named executive officers; and (iv) all directors and executive officers as a group. Based on information furnished by such shareholders and Schedules 13D and 13G and Form 13F-HR, as applicable, filed with the SEC, we believe that each person has sole voting and dispositive power over the shares indicated as owned by such person unless otherwise indicated. The address of each director and officer is the same as the address for our executive offices.
We have calculated beneficial ownership in accordance with the rules of the SEC. Shares of our common stock subject to options currently exercisable or exercisable within 60 days of April 27, 2015 are deemed to be outstanding for calculating the percentage of outstanding shares of the person holding those options, but are not deemed outstanding for calculating the percentage of any other person. The percentages of beneficial ownership set forth below are based on 39,043,889 shares of Life Time common stock issued and outstanding as of April 27, 2015. Unless otherwise indicated below in the footnotes to the table, the address of each officer and director is c/o Life Time Fitness, Inc., 2902 Corporate Place, Chanhassen, Minnesota 55317.
Name and Address |
Number of Shares Beneficially Owned |
Percentage Beneficially Owned |
||||||
Principal Shareholders: |
||||||||
BlackRock, Inc. (1) |
3,080,470 | 7.9 | % | |||||
55 East 52nd Street |
||||||||
New York, NY 10022 |
||||||||
Wasatch Advisors, Inc. (2) |
2,185,564 | 5.6 | % | |||||
150 Social Hall Avenue |
||||||||
Salt Lake City, UT 84111 |
||||||||
The Vanguard Group (3) |
2,186,052 | 5.6 | % | |||||
100 Vanguard Blvd. |
||||||||
Malvern, PA 19355 |
||||||||
Kornitzer Capital Management, Inc. (4) |
1,995,471 | 5.1 | % | |||||
5420 West 61st Place |
||||||||
Shawnee Mission, KS 66205 |
||||||||
Non-Employee Directors: |
||||||||
Giles H. Bateman |
24,789 | * | ||||||
Jack W. Eugster |
33,280 | * | ||||||
Guy C. Jackson |
26,538 | * | ||||||
John K. Lloyd |
20,980 | * | ||||||
Martha A. Morfitt |
20,733 | * | ||||||
John B. Richards |
11,020 | * | ||||||
Joseph S. Vassalluzzo |
81,224 | * | ||||||
Named Executive Officers: |
||||||||
Bahram Akradi (5) |
2,499,928 | 6.4 | % | |||||
Eric J. Buss |
143,955 | * | ||||||
Jeffrey G. Zwiefel |
128,956 | * | ||||||
Tami A. Kozikowski |
57,970 | * | ||||||
Jess R. Elmquist |
26,075 | * | ||||||
Michael R. Robinson |
0 | * | ||||||
All current directors and executive officers as a group (13 persons) (6) |
3,090,119 | 7.9 | % |
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(1) | Based on information contained in a Schedule 13G filed with the SEC on January 23, 2015, reflecting the shareholders beneficial ownership as of December 31, 2014. BlackRock Inc. had sole voting power for 2,995,542 shares, shared voting power for 0 shares, sole dispositive power for 3,080,470 shares and shared dispositive power for 0 shares. |
(2) | Based on information contained in a Schedule 13G filed with the SEC on February 17, 2015, reflecting the shareholders beneficial ownership as of December 31, 2014. Wasatch Advisors, Inc. had sole voting power for 2,185,564 shares, shared voting power for 0 shares, sole dispositive power for 2,185,564 shares and shared dispositive power for 0 shares. |
(3) | Based on information contained in a Schedule 13G filed with the SEC on February 10, 2015, reflecting the shareholders beneficial ownership as of December 31, 2014. The Vanguard Group had sole voting power for 54,946 shares, shared voting power for 0 shares, sole dispositive power for 2,134,006 shares and shared dispositive power for 52,046 shares. The shares reported by The Vanguard Group include: (i) 52,046 shares beneficially owned by its wholly owned subsidiary Vanguard Fiduciary Trust Company, or VFTC, as a result of VFTC serving as investment manager of collective trust accounts; and (ii) 2,900 shares beneficially owned by its wholly owned subsidiary Vanguard Investments Australia, Ltd., or VIA, as a result of VIA serving as investment manager of Australia investment offerings. |
(4) | Based on information contained in a Schedule 13G filed with the SEC on January 22, 2015, reflecting the shareholders beneficial ownership as of December 31, 2014. Kornitzer Capital Management, Inc. had sole voting power for 1,995,471 shares, shared voting power for 0 shares, sole dispositive power for 1,909,086 shares and shared dispositive power for 86,385 shares. |
(5) | Includes the 60,000 shares held in a trust for the benefit of Mr. Akradis children. One of Mr. Akradis children is a co-trustee of the trust. Mr. Akradi disclaims beneficial ownership of these shares. |
(6) | Includes 14,671 shares beneficially owned by Mr. Lindseth. |
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If the merger is completed, we will have no public shareholders and there will be no public participation in any future meetings of shareholders of Life Time. However, if the merger is not completed, our shareholders will continue to be entitled to attend and participate in our shareholders meetings.
Life Time will hold an annual meeting of shareholders in 2015 only if the merger has not already been completed. If the merger is not completed and any shareholder intends to present a proposal to be considered for inclusion in our proxy material in connection with the 2015 Annual Meeting of Shareholders (if one is held), the shareholder must follow the procedures of Rule 14a-8 under the Exchange Act and the proposal must have been received at our corporate offices at the mailing address below not later than November 10, 2014 if the date of the annual meeting has not been changed by more than 30 days from the date of the previous years meeting, or by a reasonable time before Life Time begins to print and send its proxy materials in the event that the date of such meeting has been changed by more than 30 days from the date of the previous years meeting.
Shareholder proposals that are intended to be presented at our 2015 Annual Meeting of Shareholders, but that are not intended to be considered for inclusion in our proxy material related to that meeting, must be delivered to our Corporate Secretary at our corporate offices at the mailing address below no later than the close of business on the 90th day prior to the date of the preceding years annual meeting, or no later than the close of business on January 24, 2015, based on the date of our 2014 Annual Meeting of Shareholders. If the date of the 2015 Annual Meeting is advanced more than 30 days prior to, or delayed by more than 30 days after, the anniversary of the preceding years annual meeting, notice by the shareholder to be timely must be delivered no earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. Any shareholder who gives notice of any such proposal will deliver therewith (i) as to each person whom the shareholder proposed to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to the Exchange Act; (ii) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (a) the name and address of such shareholder, as they appear on Life Times books, and of such beneficial owner, (b) the class and number of shares of Life Time which are owned beneficially and of record by such shareholder and such beneficial owner, and (c) whether either such shareholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of the proposal, at least the percentage of Life Times voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of Life Times voting shares to elect such nominee or nominees.
Such proposals or nominations should be addressed to:
Life Time Fitness, Inc.
Attention: Corporate Secretary
2902 Corporate Place
Chanhassen, Minnesota 55317
118
WHERE YOU CAN FIND MORE INFORMATION
The SEC allows us to incorporate by reference information into this proxy statement, which means that we can disclose important information to you by referring you to other documents filed separately with the SEC. The information incorporated by reference is deemed to be part of this proxy statement, except for any information superseded by information in this proxy statement or incorporated by reference subsequent to the date of this proxy statement. This proxy statement incorporates by reference the documents set forth below that we have previously filed with the SEC. These documents contain important information about us and our financial condition and are incorporated by reference into this proxy statement.
The following Life Time filings with the SEC are incorporated by reference:
| Life Times Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC on March 2, 2015 and as amended on April 30, 2015; |
| Life Times Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on April 28, 2015; and |
| Life Times Current Reports on Form 8-K filed with the SEC on March 16, 2015 and April 14, 2015. |
We also incorporate by reference into this proxy statement additional documents that we may file with the SEC between the date of this proxy statement and the earlier of the date of the special meeting or the termination of the merger agreement. These documents include periodic reports, such as Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, as well as Current Reports on Form 8-K and proxy soliciting materials. The information provided on our website is not part of this proxy statement, and therefore is not incorporated by reference herein.
You may read and copy any reports, statements or other information that we file with the SEC at the SECs public reference room at the following location: 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies of those documents at prescribed rates by writing to the Public Reference Section of the SEC at that address. Please call the SEC at (800) SEC-0330 for further information on the public reference room. These SEC filings are also available to the public from commercial document retrieval services and at www.sec.gov. In addition, shareholders may obtain free copies of the documents filed with the SEC by Life Time through the Investor Relations section of our website, www.lifetimefitness.com, and the SEC Filings section therein.
You may obtain any of the documents we file with the SEC, without charge, by requesting them in writing or by telephone from us at the following address:
Life Time Fitness, Inc.
Attn: Investor Relations
2902 Corporate Place
Chanhassen, Minnesota 55317
(952) 947-0000
If you would like to request documents from us, please do so by May 28, 2015, to receive them before the special meeting. If you request any documents from us, we will mail them to you by first class mail, or another equally prompt method, within one business day after we receive your request. Please note that all of our documents that we file with the SEC are also promptly available through the Investor Relations section of our website, www.lifetimefitness.com, and the SEC Filings section therein. The information included on our website is not incorporated by reference into this proxy statement.
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If you have any questions about this proxy statement, the special meeting or the merger or need assistance with voting procedures, you should contact:
MacKenzie Partners, Inc.
105 Madison Avenue
New York, NY 10016
Email: proxy@mackenziepartners.com
Call collect: (212) 929-5500
Call toll-free: (800) 322-2885
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Life Time has supplied all information relating to Life Time, and Parent has supplied, and Life Time has not independently verified, all of the information relating to Parent, Merger Sub and the equity investors and debt financing sources contained in SummaryParties Involved in the Merger, SummaryFinancing of the Merger, The MergerParties Involved in the Merger and The MergerFinancing of the Merger.
You should not send in your Life Time stock certificates until you receive transmittal materials after the merger is completed.
You should rely only on the information contained in this proxy statement, the appendices to this proxy statement and the documents we refer to in this proxy statement to vote on the merger. We have not authorized anyone to provide you with information that is different from what is contained in this proxy statement. This proxy statement is dated April 30, 2015. You should not assume that the information contained in this proxy statement is accurate as of any date other than that date (or as of an earlier date if so indicated in this proxy statement) and the mailing of this proxy statement to shareholders does not create any implication to the contrary. This proxy statement does not constitute a solicitation of a proxy in any jurisdiction where, or to or from any person to whom, it is unlawful to make a proxy solicitation.
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MAP AND DIRECTIONS
Special Meeting of Shareholders
June 4, 2015 9:00 a.m. Central Time
2902 Corporate Place, Chanhassen, MN 55317
Directions from Minneapolis/St. Paul International Airport
(approximately 30-40 minutes):
| Highway 5 towards Bloomington |
| Merge onto I-494 West (11.2 miles) |
| Take exit 11-C to merge onto Highway 5 West (6.6 miles) |
| Turn left at Century Boulevard |
| Turn right at Corporate Place (very first right) |
| Corporate office is located on the right hand side of parking lot |
Directions from downtown Minneapolis
(approximately 30-40 minutes):
| 35W South (5.4 miles) |
| Highway 62 West (4.9 miles) |
| 212 West (3.1 miles) |
| 212 turns into Highway 5 West (6.6 miles) |
| Turn left at Century Boulevard |
| Turn right at Corporate Place (very first right) |
| Corporate office is located on the right hand side of parking lot |
Appendix A
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
Dated as of March 15, 2015
among
LIFE TIME FITNESS, INC.
LTF HOLDINGS, INC.
and
LTF MERGER SUB, INC.
A-i
A-ii
ARTICLE VIII | ||||||
Termination, Amendment and Waiver | ||||||
Section 8.01 | Termination | A-44 | ||||
Section 8.02 | Effect of Termination | A-45 | ||||
Section 8.03 | Fees and Expenses | A-45 | ||||
Section 8.04 | Amendment | A-47 | ||||
Section 8.05 | Extension; Waiver | A-47 | ||||
Section 8.06 | Procedure for Termination, Amendment, Extension or Waiver | A-48 | ||||
ARTICLE IX | ||||||
General Provisions | ||||||
Section 9.01 | Nonsurvival of Representations and Warranties | A-48 | ||||
Section 9.02 | Notices | A-48 | ||||
Section 9.03 | Definitions | A-50 | ||||
Section 9.04 | Interpretation | A-56 | ||||
Section 9.05 | Severability | A-56 | ||||
Section 9.06 | Counterparts | A-57 | ||||
Section 9.07 | Entire Agreement; No Third-Party Beneficiaries; No Recourse | A-57 | ||||
Section 9.08 | GOVERNING LAW | A-57 | ||||
Section 9.09 | Assignment | A-57 | ||||
Section 9.10 | Specific Enforcement; Jurisdiction; Venue | A-58 | ||||
Section 9.11 | WAIVER OF JURY TRIAL | A-59 | ||||
Section 9.12 | Exculpation of Financing Sources | A-59 |
A-iii
AGREEMENT AND PLAN OF MERGER (this Agreement), dated as of March 15, 2015, among Life Time Fitness, Inc., a Minnesota corporation (the Company), LTF Holdings, Inc., a Delaware corporation (Parent), and LTF Merger Sub, Inc., a Minnesota corporation and a wholly owned Subsidiary of Parent (Merger Sub).
WHEREAS, the Company, Parent and Merger Sub desire to effect the Merger, pursuant to which Merger Sub shall be merged with and into the Company, with the Company continuing as the surviving company, and each share of Company Common Stock issued and outstanding shall be converted into the right to receive $72.10 in cash;
WHEREAS, the Company Board, the Parent Board and the Merger Sub Board have approved this Agreement, determined that the terms of this Agreement, including the plan of merger (as such term is used in Section 302A.611 of the MBCA) contained in this Agreement (the Plan of Merger), are in the best interests of the Company, Parent or Merger Sub, as applicable, and their respective shareholders, and declared the advisability of this Agreement;
WHEREAS, the Company Board and the Merger Sub Board have recommended adoption and approval of this Agreement by their respective shareholders;
WHEREAS, Intermediate Co, as sole shareholder of Merger Sub, has adopted and approved this Agreement;
WHEREAS, the Company, Parent and Merger Sub desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the Merger;
WHEREAS, concurrently with the execution and delivery of this Agreement and as a condition and inducement to Parents willingness to enter into this Agreement, Bahram Akradi, in his capacity as a shareholder of the Company, and Parent have entered into an agreement, dated as of the date of this Agreement, in the form attached hereto as Exhibit A (the Company Shareholder Agreement), pursuant to which such shareholder has, among other things, agreed to vote all of the shares of voting capital stock of the Company that such shareholder owns in favor of the Company Recommendation;
WHEREAS, concurrently with the execution of this Agreement and as an inducement to Parents willingness to enter into this Agreement, Bahram Akradi (the Rollover Investor, and, together with any additional Persons that become a party to the Rollover Agreement in accordance with its terms, the Rollover Investors) has entered into into a contribution agreement (the Rollover Agreement), pursuant to which each of the Rollover Investors will contribute to Parent, subject to the terms and conditions therein, the amount of Company Common Stock set forth therein (the Rollover Investment); and
WHEREAS, certain capitalized terms used in this Agreement are defined in Section 9.03.
NOW, THEREFORE, in consideration of the foregoing and the representations, warranties and covenants herein and intending to be legally bound, the parties hereto agree as follows:
A-1
Section 1.01 The Merger. On the terms and subject to the conditions set forth in this Agreement, and in accordance with the Minnesota Business Corporation Act (the MBCA), on the Closing Date, Merger Sub shall be merged with and into the Company (the Merger). At the Effective Time, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving company in the Merger (the Surviving Company).
Section 1.02 Closing. The closing (the Closing) of the Merger shall take place at the offices of Faegre Baker Daniels LLP, 2200 Wells Fargo Center, 90 South Seventh Street, Minneapolis, Minnesota 55402 at 9:00 a.m., Central time, on a date to be specified by the Company and Parent, which shall be no later than the second Business Day following the satisfaction or (to the extent permitted by Law) waiver by the party or parties entitled to the benefits thereof of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or (to the extent permitted by Law) waiver of those conditions), or at such other place, time and date as shall be agreed in writing between the Company and Parent; provided, however, that if the Marketing Period has not ended at the time of the satisfaction or waiver of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or (to the extent permitted by Law) waiver of those conditions), then the Closing shall occur on the earlier to occur of (a) a Business Day during the Marketing Period specified by Parent on no less than three Business Days notice to the Company and (b) the final day of the Marketing Period, as the Marketing Period may be extended in accordance with the terms hereof (subject in each case in clause (a) and clause (b) above to the satisfaction or waiver (by the Party entitled to grant such waiver) of all the conditions set forth in Article VII for the Closing as of the date determined pursuant to this proviso). The date on which the Closing occurs is referred to in this Agreement as the Closing Date.
Section 1.03 Effective Time. Subject to the provisions of this Agreement, as soon as practicable on the Closing Date, the parties shall file with the Minnesota Secretary the articles of merger relating to the Merger (the Articles of Merger), executed in accordance with the relevant provisions of the MBCA. The Merger shall become effective at the time that the Articles of Merger have been duly filed with the Minnesota Secretary, or at such later time as the Company and Parent shall agree and specify in the Articles of Merger (the time the Merger becomes effective being the Effective Time).
Section 1.04 Effects. The Merger shall have the effects set forth in this Agreement and the applicable provisions of the MBCA.
Section 1.05 Articles of Incorporation and By-Laws. The articles of incorporation of the Company shall, at the Effective Time, by virtue of the Merger and without any further action, be amended and restated to read in their entirety as set forth on Exhibit B and, as so amended and restated, shall be the articles of incorporation of the Surviving Company until thereafter changed or amended as provided therein or by applicable Law. The by-laws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the by-laws of the Surviving Company until thereafter changed or amended as provided therein or by applicable Law, except that references to the name of Merger Sub shall be replaced by references to the name of the Surviving Company.
Section 1.06 Directors and Officers of Surviving Company. The directors of Merger Sub immediately prior to the Effective Time shall be the directors of the Surviving Company until the earlier of their death, resignation or removal or until their respective successors are duly elected and qualified, as the case may be. The officers of the Company immediately prior to the Effective Time shall be the officers of the Surviving Company until the earlier of their death, resignation or removal or until their respective successors are duly elected or appointed and qualified, as the case may be.
A-2
Effect on the Capital Stock of the Constituent Entities; Exchange of Certificates
Section 2.01 Effect on Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of the Company, Parent, Merger Sub or the holder of any shares of common stock, par value $0.02 per share, of the Company (the Company Common Stock) or any shares of common stock, par value $0.01 per share, of Merger Sub (the Merger Sub Common Stock):
(a) Conversion of Merger Sub Common Stock. Each share of Merger Sub Common Stock issued and outstanding immediately prior to the Effective Time shall be converted into one fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Company with the same rights, powers and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Company. From and after the Effective Time, all certificates representing shares of Merger Sub Common Stock shall be deemed for all purposes to represent the number of shares of common stock of the Surviving Company into which they were converted in accordance with the immediately preceding sentence.
(b) Cancellation of Parent-Owned Stock; Conversion of Subsidiary-Owned Stock.
(i) Each share of Company Common Stock that is owned directly by Parent or Merger Sub immediately prior to the Effective Time shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and no consideration shall be delivered in exchange therefor.
(ii) Each share of Company Common Stock that is owned by any direct or indirect wholly owned Subsidiary of the Company or any direct or indirect wholly owned Subsidiary of Parent (other than Merger Sub) or of Merger Sub immediately prior to the Effective Time shall be canceled and shall cease to exist and no consideration shall be delivered in exchange therefor. For the avoidance of doubt, all shares of Company Common Stock (including Company Restricted Shares, if any) contributed to Parent by the Rollover Investors (collectively, the Rollover Shares) prior to the Effective Time shall not be converted into the right to receive the Merger Consideration.
(c) Conversion of Company Common Stock. Subject to Sections 2.02 and 2.03, each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than Rollover Shares, shares to be canceled or converted into shares of the Surviving Company in accordance with Section 2.01(b)) and, except as provided in Section 2.03, any shares of Company Common Stock the holder of which (i) has not voted in favor of approval of the Merger and adoption of the Plan of Merger; (ii) has demanded and perfected such holders right to dissent from the Merger and to be paid the fair value of such shares in accordance with Sections 302A.471 and 302A.473 of the MBCA; and (iii) as of the Effective Time has not effectively withdrawn or lost such dissenters rights (the Dissenting Shares)) shall be converted into the right to receive $72.10 in cash, without interest (the Merger Consideration). All such shares of Company Common Stock, when so converted, shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of a certificate (or evidence of shares in book-entry form) that immediately prior to the Effective Time represented any such shares of Company Common Stock (each, a Certificate) shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration. Notwithstanding the foregoing, if between the date of this Agreement and the Effective Time the outstanding shares of Company Common Stock shall have been changed into a different number of shares or a different class, by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, or any similar event shall have occurred, then any number or amount contained herein which is based upon the number of shares of Company Common Stock will be appropriately adjusted to provide to the holders of Company Common Stock the same economic effect as contemplated by this Agreement prior to such event.
A-3
Section 2.02 Exchange of Certificates; Payment Fund; Deliverables.
(a) Paying Agent. Prior to the Effective Time, Parent shall, at its sole cost and expense, appoint a bank or trust company reasonably acceptable to the Company to act as paying agent (the Paying Agent) for the payment and delivery of the Merger Consideration. Immediately prior to the Effective Time, Parent shall deposit with the Paying Agent, for the benefit of the holders of Certificates, for payment in accordance with this Article II through the Paying Agent, cash sufficient to pay the Merger Consideration. All such cash deposited with the Paying Agent is hereinafter referred to as the Payment Fund.
(b) Letter of Transmittal. As reasonably promptly as practicable after the Effective Time (and in any event within three Business Days after the Effective Time), Parent shall cause the Paying Agent to mail to each holder of record of Company Common Stock a form of letter of transmittal (the Letter of Transmittal) (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Paying Agent, shall be in such form and have such other provisions (including customary provisions with respect to delivery of an agents message with respect to shares held in book-entry form) as Parent may specify subject to the Companys reasonable approval, and shall be prepared prior to the Closing), together with instructions thereto.
(c) Merger Consideration Received in Connection with Exchange. Upon (i) in the case of shares of Company Common Stock represented by a Certificate, the surrender of such Certificate for cancellation to the Paying Agent together with the Letter of Transmittal, duly, completely and validly executed in accordance with the instructions thereto, or (ii) in the case of shares of Company Common Stock held in book-entry form, the receipt of an agents message by the Paying Agent, in each case together with such other documents as may reasonably be required by the Paying Agent, the holder of such shares shall be entitled to receive in exchange therefor the Merger Consideration into which such shares of Company Common Stock have been converted pursuant to Section 2.01. In the event of a transfer of ownership of Company Common Stock that is not registered in the transfer records of the Company, the Merger Consideration may be paid to a transferee if the Certificate representing such Company Common Stock (or, if such Company Common Stock is held in book-entry form, proper evidence of such transfer) is presented to the Paying Agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer Taxes have been paid. Until surrendered as contemplated by this Section 2.02(c), each share of Company Common Stock, and any Certificate with respect thereto, shall be deemed at any time from and after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration that the holders of shares of Company Common Stock are entitled to receive in respect of such shares pursuant to Section 2.01(c). No interest shall be paid or shall accrue on the cash payable upon surrender of any Certificate (or shares of Company Common Stock held in book-entry form).
(d) No Further Ownership Rights in Company Common Stock. The Merger Consideration paid in accordance with the terms of this Article II upon conversion of any shares of Company Common Stock shall be deemed to have been issued and paid in full satisfaction of all rights pertaining to such shares of Company Common Stock. From and after the Effective Time, there shall be no further registration of transfers on the stock transfer books of the Surviving Company of shares of Company Common Stock that were outstanding immediately prior to the Effective Time. From and after the Effective Time, the holders of Certificates that evidenced ownership of shares of Company Common Stock outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such shares of Company Common Stock, except as otherwise provided for herein or by applicable Law. If, after the Effective Time, any Certificates formerly representing shares of Company Common Stock (or shares of Company Common Stock held in book-entry form) are presented to Parent or the Paying Agent for any reason, they shall be canceled and exchanged as provided in this Article II.
(e) Termination of Payment Fund. Any portion of the Payment Fund (including any interest received with respect thereto) that remains undistributed to the holders of Company Common Stock for one year after the Effective Time shall be delivered to Parent, and any holder of Company Common Stock who has not theretofore complied with this Article II shall thereafter look only to Parent for payment of its claim for Merger Consideration without any interest thereon.
A-4
(f) No Liability. None of the Company, Parent, Merger Sub or the Paying Agent shall be liable to any Person in respect of any portion of the Payment Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law.
(g) Investment of Payment Fund. The Paying Agent shall invest any cash in the Payment Fund if and as directed by Parent; provided, that such investment shall be in obligations of, or guaranteed by, the United States of America, in commercial paper obligations of issuers organized under the Law of a state of the United States of America, rated A-1 or P-1 or better by Moodys Investors Service, Inc. or Standard & Poors Ratings Service, respectively, or in certificates of deposit, bank repurchase agreements or bankers acceptances of commercial banks with capital exceeding $10 billion, or in mutual funds investing in such assets. Any interest and other income resulting from such investments shall be paid to, and be the property of, Parent. No investment losses resulting from investment of the Payment Fund shall diminish the rights of any of the Companys shareholders to receive the Merger Consideration or any other payment as provided herein. To the extent there are losses with respect to such investments or the Payment Fund diminishes for any other reason below the level required to make prompt cash payment of the aggregate funds required to be paid pursuant to the terms hereof, Parent shall reasonably promptly replace or restore the cash in the Payment Fund so as to ensure that the Payment Fund is at all times maintained at a level sufficient to make such cash payments.
(h) Withholding Rights. Each of Parent, Merger Sub, the Company, the Surviving Company and the Paying Agent (without duplication) shall be entitled to deduct and withhold from the consideration otherwise payable to any holder of Company Common Stock, Company Restricted Shares or Company Stock Options pursuant to this Agreement such amounts as are required to be deducted and withheld with respect to the making of such payment under applicable Tax Law. Amounts so withheld and paid over to the appropriate taxing authority shall be treated for all purposes of this Agreement as having been paid to the holder of Company Common Stock in respect of which such deduction or withholding was made.
(i) Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed, and if required by Parent, the posting by such Person of a bond, in such reasonable amount as Parent may direct, as indemnity against any claim that may be made against it with respect to such Certificate, the Paying Agent shall, in exchange for such lost, stolen or destroyed Certificate, pay the Merger Consideration deliverable in respect thereof pursuant to this Agreement.
(j) Payoff Letters; Customary KYC Material. The Company shall (i) use its reasonable best efforts to deliver to Parent, no later than the third Business Day prior to the Closing Date, customary pay-off letters relating to the repayment on the Closing Date of the Existing Company Debt and the release of related Liens and (ii) deliver to Parent no later than the third Business Day prior to the Closing Date any Customary KYC Material.
Section 2.03 Dissenters Rights.
(a) Notwithstanding anything to the contrary contained in this Agreement, shares of Company Common Stock issued and outstanding immediately prior to the Effective Time that are held by any holder who is entitled to appraisal rights under Section 302A.471 of the MBCA, and who has properly exercised and perfected such holders demand for appraisal rights under Section 302A.473 of the MBCA (the Dissenters Rights), shall not be converted into or represent a right to receive the Merger Consideration as provided in Section 2.01, but instead the holders of such Dissenting Shares shall be entitled to the payment of the fair value (including interest determined in accordance with Section 302A.473 of the MBCA) of such Dissenting Shares in accordance with such holders Dissenters Rights. In such case, at the Effective Time, the Dissenting Shares shall no longer be outstanding and shall automatically be canceled and cease to exist, and each holder of Dissenting Shares shall cease to have any rights with respect thereto, except with respect to Dissenters Rights and as provided in this Section 2.03. Notwithstanding the foregoing, if any such holder shall have failed to perfect or shall have otherwise waived, or effectively withdrawn or lost such holders right to appraisal under the Dissenters Rights or a court of competent jurisdiction shall determine that such holder is not entitled to the relief provided by the Dissenters Rights, then the right of such holder to be paid the fair value of such holders
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Dissenting Shares under the Dissenters Rights shall cease, such shares shall no longer be considered Dissenting Shares for purposes hereof, and such holders shares of Company Common Stock shall thereupon be deemed to have been converted as of the Effective Time into the right to receive the Merger Consideration, without any interest thereon, as provided in Section 2.01.
(b) The Company shall provide written notice to Parent of any notices or demands for appraisal by any holder of shares of Company Common Stock, attempted withdrawals of such notices or demands and any other instruments received by the Company relating to the Dissenters Rights, and, to the extent permitted by applicable Law, Parent shall have the right to participate in all negotiations and proceedings with respect to any such demands, notices or instruments. The Company shall not, without the prior written consent of Parent (not to be unreasonably withheld, conditioned or delayed) or as otherwise required by an order of a Governmental Entity of competent jurisdiction, voluntarily make any payment with respect to, settle or offer to settle any such demands, notices or instruments.
Representations and Warranties of Parent and Merger Sub
Parent and Merger Sub jointly and severally represent and warrant to the Company that the statements contained in this Article III are true and correct except as set forth in the disclosure letter delivered by Parent to the Company at or before the execution and delivery by Parent and Merger Sub of this Agreement (the Parent Disclosure Letter). The Parent Disclosure Letter shall be arranged in numbered and lettered sections corresponding to the numbered and lettered sections contained in this Article III, and the disclosure in any section shall be deemed to qualify any other section in this Article III to the extent that it is reasonably apparent that such disclosure also qualifies or applies to such other section.
Section 3.01 Organization, Standing and Power. Each of Parent, Intermediate Co and Merger Sub is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has all corporate power and authority required to execute and deliver this Agreement and to consummate the Merger and the other transactions contemplated hereby and to perform each of its obligations hereunder. Each of Parent, Intermediate Co and Merger Sub is duly qualified or licensed to do business in each jurisdiction where the nature of its business or the ownership or leasing of its properties make such qualification necessary, other than in such jurisdictions where the failure to be so qualified or licensed, individually or in the aggregate, has not had and would not reasonably be expected to have a Parent Material Adverse Effect.
Section 3.02 Authority; Execution and Delivery; Enforceability. Each of Parent and Merger Sub has all requisite corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder, and to consummate the Merger and the other transactions contemplated by this Agreement. The Parent Board has adopted resolutions, by unanimous vote of the directors present at a meeting duly called at which a quorum of directors of Parent was present, (i) approving the execution, delivery and performance of this Agreement and (ii) determining that entering into this Agreement is in the best interests of Parent and its shareholders. As of the date of this Agreement, such resolutions have not been amended or withdrawn. The Merger Sub Board has unanimously adopted resolutions (i) approving the execution, delivery and performance of this Agreement; (ii) determining that the terms of this Agreement are in the best interests of Merger Sub and Intermediate Co, as its sole shareholder; (iii) declaring this Agreement advisable; and (iv) recommending that Intermediate Co, as sole shareholder of Merger Sub, adopt this Agreement and directing that this Agreement be submitted to Intermediate Co, as sole shareholder of Merger Sub, for adoption. As of the date of this Agreement, such resolutions have not been amended or withdrawn. Intermediate Co, as sole shareholder of Merger Sub, has adopted and approved this Agreement. No other corporate proceedings (including, for the avoidance of doubt, any shareholder approval) on the part of Parent, Intermediate Co or Merger Sub are necessary to authorize, adopt or approve, as applicable, this Agreement or to consummate the Merger and the other transactions contemplated by this Agreement (except for the filing of the Articles of Merger as required by the MBCA). Each of Parent and
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Merger Sub has duly executed and delivered this Agreement and, assuming the due authorization, execution and delivery by the Company, this Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms except, in each case, as enforcement may be limited by bankruptcy, insolvency, reorganization or similar Laws affecting creditors rights generally and by general principles of equity.
Section 3.03 No Conflicts; Consents.
(a) The execution and delivery by each of Parent and Merger Sub of this Agreement does not, and the performance by each of Parent and Merger Sub of its obligations hereunder and the consummation of the Merger and the other transactions contemplated by this Agreement will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation, any obligation to make an offer to purchase or redeem any Indebtedness or capital stock or any loss of a material benefit, require a consent or waiver under, require the payment of a penalty or change in control payment under, or result in the creation of any Lien upon any of the properties or assets of Parent, Intermediate Co or Merger Sub under, any provision of (i) the governing or organizational documents of Parent, Intermediate Co or Merger Sub; (ii) any written or oral contract, lease, sublease, license, indenture, note, bond, agreement, understanding, undertaking, concession, franchise or other instrument (in each case, to the extent legally binding on the parties thereto) (a Contract) to which Parent, Intermediate Co or Merger Sub is a party or by which any of their respective properties or assets is bound; or (iii) subject to the filings and other matters referred to in Section 3.03(b), as of the date hereof, to the Knowledge of Parent, any material judgment, order or decree (Judgment), statute, law (including common law), ordinance, rule or regulation (Law) or Permit, in each case, applicable to Parent, Intermediate Co or Merger Sub or their respective properties or assets, other than, in the case of clause (ii) above, any matters that, individually or in the aggregate, have not had and would not reasonably be expected to have a Parent Material Adverse Effect, and in the case of clause (iii) above as would not reasonably be expected to be material to the Company and the Company Subsidiaries, taken as a whole.
(b) No governmental franchises, licenses, permits, authorizations, variances, exemptions, orders and approvals (each a Permit and collectively, the Permits), consent, approval, clearance, waiver or order (collectively, with the Permits, the Consents and each, a Consent) of or from, or registration, declaration, notice or filing made to or with any federal, national, state, provincial or local, whether domestic or foreign, government or any court of competent jurisdiction, arbitration tribunal, administrative agency or commission or other governmental or regulatory authority or instrumentality, whether domestic, foreign or supranational (a Governmental Entity), is required to be obtained or made by or with respect to Parent, Intermediate Co. or Merger Sub in connection with the execution and delivery of this Agreement or its performance of its obligations hereunder or the consummation of the Merger and the other transactions contemplated by this Agreement, other than (i) (A) compliance with and filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act), and (B) such other Consents, registrations, declarations, notices or filings as are required to be made or obtained under any foreign antitrust, competition, trade regulation or similar Laws, (ii) the filing of the Articles of Merger with the Minnesota Secretary and appropriate documents with the relevant authorities of the other jurisdictions in which Parent and the Company are qualified to do business and (iii) such other matters that, individually or in the aggregate, have not had and would not reasonably be expected to have a Parent Material Adverse Effect.
Section 3.04 Information Supplied. None of the information supplied or to be supplied by Parent or Merger Sub for inclusion or incorporation by reference in the Proxy Statement will, at the date it is first mailed to the Companys shareholders or at the time of the Company Shareholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. No representation is made by Parent or Merger Sub with respect to statements made or incorporated by reference therein based on information supplied by the Company for inclusion or incorporation by reference therein.
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Section 3.05 Litigation. There is no suit, action or other proceeding pending or, to the Knowledge of Parent, threatened against Parent, Intermediate Co or Merger Sub that, individually or in the aggregate, has had or would reasonably be expected to have a Parent Material Adverse Effect, nor is there any Judgment outstanding against or, to the Knowledge of Parent, investigation by any Governmental Entity involving Parent, Intermediate Co or Merger Sub that, individually or in the aggregate, has had or would reasonably be expected to have a Parent Material Adverse Effect.
Section 3.06 Brokers Fees and Expenses. No broker, investment banker, financial advisor or other Person is entitled to any brokers, finders, financial advisors or other similar fee or commission in connection with the Merger or any of the other transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent for which the Company could have any liability prior to the Effective Time.
Section 3.07 Merger Sub. LTF Intermediate Holdings, Inc., a Delaware corporation and wholly owned subsidiary of Parent (Intermediate Co), is the sole shareholder of Merger Sub. Since its date of incorporation, neither Intermediate Co nor Merger Sub has carried on any business nor conducted any operations other than the execution of this Agreement, the performance of its obligations hereunder and matters ancillary thereto.
Section 3.08 Minnesota Business Corporation Act. Neither Parent nor Merger Sub, nor any affiliate or associate of either of the foregoing, is, nor at any time during the last four years has been, an interested shareholder of the Company as defined in Section 302A.011 of the MBCA. None of Parent, its Subsidiaries, affiliates or associates beneficially own (as such term is used in Rule 13d-3 promulgated under the Exchange Act) any shares of Company Common Stock or other securities of the Company or any options, warrants or other rights to acquire Company Common Stock or other securities of, or any other economic interest (through derivative securities or otherwise) in, the Company.
(a) Parent has delivered to the Company complete and correct copies of (i) a fully executed commitment letter and a Redacted Fee Letter (collectively, the Debt Commitment Letter) from the financial institutions named therein, pursuant to which such financial institutions have committed, upon the terms and subject only to the conditions set forth therein, to provide the debt financing described therein in connection with the transactions contemplated by this Agreement and (ii) fully executed commitment letters (each such letter, an Equity Commitment Letter, and collectively, the Equity Commitment Letters) from funds Affiliated with Leonard Green & Partners, L.P. (LGP) and a fund Affiliated with TPG Capital, L.P. (TPG) (each of LGP and TPG, an Investor, and collectively, the Investors), pursuant to which the Investors have committed, upon the terms and subject only to the conditions set forth therein, to provide the equity financing described therein in connection with the transactions contemplated by this Agreement. The Debt Commitment Letter and, as the context requires, any other debt commitment letter executed pursuant to Section 5.06(c) are hereinafter referred to together as the Debt Commitment Letters; and the Debt Commitment Letters and the Equity Commitment Letters are hereinafter referred to collectively as the Commitment Letters. The bank financing, bridge financing and notes offering contemplated by the Debt Commitment Letters are hereinafter referred to as the Debt Financing and the financing contemplated pursuant to the Equity Commitment Letters is hereinafter referred to as the Equity Financing. The financings contemplated pursuant to the Debt Commitment Letters and the Equity Commitment Letters, respectively, are hereinafter referred to collectively as the Financing.
(b) The Commitment Letters are in full force and effect and are legal, valid and binding obligations of the parties thereto (and the Company has been designated as a third party beneficiary of the Equity Commitment Letters as provided therein) and enforceable in accordance with their respective terms against each of the parties thereto, except, in each case, as enforcement may be limited by bankruptcy, insolvency, reorganization or similar Laws affecting creditors rights generally and by general principles of equity. All commitment fees and other fees required to be paid thereunder have been paid in full or will be duly paid in full as and when due, and Parent and Merger Sub have otherwise satisfied all of the other terms and conditions required to be satisfied by them pursuant to the terms of the Commitment Letters on or prior to the date hereof. The Commitment Letters have
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not been amended, modified, withdrawn or terminated in any respect on or prior to the date hereof, and no such amendment, modification or termination is contemplated as of the date hereof other than as would not require a consent or waiver of this Agreement. As of the date hereof no event has occurred which, with or without notice, lapse of time or both, would constitute a breach or default by Parent or Merger Sub or any of its Affiliates thereunder or otherwise result in any portion of the Financing contemplated thereby to be unavailable. The consummation of the Financing and the obligation of the parties under the Commitment Letters to make the full amount of the Financing available to Parent at the Closing are subject to no conditions precedent other than those expressly set forth in the copies of the Commitment Letters delivered to the Company. Except as set forth in Section 3.09(b) of the Parent Disclosure letter and except for an engagement letter with respect to a potential issuance of debt securities (a copy of which has been provided to the Company) and a Redacted Fee Letter, as of the date hereof, there are no side letters or other agreements, contracts or arrangements related to the funding of the Financing. As of the date hereof, neither Parent nor Merger Sub has any reason to believe that any of the conditions to the funding of the full amount of the Financing will not be satisfied or the Financing will not be consummated and available in full on or before the date of the Closing. The aggregate proceeds of the Financing, together with any cash or cash equivalents held by the Company will be sufficient to enable Parent and Merger Sub to consummate the Merger on the terms contemplated by this Agreement, and to make all payments contemplated by this Agreement, including payment of the Merger Consideration, repayment or refinancing of any Indebtedness required as a result of the consummation of the Merger, and all fees and expenses in connection with the Merger and the other transactions contemplated hereby, assuming the satisfaction of the conditions in Section 7.01 and Section 7.03 and the accuracy of the representations and warranties set forth in Section 4.03(a).
(c) The equity investment by each Investor under its Equity Commitment Letter is not subject to any condition other than the conditions set forth in such Equity Commitment Letter.
Section 3.10 Solvency of the Surviving Company Following the Merger. As of the Effective Time, assuming (i) satisfaction of the conditions to Parents obligation to consummate the Merger, or waiver of such conditions, (ii) the accuracy, in all material respects, of the representations and warranties of the Company in this Agreement and material compliance by the Company with the covenants contained in this Agreement and (iii) the most recent financial forecasts of the Company and the Company Subsidiaries delivered to Parent have been prepared in good faith based upon assumptions that were and continue to be reasonable, immediately after giving effect to the transactions contemplated by this Agreement, payment of all amounts to be paid on the Closing Date, including the aggregate Merger Consideration, repayment or refinancing of any Indebtedness in connection with the transactions contemplated by this Agreement or the Commitment Letters, if any, and payment of all related fees and expenses, the Surviving Company and its Subsidiaries, on a consolidated basis, will be Solvent. For the purposes of this Section 3.10, the term Solvent, when used with respect to any Person, means that, as of any date of determination, (a) the amount of the fair saleable value (determined on a going concern basis) of the assets of such Person will, as of such date, exceed the value of all liabilities of such Person, including contingent and other liabilities, as of such date, as such quoted terms are generally determined in accordance with applicable federal laws governing determinations of the insolvency of debtors; (b) such Person will not have, as of such date, an unreasonably small amount of capital for the operation of the businesses in which it is engaged or proposed to be engaged following such date; and (c) such Person will be able to pay its liabilities, including contingent and other liabilities, as they mature. For purposes of this definition, not have an unreasonably small amount of capital for the operation of the businesses in which it is engaged or proposed to be engaged and able to pay its liabilities, including contingent and other liabilities, as they mature means that such Person will be able to generate enough cash from operations, asset dispositions or lines of credit, or a combination thereof, to meet its obligations as they become due.
Section 3.11 Guarantee. Concurrently with the execution of this Agreement, Parent has delivered to the Company a true, correct and complete copy of the duly executed guarantee of the Investors in the form attached as Exhibit C to this Agreement (the Guarantee). The Guarantee is valid and in full force and effect and constitutes the legal, valid and binding obligation of the respective Investors, enforceable against them in accordance with its terms except, in each case, as enforcement may be limited by bankruptcy, insolvency,
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reorganization or similar Laws affecting creditors rights generally and by general principles of equity. No event has occurred which, with or without notice, lapse of time or both, would constitute a default on the part of any Investor under the Guarantee.
Section 3.12 Certain Arrangements. Except as set forth in Section 3.12 of the Parent Disclosure Letter, as of the date of this Agreement, there are no Contracts or other agreements, arrangements or understandings (whether oral or written) or commitments to enter into agreements, arrangements or understandings (whether oral or written) (i) between Parent, Merger Sub, the Investors or any of their Affiliates, on the one hand, and any member of the Companys management or directors, on the other hand, that relate in any way to the Company or any of the Company Subsidiaries or the transactions contemplated by this Agreement or (ii) pursuant to which any holder of shares of Company Common Stock would be entitled to receive consideration of a different amount or nature than the Merger Consideration or pursuant to which any stockholder of the Company agrees to vote to adopt this Agreement or the Merger or agrees to vote against any Superior Proposal.
Section 3.13 No Other Representations or Warranties. Except for the representations and warranties contained in this Article III or in any certificate delivered by Parent or Merger Sub to the Company in accordance with the terms hereof, the Company acknowledges that none of Parent, M