Risk & Compliance

Bally, Dissidents Drop Suits

Toback remains company CEO; Langshur reappointed to head audit committee.
Stephen TaubFebruary 10, 2006

Bally Total Fitness and its two dissident shareholders have made peace.

Both groups have agreed to drop pending lawsuits, ending a battle that started last year and resulted in a proxy fight at last month’s annual meeting. Company officials also announced the election of three director nominees submitted by the two dissident investors, Pardus Capital Management and Liberation Investments. The new directors are Charles J. Burdick, Barry R. Elson, and Don R. Kornstein.

Kornstein and Elson will join the board’s strategic alternatives committee (SAC), a powerful group that will be co-chaired by Kornstein and John W. Rogers Jr., the lead independent director of Bally’s board.

The group was established to evaluate broad structural changes, such as whether the company should consider a recapitalization or perhaps be put up for sale. Financial advisers J.P. Morgan Securities Inc. and The Blackstone Group will work with SAC members on the evaluation.

The board also reappointed Eric Langshur, who was ousted by shareholders in January. Langshur will return to his position as head of the audit committee, according to Reuters.

The dissident shareholders had tried to boot chief executive officer Paul Toback at the annual meeting, but they did not receive enough votes. Management tried to block the dissidents’ takeover efforts by deeming them a “group” that owned more than 15 percent of the outstanding shares. If that was the case, the company’s poison pill would have been triggered.

Meanwhile, officials at Pardus announced that Bally’s proposed 2006 Omnibus Equity Compensation Plan, which Pardus opposed, was defeated. Pardus president Karim Samii said, “We believe this vote represents a clear and unmistakable mandate for corporate reform and a fair strategic sale process.”

In general, proxy battles are relatively rare. According to proxy solicitation firm Georgeson Shareholder, there were only 24 contested solicitations in 2005, down slightly from the year before when 27 proxy fights were reported. That’s a significant drop from the 16-year high of 40 recorded in 2001.

Georgeson analysts expect proxy fights in 2006 to focus on such issues as majority voting and the quality of executive-compensation disclosures.